The Return to Protection

If we give a Preference, it must be on articles of importance to our Colonies; hence the proposal to tax Food. This should raise its price. But, if it does not, the Preference has failed. If, however, it does, we are taxed in hundreds to give an extra profit of tens to the Colonies. Would not a direct subsidy be much cheaper?

FROM our possible gain by getting a Preference, we turn to ask what is the price we shall have to pay in giving one.

An economist would say that the price is the giving up of Free Trade with all that this involves, and think he had said enough. Perhaps he would add that we have already paid a heavy price in hoisting the white flag at a time when so many influences and experiences were working for the lowering of tariffs abroad. But, passing this by, it seems clear enough that, unless our Preference to the Colonies is to be a mere empty compliment, we must give them an advantage on things which they send in considerable quantities. This involves that we tax similar articles coming from foreign countries.

It is rather an absurd principle on which to draw up a tariff. The defence of ordinary Protection is that it protects men as producers, though it makes them pay for it as consumers. But here we have a Protection which does not protect our producers, and certainly cannot be a gain to our consumers. It is taxing ourselves for the protection of our children’s industries. It is often alleged of the co-operator that he pays a dearer price at the Stores in order to pay himself a dividend. But this goes one better. The British mother is to pay a dearer price to let her daughters have the dividend. It is at least a very unselfish form of Protection. Hence we need not expect to find our new tariff conform to any canons ever yet laid down by other nations in their tariffs.

Accepting the principle, however, let us examine the imports into our country from the principal Colonies, in order to ascertain which articles are of importance to them.

The imports from Canada into this country, in 1902, were £23,000,000, spread over 73 categories. Of this, Wheat, Wheatmeal, and Flour accounted for £4 millions; Cheese, £4.3 millions; Oxen and bulls, £1.6 millions; Butter, £1.3 millions; Bacon, £1.2 millions. The only other import above the million was sawn and split Wood, £4.3 millions.

The imports from Australia, in 1902, were £19¾ millions, spread over 65 categories. Of these, Wheat accounted for £4.8 millions; Meat, £1,285,000; Fresh Mutton, £543,000; Butter, £402,000; Wool, £9,738,000; Unwrought Copper, £909,000; Lead, pig and sheet, £654,000; Leather, £513,000.

The imports from New Zealand, in 1902, were £10¾ millions, spread over 30 categories. Of this, Meat accounted for £3,915,000 (Fresh Mutton alone constituting £3¼ millions); Butter, £781,000; Wool, £3,798,000; Tallow and Stearine, £650,000; Hemp, £470,000.

The imports from the Cape, in 1902, were £10¾ millions, spread over 24 categories. Of this, Precious Stones accounted for £5,380,000; Wool, £3,148,000; Ornamental Feathers, £934,000; Sheepskins, £334,000.

To anyone examining these lists with the view of finding what goods from foreign countries should be taxed in order to give the Colonies a substantial Preference, it must have been evident that the choice lay between Raw Materials and Food. And so we find that the new Protection does not, of a truth, conform to any ordinary canons. For raw materials being barred out by the fact that Great Britain is pre-eminently a manufacturing country, the only alternative is the taxation of food. And this, in all probability, was the genesis of Mr. Chamberlain’s famous declaration at Glasgow: “You must tax Food.”1

It has generally been assumed, as needing no proof, that the taxation of food will inevitably raise its price.2 But, during the last few months, it has so often been said that a small tax will not have this effect, that the statement must be carefully examined.

I. The first thing I should say is, that it ought to raise the price. The precedent is often pointed out that a small rise in the tobacco duties does not involve a rise in pipe-tobacco, or cigarettes; that the tax is spread over the producers or borne by one class of them. And if the statement above means that, if, and although, 2s. is added to the cost of a quarter of wheat, the quartern loaf will sell for 6d. as before, I say it is quite possible. A tax is only one constituent in cost; everyone knows that the price of cotton cloth is not necessarily higher because oil happens to be dear, or if coal goes up, or even when raw cotton rises. Taking the quarter of wheat at 25s., two shillings on that means a rise in the cost of the raw material of some 8 per cent. This additional cost must be paid in some way, but it need not be by the eater of bread. My thesis is, that it ought to be paid by the eater of bread. The country, under this scheme of Protection, is going to undertake a risk—and perhaps a sacrifice—for a certain common or national purpose. This is a kind of expense that ought to be covered by taxation. If it is added to the price of bread, it is indirect taxation and does tax everybody. In fact, it is an Income Tax against which there is no appeal or escape. It is not good taxation according to any recognised canons, but it is taxation. But if the 2s. charge falls on anybody but the consumer, it falls on classes who, on any principles of equity, should not be asked to bear it. If it falls on the baker:—why, what has the poor baker done that he should bear the burden of a national experiment? The same question arises if it falls on the miller, or the farmer, or the railways, or even the landlords.

I question if one might not go further, and say it should not fall on the foreigner. To get other people to pay our taxes for us is not an “ideal form of taxation,” as it has been called: it is contrary to the idea of taxation. If I am living in my father’s house and paying board to him for my expenses, I should not consider it right to take a good friend of mine by the collar when he comes to the front door, and say to him: “You must pay my board for me, or I shall not let you in.” Such an idea is just the old fallacy that the foreigner is a stranger: “Let’s ’eave ’arf a brick at ’im.”

II. The second thing I should say is that, if the price of grain, dairy produce, meat, etc., does not rise, the Preference has failed. Suppose that the tax is imposed; that the foreigner pays it as the price of admission to Great Britain; and that, on account of its being a small one, he continues to send in his foodstuffs as before, what is the good of the Preference to the Colonies?

Canada just now is sending us £4 millions of wheat, wheat meal, and flour, when the price is, say, 25s. It may be presumed that she is sending us all that it pays her to send at that price; that, in fact, she is sending us all she can. What inducement, under the new system, has the Canadian farmer to send more? He must grow more in order to send it. But, presumably, he is growing as much as he can. The question, then, is: What temptation is there for more farmers to settle in Canada and raise wheat? The price of wheat has not risen, and demand in England has not increased. Things are exactly as they were; as much grain coming in from America and other countries; as much being grown at home; the same amount of competition as now. Where is the inducement? And, if the Preference fails, why have we turned everything upside down?

This probability of failure is surely evident. The very curious thing is that so many people do not see it. They mouth the magic word Preference. He who gets a “preference” is “favoured.” He who is “favoured” must increase his sendings. Give Canada a preference and she will double her wheat acreage. Ask what is the inducement to double the acreage, and the bubble bursts. The only inducement to a man to extend his business, is to make more money. But how is this “more money” to be made if the Canadian exporter does not get more for his grain, and if the competition to sell it is just as severe? Suppose I am a poor thread maker, not in the great combine, struggling to keep a small trade against J. & P. Coats, and suppose I am told that a beneficent government, on my behalf, is going to tax J. & P. Coats’ profits 10 per cent., how will this help me? I shall not sell one spool more of thread, and the price of thread will not rise. J. & P. Coats are a little worse off, but I am no better.

The fallacy is, that the hurt of one man is the healing of another.3 The American is hurt undoubtedly. He gets 2s. less profit. But the Canadian gets no more profit than he is getting now. And if the preference tax does not favour the Colonies, it is useless.

The American, however, is hurt, and, at this point, rises a question. Is it not true that the prejudice to the American grower is, in some sense, an advantage to the Canadian? In one sense, it is true. There is, just now, considerable rivalry between the United States and Canada as fields for emigration. Although Canada is growing from outside, America is growing much faster. But, within the last year, hundreds of American farmers have crossed the boundary into the Dominion to get advantage of the better climate and the virgin soil. It seems reasonable to say that the Preference will give an impetus to emigration into Canada.

This, then, is the possible advantage which the Preference may give to the Colony. It is a little roundabout; it certainly falls far short of what is generally expected of a Preference. It gives no help to the present colonist; it only helps to fill up his country faster. It may be questioned if such a far-away gain is worth the disturbance—if it is worth while penalising our cousins, the Americans, for the sake of an advantage to brothers who are not yet in the country.4

If it be the case, then, that a small tax on food will not raise prices, it would appear that, if we do not gain much by getting a Preference, we gain as little by giving one.

We pass now from possibility to probability. Confining our attention to corn, let us assume that corn rises in price by the full amount of the duty. The position, then, is that the foreigner pays 2s. to get in, but, as he gets 2s. more price, he is as well off as he is now, though, of course, no better off. The Colonies, on the other hand, get their corn in free, and, obtaining 2s. more price, are 2s. better off than they were. Our farmers also get the extra price, and they are 2s. better off. How does it affect us, the Consumers?

We consumed altogether, in 1902, 84,000,000 qrs. of wheat and grain.5 The rise in price on this, at 2s. per qr., is £8,400,000. This is the extra price which our consumers have to pay.

Of this total, 42,000,000 qrs. come from abroad, and they pay 2s. to the Exchequer, or £4,200,000. This, at least, is not loss; it comes back to us in government services. But 7,000,000 qrs. come from the Colonies, and these pay no tax. The 2s. on each quarter, or £700,000, goes to the Colonies as their share of the new benefits—paid out of our pockets, of course, but, presumably, a willing payment for the good of our poor Colonial brethren. As to the 35,000,000 qrs. grown at home, they pay no excise or tax, and 2s. on this, or £3,500,000, go to the agricultural interest in the shape of higher prices.

If it be the case, then, that the taxation of food will raise its price, we shall have to pay for getting a Preference from our Colonies. In the one item of grain alone, even when we have deducted the duty levied on foreign grain and paid into the Exchequer, it will cost us over £4,000,000.6

But perhaps it is time to remember again that what all this scheme aims at is not our own advantage but the advantage of the Colonies. Its success, then, must be judged by this. Is not the result a little inadequate? To give £700,000 to Canada and Australia—the others do not send grain—we are to impose indirect taxation to the amount of over £8,000,000. Sir Robert Peel once said on a similar question: “If we must do it, for God’s sake, let us pay it directly.” I ask, Would it not be much cheaper to vote a sum of £700,000 direct from the Exchequer to these Colonies?7

8 His proposals are: 2s. on foreign corn, excluding maize, and a “corresponding” (but apparently higher) tax on flour; 5 Per cent, on foreign dairy produce and meat, excluding bacon; a “substantial preference upon Colonial wines, and perhaps upon Colonial fruits”; and “a moderate duty on all manufactured goods, not exceeding 10 per cent, on the average, but varying according to the amount of labour in these goods.”

9 “I do not know whether the honourable member (Mr. Ecroyd) thinks you can tax food without raising its price. I would, at any rate, lay down the axiom, to begin with, that that is impossible; and that it is only by increasing the price that the object of the honourable member can be achieved, and that you can stimulate the growth and prosperity of our Colonies. The modest proposal he makes (to tax grain 4s. or 5s. per quarter) would raise the price of home-grown corn also, and the result would be that the British consumer would have to pay a tax of £40,000,000, £14,000,000 of which would go to the revenue if the foreign importations continue, and £26,000,000 would go, not to the farmer or labourer, for, if anything is proved by the experience of the past, it is that it would go neither to the farmer nor the labourer, but to the landed interests, to enable them to keep up their rents. All I have to say, to a proposal of that kind, is that it could never be adopted by the country; or, if adopted, it would be swept away upon the first recurrence of serious distress.”—(Mr. Chamberlain, in House of Commons, 24th March, 1882.) That Mr. Chamberlain holds to his old faith is evident by his proposed exemption, from the Colonial preference, of maize, “a food of some of the very poorest of the population,” and of bacon, “a popular food with some of the poorest.” Why should they be exempted, unless it be that, otherwise, they would rise in price?

10Of course the revenue gains; it gets 2s. on every qr. imported from foreign countries. This is a gain; but it is a gain to us, not to the Colonies. And we have been told that taxation for revenue is not the aim of a preferential tariff.

11 It is no part of the idea of Preferential Tariffs and the taxation of food, to protect our agriculture. But, as it is sometimes suggested that it would not be a bad thing if they did so incidentally, it may be pointed out that, if prices of food stuffs do not rise, the agricultural interests remain in the same position as at present. Nor does the Empire come much nearer being “self-sufficient”; for, as we see, there is no inducement to the present colonist to add a single acre to his holding.

12 The figures are taken from a calculation made before the Edinburgh Chamber of Commerce on 23rd June, 1903.

13 Granting that £700,000 of this is a free gift to the Colonies, it may be said that £3½ millions of the tax come back to a very considerable section of the people, the agricultural classes. True; but even here two serious considerations must be taken into account. The first is that, although these classes get £3½ millions, they have to pay more for their bread, just like the rest of us. The second is that the great bulk of it will never go near the farmer or labourer, but will, inevitably, go to the landowner in raised rents. Of course, if it be true, as alleged by the protagonist of the movement, that the prosperity of one class is the prosperity of all, it does not matter if the farmers have to pay high rents: the landowners will have more money to spend!

14 Mr. Chamberlain’s ingenious calculation that, although food rises, there “will be no sacrifice,” deserves only passing mention. All that is necessary, he says, is a “small transference of taxation from certain kinds of foods to certain other kinds of food.” Man does not live by bread alone, but by sugar and tea. We can reduce the sugar and tea duties in such a way that the working man and his family will save as much on them as they pay extra in bread. His proposal is to take off half the sugar duty and three-quarters of the tea duty, thus relieving the price of these commodities by some £34 millions. The Exchequer would lose this, but it would be compensated by the new Protective duties—the suggestion, I suppose, being that, instead of the home consumer paying these taxes, the foreign producer would pay them. But, of course, the scheme depends on the sugar and tea duties remaining at the present high level. When it is remembered that, before the war, there were no sugar duties whatever, and a tea duty of 4d, instead of 6d., it is seen that we are to get, as compensation for dear food, what we might have expected to get by the mere return of peace.

• 1“When, on Pike’s Peak in Colorado, the thermometer is down to 12° or 13°, and, in the North-west is only a few degrees above freezing point, in New England it will be moderately cool—say 43°; in the Mississippi valley it will be comparatively warm—say 52°; and in Florida it will be at summer heat—75°.”—Lawson, American Industrial Problems, p. 43.
• 2The above figures of Imports and Exports, taken from the Statistical Abstract 1903, do not include Bullion and Specie, of which we imported, in 1902, £21,629,000 of gold (£8 millions from South Africa, £3¼ millions from India, £5 millions from Australia), and £9,764,000 of silver (£8 millions from the United States), and exported £15,409,000 of gold and £10,716,000 of silver. Nor do they include, either as imports, exports, or re-exports, excisable foreign merchandise transhipped under Bond, (£13,683,000). To the imports should be added £5,380,000 of diamonds from the Cape, not declared to the Customs. It may be noted that fish of British take, landed in the United Kingdom, are not included among imports. The value of these in 1901 was £9,000,000.
• 3Without going into the mysteries of banking, it may suffice to say that the reason why payment for foreign goods is not made by cheque is that each country’s banking system does not extend beyond its own shores.
• 4It is strong testimony to the literal “trust” which underlies the credit system that, in the great majority of home transactions, the promise is not put in documentary shape at all; goods are sold on customary terms of credit, and paid on a mere reminder that payment is due. Perhaps there is no better instance of the recognition of a “common interest” and a “general will” among whole peoples than this.
• 5Giffen’s calculation was first made in 1882 (Essays in Finance, Second Series, p. 132), and was revised in 1898 (Royal Statistical Society’s Journal, 1899, p. 11). His method was to take the British gross tonnage earnings at £15 and £5, for steamers and sailers respectively, at the former date, and at £12 and £4 at the latter. The Board of Trade, on the other hand, took the total exports and imports of the principal countries of the world, which are, of course, the same goods valued at points of departure and arrival; accepted the £224,000,000 difference in their value (see p. 41) as representing freights and insurance; halved this sum to represent our share of the carrying tonnage of the world; deducted 9 per cent. for colonial ships, and further deducted £12½ millions for coals and stores purchased abroad, harbour and other dues; and arrived at the figure of £89½ millions.
• 6The importance of Shipping as a British export industry may be realised by remembering that £90,000,000 is just about the value of our cotton and woollen exports combined.
• 7“Unfortunately, there are no official figures with regard to the investments of foreigners in this country, though they are certainly very much smaller in the aggregate than British investments abroad. America is the only foreign country, so far as known, whichh as made important investments in the United Kingdom in recent years,” Board of Trade Blue Book, p. 102. On this whole subject, the admirable article in the Blue Book should be referred to.
• 8IT would be rather short-sighted to gauge the importance to us of foreign trade by the fact that it is perhaps only one tenth or one eighth of our total trade. If the United States were to shut herself up inside a prohibitive wall of tariffs, she would still be almost self-sufficient. But we lie between 50 and 60 degrees north latitude; ours is a very small country at best, with a dense population; and we have, besides, sunk much of our capital and specialised much of our labour in industries which depend on other countries for their material and for their market. It seems, too, as if we were destined by nature to be ocean carriers.
• 9Our foreign trade, then, altogether amounts to £877,000,000; made up of £528,000,000 of Imports, and £349,000,000 of Exports (£65,000,000 of these being re-exports). These are values of solid Commodities brought in and taken out over British seas; and—partly as reflex and consequence—of the 32,000,000 gross tons of shipping in the world, we own the half.
• 10Nor yet is the way in which payment is made essentially different. In due time, home goods are paid by a cheque; foreign goods, by a bill of exchange. Indeed, in many cases, when goods are put on board ship, the Bill of Lading is given to a bank here, which does not give it up till cash is paid abroad, the bank meantime giving an advance to the exporter to a large proportion of the value. In either case, the sender gets his payment, in British money, through his own bank, and each transaction ends with a payment. The export of goods, again, from other countries to us takes place in exactly the same way—merchants and manufacturers, there also, sending out goods for a profit, getting paid in their own money, and the transaction ending with the payment.
• 11It takes a little thinking to realise that, in home trade, payments are made by setting debts against debts, and that this is merely another way of saying, “setting goods against goods.” You send me £100 worth of goods, and I, for the moment, am in debt, and send you a record of it in the shape of a promise to pay in three months. On the other hand, I send you £100 worth of goods, and you give me a promise to pay in three months. The promises may be bought and sold and pass into other hands; in any case, they remain in existence as debts for three months. At the end of that time they are brought together and cancel each other. What really has happened, of course, is that the one sending of goods has been put in contra-account against the other. So banking is just a vast complex system of contra-accounting—value of goods represented for the moment by documents put to the debit and credit sides of bankers’ books. Happily, this need not be dwelt on, because, in international trade, the foundation of the contra-account is quite obvious and prominent.
• 12It may be expected, then, that a nation which owns half the world’s shipping, and carries for foreigners as well as for British merchants, will be paid a very large sum for this service. The amount was estimated by Giffen, in 1898, as £90,000,000. An independent calculation, on quite different lines, was put forward by the Board of Trade in 1903, and makes it £89½ millions.
• 13This is the first item which explains our apparent Balance of Imports. Our exports are really £90,000,000 more than the statistical exports shown by the official returns.
• 14The corresponding returns which pay income tax in our country amount to £62½ millions, but this includes only the interest on foreign and colonial securities, coupons, and railways. To this must be added the dividends on miscellaneous industrial undertakings abroad. After all deductions on account of other countries which have lent and invested capital with us, we may accept the Board of Trade conclusion that “£62½ millions is a minimum figure, which is probably largely exceeded.” In 1898, Sir Robert Giffen estimated it at £90 millions, and probably more.