Protection

Protection, in economics a system of commercial policy and a body of doctrine, which in their modern forms are the outgrowth of the commercial and industrial development of the 19th century. The common definition of protection as a policy is the attempt to develop a manufacturing industry by a system of discriminating duties upon manufactured, goods imported from foreign countries. But this is far too narrow a definition to suit the modern use of the term, though the notion of discriminating tariffs is common and, we may say, basal to all definitions. Protection as a policy includes not only discriminating tariffs, but also a large number of other features supplementary to this fundamental one and designed to emphasize its purpose. Thus a scheme of bounties and premiums, of rebates and drawbacks, is everywhere considered an essential element of the protective system. Nor is it any longer limited to the encouragement of manufactures, but includes as well the protection of agriculture, forestry, mining, fishing, shipping, &c. In short, one cannot give a comprehensive and satisfactory definition of protection to-day without giving it a much wider scope than that of a system of protective duties upon manufacturing industry.

Many of its advocates claim, and with some show of reason, that the term protection, as now used to describe the commercial policy of a nation, should be so defined as to include all the means by which a country undertakes to secure through the positive efforts of the government the complete industrial and commercial development of all its resources and of all its parts. As its object is thus comprehensive, its justification is to be found in a series of arguments based upon political, economic, and social considerations. From this point of view the protective policy embraces not merely the system of discriminating import duties in favour of home products - industrial, agricultural and mining, with which the policy began in the United States, for example - but. also the system of bounties offered for the introduction and establishment of new industries; the policy of restricted immigration of the less desirable classes of labourers, combined with the positive inducements to the skilled labour of other countries. to transfer itself to the one in question; the system of discriminating or prohibitive tonnage duties, known as Navigation Acts; the system of developing foreign markets by an active policy directed towards securing advantages for home products in foreign countries - in a word, all those pecuniary or other sacrifices which a country may make in order to develop its. material resources and establish, develop and foster industry and commerce. In this wide sense the comprehensive policy adopted by the United States, for example, includes the making of a careful geological and botanical survey of the whole country in order to discover and open up the vast natural wealth of its domain in its mines, forests and fields; the establishment of experiment stations to test the usefulness of new crops or means of making old crops more valuable; the stocking of its rivers with fish and the afforesting of its mountains; the introduction of new or more valuable breeds of livestock; the building of railways and canals, and the offering of inducements to private parties to undertake similar enterprises; the deepening of its.

National Policy.  rivers and harbours, &c.; and, finally, the development, at public expense, of a scheme of technical and commercial education - lower and higher - adapted to discover and train all the talent in the community available for developing the industry and commerce of the country.

If such an account of the features of a protective policy is objected to on the ground that free trade countries like Great Britain have also adopted some of them, it may be replied that in so far as they have done so they have adopted the principle of protection, namely, that government shall adopt a positive policy looking towards the development, by government aid if necessary, of new branches of commerce and industry and the firmer establishment of old branches. It may further be pointed out that the countries which have adopted the protective policy most fully - the United States, France, Germany and Russia - have most consistently followed out the policy here indicated and in all these countries it has been the so-called protectionist party which has identified itself most fully with the comprehensive policy here suggested.

As a doctrine, protection is the set of principles by which this policy of government aid to industry is justified, and these principles have been elaborated hand in hand with th e development of the so-called protective policy P P P Y sometimes outrunning its actual application and advocating its further extension, more often lagging behind and seeking for means of explaining and defending what had already been done. The present development of the system and theory of protection is a result of the growing predominance of capitalism in modern society, combined with the tendency of modern politics towards the organization and development of great national states, with the resulting desire to secure their industrial as well as their political independence. It has been further favoured in certain ways by the-fact that the financial needs of modern states require a resort to indirect taxation, thus making it easier for the capitalistic forces to exploit the tax system for their own benefit; while the wars of the 19th century have favoured in many ways the tendency towards the adoption of special means, like high discriminating duties, to accomplish this end. Hand in hand with this has gone a steady tendency to see in the state a powerful means of promoting the development of trade and industry, and a growing disbelief in the more extreme forms of the free trade doctrine, such as the type known as the Manchester School, the theory of the laissez faire, laissez passer school of economics and politics.

Protection, both as a doctrine and policy, can be best understood by examining the course of its development in those countries adopting it most consistently. Germany and the United States offer the two striking examples of great modern nations adopting a system of protection and developing under its influence. They may in a certain sense serve as types of the kind of state which in the 19th century accepted and defended, in its politics at any rate, the so-called protective system. In both cases the high protective system was associated with the development of nationality, of industry, of capitalism, and of a financial system which favoured the growth of certain elements of the protective policy.

The protective system in the United States began with the adoption of the Constitution in 1789, and found its first formal defence in the celebrated report of Alexander Hamilton on manufactures. The argument and the movement were largely academic. As there was no strong manufacturing interest in existence, so there was no organized capitalistic effort to secure manipulation of the tariff duties in the interest of special industries. There was general agreement, however, that it would be desirable to develop a manufacturing industry in the colonies if it were practicable. A high degree of natural protection was already afforded by the cost of transportation. It was felt, therefore, that a small duty on manufactures would probably serve the purpose, since the development of the manufactures would favour the production of raw material, which would therefore need no special encouragement. It was also felt that a small duty, continued for a few years, would result in the establishment of the industry on such a firm basis that all duties might be abolished. The introduction of this form of protection, i.e. discriminating duties upon imported goods, was greatly assisted, if not originally caused, by the fact that the new government needed money which could most easily be obtained by customs duties. Thus all those parties which were opposed to direct taxes joined their efforts with those interested in securing protective duties, in order to commit the government to the policy of basing its revenue system on a tariff on imports. To these considerations must be added the further one that the country had just thrown off political dependence on Europe, and felt that it must now become industrially independent also, if it were to be a great nation. These influences, then, namely, firstly, the desire of the statesmen of the time to create a revenue system for the Federal government which would make it absolutely independent of the states; secondly, the wish to develop an industry which would serve the needs of the new country while it promoted its complete independence of the Old World, conspired to commit the Federal government from the beginning to a policy of protection based upon a system of discriminating duties. At the same time a system of discriminating tonnage dues and prohibitory regulations relating to foreign shipping in the coasting trade was adopted to promote and foster the shipping interest.

Industry and commerce began to thrive as never before, largely because of the absolute free trade which the Constitution had secured among the states of the Union. The long struggle between France and Great Britain, extending from 1806 to 1812, for the possession of the commerce and the trade of the world, combined with the retaliatory measures of the American government itself, practically destroyed American commerce for a time, and finally led to the British-American Warr of 1812, which closed in 1815. The financial system of the Federal government during this war was based on getting the largest returns from the customs, so that the duties were screwed up still higher. The ten years period of non-intercourse, while it had seriously injured American commerce, had fostered the growth of American manufacturing; and when the close of the War of 181 2 brought with it an enormous influx of foreign goods, particularly from the plethoric warehouses and factories of England, it looked for a time as though the new American industries were destined to vanish as rapidly as they had grown up. And now for the first time appeared a strong, well-developed, capitalistic party, which was, in spite of some drawbacks, destined to grow until it became one of the most characteristic features of the politics of the republic.

The manufacturers of the country determined the tariff policy of the country, and with few reverses pursued a steadily advancing course of victory down to the close of the 19th century. They secured the maintenance of high duties at the close of the war of 1812, and managed to increase them steadily until the reaction of 1830-1833, when they were forced to content themselves with a lower rate, which continued, with a slight interruption in 1842-1846, until the outbreak of the Civil War in 1861. This was an opportunity which they knew how to utilize to the greatest advantage. During the war, when the government was forced to exploit every possible source of revenue, the protectionist party knew how to turn the necessities of the government to its advantage. The rate of duties was pressed ever higher; and when the war closed, and the taxes could again be lowered, the protectionist managers knew how to lower or remit altogether the non-protective duties, and thus keep high, and even advance to a still higher point, the duties which protected them from foreign competition.

In the meantime the country was turning from agriculture to manufactures at an unprecedented rate. The manufacturing party was becoming ever stronger and more aggressive. As it had also been the national party, it profited by the enormous development of the nationalist sentiment during and after the war. It now became patriotic to favour the development of a national industry. It was treason to advocate free trade - that had been the policy of the slave-holders' party, and the Slave holders' Rebellion, as the Civil War was called, had drawn its strength largely from the free-trade sentiment. The policy of the protectionist party had expanded with the growth of the country and the necessity of coming to terms with the antagonistic elements. Thus at first the platform of the protectionists had been one of reasonably low duties on manufactured commodities, low duties on half-manufactured and no duties at all on raw material. But as the country advanced, and it was seen how the interests of manufacturing had been quickened by the policy of discrimination, those engaged in producing raw materials and half-manufactured commodities demanded that they too should be considered. As this concession had to be made by the manufacturers, they were compelled to justify it by other arguments than those used at first. The infant-industry argument gave place to the proposition, that as long as the prices of raw materials and labour were higher in America than abroad, it would be necessary to maintain countervailing duties at least equal to this difference, in order to protect American industry. One branch after another of manufacturing or agriculture was included and given the benefit of protection. In order to have satisfactory theoretical basis for such a policy, the theory was advanced that foreign trade was a necessary evil, to be diminished as much as possible. The ideas were advanced and spread throughout the country: that the home market should be reserved for home products; that the labourers should be protected against the influx of foreign cheap labour (Chinese Exclusion Acts; restrictive immigration laws); that prices should be kept high, so as to enable employers to pay high wages; that shipping should be encouraged by subsidies, the sugar industries by bounties; that the nation should become ever more independent of foreign nations for all its industrial products, and capable of holding its own against the world in industry as well as in arms.

The protective party has been the national party during a time when the greatest question before the American people was whether it was to be one nation, or two, or twenty, and it naturally profited by the inevitable victory of nationalism; it has always stood for honest payment of national and state debts, if not in the standard according to which they were contracted, in a still better one, and it has profited naturally by this attitude in a country where the development of trade and industry was rapidly and steadily towards a capitalistic state of society in which such policy is favoured; it has stood for a vigorous and active independence in the field of world politics, and it has naturally profited by this fact in a country which was rapidly forging ahead to take its place among the greatest of existing nations, and with an ever-increasing self-consciousness was ready to assert itself among the nations of the world; it has stood for free labour against slave labour, and consequently profited here again in a country whose greatest conflict turned upon the question whether the system of slave labour should be extended or not; it has stood for high wages for American labourers, and in words at any rate has advocated a policy directed to protecting them against competition with the "pauper labour" of the Old World. It has stood for government activity in the direction of developing railways and canals; of establishing education upon national lines, making it free, in all grades from the kindergarten to the university, to all citizens of the republic, and it has profited by this association in a country where all influences were telling in favour of this tendency. In short, whatever one may think of the wisdom or folly of trying to develop national industry by a system of discriminating duties, the protective party as such in the United States has been on the progressive side of so many of the deep questions of national importance that it has obtained and kept the allegiance of thousands of men who would have been glad to see a change, or indeed a reversal, in the tariff policy of the party. The history of the tariff policy in Germany had been very similar to that of the United States. Beginning with the es-. tablishment of absolute free trade among the various German states in the earlier customs union, it extended this policy, by the establishment of the North German Confederation and the new German Empire, to all the states now included in the federation. The long-wished-for political union meant political independence, and when political independence was once achieved, industrial and commercial independence were next desired. Within the empire itself it was necessary, if the new organization were to be strong and vigorous, that the central government should become independent of the individual states; and this could be best effected by giving it a revenue system based upon import duties, which in the long run has enabled the central government to subsidize the state governments, and thus bring them still further under its influence. To develop this system the political support of some strong party was needed. This party was found in the protectionist elements, which have thus again become the national party in a state which was being rapidly nationalized; the industrial party in a society which was rapidly passing from the agricultural to the industrial condition; the capitalistic party in a society which was rapidly becoming capitalistic in all its tendencies. It stood for industrial and commercial, as well as political, independence of other countries, and thus satisfied the longing for national unity and independence of a people which had suffered for centuries from disunion and dependence.

These two examples may serve to explain how the two most powerful industrial nations next to Great Britain became and remained highly protectionist in sentiment and in action, and how they both opened the 10th century with a more openly declared and a more fully developed system of protection than ever before.

Protection as a theory or doctrine is to a certain extent an outgrowth or modification of the old doctrines of mercantilism. In its modern form, however, it dates really from the celebrated report on manufactures made by Alexander Hamilton when secretary of the U.S. Critics.  Treasury in the year 1791. The views there advanced have been further developed by Friedrich List and. Henry C. Carey, and have in later years been carried along somewhat different lines to their logical conclusions by Simon N. Patten and George Gunton. Starting from an argument in favour of temporary duties on manufactured goods imported from abroad until such time as the infant industry might take firm root, the development proceeded through List, who favoured the maintenance of such duties until the country had passed into the manufacturing stage as a whole, and then through Carey to Patten and Gunton, who maintain that a protective policy, extended to cover agriculture, trade and mining, should be preserved as the permanent policy of the country until the entire world is one nation, or all nations have reached the same level of political, economic and social efficiency. The protective policy, which a century ago was to be, in the view of its advocates, temporary and partial, has become to-day, in the arguments of its apologists, permanent and comprehensive. We must content ourselves here with a brief statement of the arguments of the leading and most successful defenders of modern protectionism.

Alexander Hamilton, at that time secretary of the treasury, submitted his celebrated report on manufactures to the Congress of the United States on the 5th of December 1791. It is in a certain sense the first formulation of the modern doctrine of protection, and all later developments start from it as a basis. It is a positive argument directed to proving that the existence of manufacturing is necessary to the highest development of a nation, and that it may be wisely promoted by various means, of which the most important is a system of discriminating duties upon foreign imports. Among the objects to be attained by the development of a flourishing manufacturing industry are mentioned: (1) Independence of foreign nations for military and other essential supplies. (2) A positive augmentation of the produce and revenue of society, growing out of (a) division of labour, (b) extensive use of machinery, (c) additional employment to classes of the community not ordinarily engaged in business. (3) An increase in the immigration of skilled labourers from foreign countries. (4) A greater scope for the diversity of talents and dispositions which discriminate men from each other. (5) A more ample and various field for enterprise. (6) In many cases a new, and in all a more certain and steady demand for the surplus produce of the soil. (7) A more lucrative and prosperous trade than if the country were solely agricultural.

Among the feasible means of promoting the development of such an industry he mentions the following: (1) Protective duties, or duties on foreign articles which are the rivals of the domestic ones, to be encouraged. (2) Prohibition of rival articles or duties equivalent to prohibition. (3) Prohibition of the exportation of the materials of manufactures. (4) Pecuniary bounties. (5) Premiums. (6) Exemption of the materials of manufactures from duty. (7) Drawbacks of the duties which are imposed on the materials of manufactures. (8) The encouragement of new inventions and discoveries at home, and the introduction into the United States of such as may have been made in other countries; particularly those which relate to machinery. (9) Judicious regulations for the inspection of manufactured commodities. (io) The facilitating of the pecuniary remittances from place to place.

The above suggestions contain the outline of a comprehensive scheme for developing the manufacturing resources of the country, and the United States has subsequently adopted, in one form or another, almost all of these propositions. Hamilton considered that the duties, &c., would not have to be very high or very long continued in order to accomplish their legitimate ends, after which they would become unnecessary, and would naturally be abolished. He conceded that, generally speaking, import duties were taxes on the customer, and therefore burdens - but burdens which might well be temporarily borne for the sake of the ultimate advantage arising from cheaper goods and diversified industries. He emphasized also the advantage of a home market for agricultural products, and seemed to think that the United States had to pay the cost of transportation both on the agricultural products it exported and the manufactured goods it imported. This report remained the armoury from which the protectionists drew their weapons of offence and defence for two generations, and it has not yet ceased to be the centre around which the theoretical contest is waged even to-day in Germany and France as well as in the United States.

The next great theorist in this field was the German, Friedrich List, who, while an exile in the United States, became imbued with. protectionist ideas, and after doing substantial service for them in the country of his adoption, returned to Germany to do battle for them there. He published his National System of Political Economy in Germany in the year 1841. It had great and immediate success, and has exercised a wide influence in Europe on theoretical discussion as well as on practical politics. List, like Hamilton, looked on protection as a temporary system designed to facilitate the passage of a country from an agricultural to a manufacturing state. He accepted free trade as generally and permanently true, but suited for actual adoption only in that cosmopolitan era towards which the world is progressing. But in order to prepare for this cosmopolitan period it is first necessary for each nation to develop its own resources in a complete and harmonious manner. A comprehensive group of national economies is the fundamental condition of a desirable world economy; otherwise there would be a predominance of one or of a few nations, which would of itself constitute an imperfect civilization. Protection is a means of educating a nation, of advancing it from a lower to a higher state. He admits that it may involve a loss, but only in the sense that money expended for an education or an educational system is a loss, or that money spent for seed corn is a loss. To the cosmopolitan system of Adam Smith, List opposes the national system as a preliminary and necessary stage. He favours the imposition of duties as the most efficient means of effecting the protection which he has in mind. Agriculture will be sufficiently protected by the constant demand for its products. The essence of his larger work is contained in a pamphlet published in Philadelphia in 1827, entitled Outlines of American Political Economy. It is, in fact, a series of letters advocating the further development of the protective system already adopted in the United States.

The third great name in the history of protection is that of Henry C. Carey, an American, in some ways the most distinguished and most influential of the followers of Hamilton and Carey:  List. He was at first a strong free trader, then a protectionist who believed in protection as a preparation for free trade, and finally an uncompromising advocate of protection in all circumstances and for all nations. In him and in Simon M. Patten, the last, and in many respects the ablest, of the apologists for protection, we have the theoretical development corresponding to the practical outcome of protection as a comprehensive all-embracing scheme extending protection to all branches of industry alike - agriculture, manufacturing and mining - and aiming to be permanent in its form and policy. As Patten expresses it: "Protection now changes from a temporary expedient to gain specific ends (such as the establishment of manufactures), to a consistent endeavour to keep society dynamic and progressive. Protection has become part of a fixed national policy to increase the value of labour with the increase of productive power, and to aid in the spread of knowledge and skill, and in the adjustment of a people to its environment." The object of protection has now become, in the view of the theoretical American protectionist, not an approximation to European industrial conditions, but as great a differentiation from them as possible. Carey's works were translated into the leading European languages, and contributed doubtless to the spread of protectionist ideas, though the extreme form in which his views were expressed, and the rambling illogical method of exposition, repelled many who might otherwise have been attracted by the course of his thought.

Economists of other schools, with the exception of the more rigid British free traders, have allowed a relative validity to  the doctrines of List; and even among older British economists, Mill and some of his disciples conceded the logical possibility of quickening the development of an industry by import duties in such a way as to result in more good than harm, though they have hardly been willing to acknowledge that it is practically possible. The modern historical school of political economists have generally admitted the reasonableness of protective policies at certain times and places, though usually finding the justification in political and social considerations rather than in economic. And while the British objections to protectionism in any form have been widely upheld by the more conservative economists in England, the new political school of "tariff-reform and colonial preference" has found strong support at the hands of such British authorities on economics as Professors Cunningham, Ashley and Hewins, or the authors of Compatriots' Club Essays  1906 (J. L. Garvin and others), whose advocacy of a national policy recalls the work of Hamilton and List. (E. J. J.) Authorities. - P. Ashley, Modern Tariff History (London, 1904); W. J. Ashley, The Tariff Problem (London, 1904); A. J. Balfour, Economic Notes on Insular Free Trade (London, 1903); G. Blondel, La Politique protectioniste en Angleterre (Paris, 1904); F. Bowen, American Political Economy (New York, 1875); B. Braude, Die Grundlagen and die Grenzen des Chamberlainismus: Studien zur Tarifreformbewegung im gegenwdrtigen England (Zurich, 1905); J. B. Byles, Sophisms of Free Trade (London, 1903); G. Byng, Protection (London, 1901); H. C. Carey, Principles of Social Science (3 vols., Philadelphia, 1858-1859), Harmony of Interests - Agricultural, Manufacturing and Commercial (Philadelphia, 1873); C. H. Chomley, Protection in Canada and Australasia (London, 1904); W. Cunningham, The Rise and Decline of the Free Trade Movement (London, 1904); G. B. Curtiss, Protection and Prosperity: an Account of Tariff Legislation and its Effect in Europe and America (1896); W. H. Dawson, Protection in Germany (London, 1904); E. Diihring, Kritische Grundlegung der Volkswirthschaftslehre (1886); Kursus der Nationaland Socialokonomie (1873); Dumesnil-Marigny, Les Libre-echangistes et les protectionistes concilies (1860); Ganilh, Theorie de l'e'conomie politique (1822); G. Gunton, Wealth and Progress  (New York, 1887); Principles of Social Economics (New York, 1891); Alexander Hamilton, Report on the Subject of Manufactures, communicated to the House of Representatives, 5th December 1791; H. M. Hoyt, Protection v. Free Trade, the scientific validity and economic operation of defensive duties in the Upited States (New York, 1886); E. J. James, Studien Tiber den amerikanischen Zolltarif (Jena, 18 77); F. List, Das nationale System der politischen Oekonomie (Eng. trans.

by S. Lloyd, London, 1904); A. M. Low, Protection in the United States (London, 1904); H. O. Meredith, Protection in France (London, 1904); S. N. Patten, Economic Basis of Protection (Philadelphia, 1890); Ugo Rabbeno, American Commercial Policy (London, 1895) Ellis H. Roberts, Government Revenue, especially the American System, an argument for industrial freedom against the fallacies of free trade (Boston, 1884); R. E. Thompson, Protection to Home Industries  (New York, 1886); E. E. Williams, The Case for Protection (London, 1899); J. P. Young, Protection and Progress: a Study of the Economic Bases of the American Protective System (Chicago, 1900).