We have here, again, the same fallacy. We demand that foreign products
should be taxed to neutralize the effect of the taxes that weigh upon our
national products. The object, then, still is to equalize the conditions of
production. We have only a word to say, and it is this: That the tax is an artificial
obstacle that produces exactly the same result as a natural obstacle, its
effect is to enhance prices. If this enhancement reach a point that makes it
a greater loss to create the product for ourselves than to procure it from
abroad by producing a counter value, let well alone. Of two evils, private
interest will manage to choose the least. I might then simply refer the
reader to the preceding demonstration; but the fallacy we have here to combat
recurs so frequently in the lamentations and demands — I might say in the
challenges — of the protectionist school as to merit a special discussion.
If the question relates to one of those exceptional taxes that are imposed
on certain products, I grant readily that it is reasonable to impose the same
duty on the foreign product. For example, it would be absurd to exempt
foreign salt from duty; not that, in an economical point of view, France
would lose anything by doing so, but the reverse. Let them say what they
will, principles are always the same; and France would gain by the exemption
as she must always gain by removing a natural or artificial obstacle. But in
this instance the obstacle has been interposed for purposes of revenue. These
purposes must be attained; and were foreign salt sold in our market duty
free, the Treasury would lose its 100 million francs (£4 million sterling),
and must raise that sum from some other source. There would be an obvious
inconsistency in creating an obstacle, and failing in the object. It might
have been better to have had recourse at first to another tax than upon
French salt. But I admit that there are certain circumstances in which a tax
may be laid on foreign commodities, provided it is not protective, but
fiscal.
But to pretend that a nation, because she is subjected to heavier taxes
than her neighbors, should protect herself by tariffs against the competition
of her rivals, in this is a fallacy, and it is this fallacy that I intend to
attack.
I have said more than once that I propose only to explain the theory, and
lay open, as far as possible, the sources of protectionist errors. Had I
intended to raise a controversy, I should have asked the protectionists why
they direct their tariffs chiefly against England and Belgium, the most
heavily taxed countries in the world? Am I not warranted in regarding their
argument only as a pretext? But I am not one of those who believe that men
are protectionists from self-interest, and not from conviction. The doctrine
of protection is too popular not to be sincere. If the majority had faith in
liberty, we should be free. Undoubtedly it is self-interest that makes our
tariffs so heavy; but conviction is at the root of it. "The will,"
says Pascal, "is one of the principal organs of belief." But the
belief exists nevertheless, although it has its root in the will, and in the
insidious suggestions of selfishness.
Let us revert to the fallacy founded on taxation.
the state may make a good or a bad use of the taxes it levies. When it
renders to the public services that are equivalent to the value it receives,
it makes a good use of them. And when it dissipates its revenues without
giving any service in return, it makes a bad use of them.
In the first case, to affirm that the taxes place the country that pays
them under conditions of production more unfavorable than those of a country
that is exempt from them, is a fallacy. We pay 20 million francs for justice
and police; but then we have them, with the security they afford us, and the
time they save us; and it is very probable that production is neither more
easy nor more active in those countries, if there are any such, where the
people take the business of justice and police into their own hands. We pay
many hundreds of millions of francs for roads, bridges, harbors, and
railways. Granted, but then we have the benefit of these roads, bridges,
harbors, and railways; and whether we make a good or a bad bargain in
constructing them, it cannot be said that they render us inferior to other
nations, who do not indeed support a budget of public works, but who have no
public works. And this explains why, while accusing taxation of being a cause
of industrial inferiority, we direct our tariffs especially against those
countries that are the most heavily taxed. Their taxes, well employed, far
from harming, have improved the conditions of production in these countries.
Thus we are continually arriving at the conclusion that protectionist
fallacies are not only not true, but are the very reverse of true.
If taxes are unproductive, suppress them, if you can; but assuredly the
strangest mode of neutralizing their effect is to add individual to public
taxes. Fine compensation truly! You tell us that the state taxes are too
much; and you give that as a reason why we should tax one another!
A protective duty is a tax directed against a foreign product; but we must
never forget that it falls back on the home consumer. Now the consumer is the
taxpayer. The agreeable language you address to him is this: "Because
your taxes are heavy, we raise the price of everything you buy; because the
state lays hold of one part of your income, we hand over another to the
monopolist."
But let us penetrate a little deeper into this fallacy that is in such
repute with our legislators, although the extraordinary thing is that it is
the very people who maintain unproductive taxes who attribute to them our
industrial inferiority, and in that inferiority find an excuse for imposing
other taxes and restrictions.
It appears evident to me that the nature and effects of protection would
not be changed, were the state to levy a direct tax and distribute the money
afterwards in premiums and indemnities to the privileged branches of
industry.
Suppose that while foreign iron cannot be sold in our market below 8
francs, French iron cannot be sold for less than 12 francs.
On this hypothesis, there are two modes in which the state can secure the
home market to the producer.
The first mode is to lay a duty of 5 francs on foreign iron. It is evident
that that duty would exclude it, since it could no longer be sold under 13
francs, namely, 8 francs for the cost price and 5 francs for the tax, and at
that price it would be driven out of the market by French iron, the price of
which we suppose to be only 12 francs. In this case, the purchaser, the
consumer, would bear the whole cost of the protection.
Or again, the state might levy a tax of 5 francs from the public, and give
the proceeds as a premium to the ironmaster. The protective effect would be
the same. Foreign iron would in this case be equally excluded; for our
ironmaster can now sell his iron at 7 francs, which, with the 5 francs
premium, would make up to him the remunerative price of 12 francs. But with
home iron at 7 francs, the foreigner could not sell his for 8, which by the
supposition is his lowest remunerative price.
Between these two modes of going to work, I can see only one difference.
The principle is the same; the effect is the same: but in the one, certain
individuals pay the price of protection; in the other, it is paid for by the
nation at large.
I frankly avow my predilection for the second mode. It appears to me more
just, more economical, and more honorable; more just, because if society
desires to give largess to some of its members, all should contribute; more
economical, because it would save much expense in collecting, and get us rid
of many restrictions; more honorable, because the public would then see
clearly the nature of the operation, and act accordingly.
But if the protectionist system had taken this form, it would have been laughable
to hear men say: "We pay heavy taxes for the army, for the navy, for the
administration of justice, for public works, for the university, the public
debt, etc., in all exceeding a milliard (£40 million sterling). For this
reason, the state should take another milliard from us to relieve these poor
ironmasters, these poor shareholders in the coalmines of Anzin, these
unfortunate proprietors of forests, these useful men who supply us with
cod-fish."
Look at the subject closely, and you will be satisfied that this is the
true meaning and effect of the fallacy we are combating. It is all in vain;
you cannot give money to some members of the community but by taking it from
others. If you desire to ruin the taxpayer, you may do so. But at least do
not banter him by saying: "In order to compensate your losses, I take
from you again as much as I have taken from you already."
To expose fully all that is false in this fallacy would be an endless
work. I shall confine myself to three observations.
You assert that the country is overburdened with taxes, and on this fact
you found an argument for the protection of certain branches of industry. But
we have to pay these taxes in spite of protection. If, then, a particular
branch of industry presents itself, and says, "I share in the payment of
taxes; that raises the cost price of my products, and I demand that a
protecting duty should also raise their selling price," what does such a
demand amount to? It amounts simply to this, that the tax should be thrown
over on the rest of the community. The object sought for is to be reimbursed
the amount of the tax by a rise of prices. But as the Treasury requires to
have the full amount of all the taxes, and as the masses have to pay the
higher price, it follows that they have to bear not only their own share of
taxation but that of the particular branch of industry that is protected. But
we mean to protect everybody, you will say. I answer, in the first place,
that that is impossible; and, in the next place, that if it were possible,
there would be no relief. I would pay for you, and you would pay for me; but
the tax must be paid all the same.
You are thus the dupes of an illusion. You wish in the first instance to
pay taxes in order that you may have an army, a navy, a church, a university,
judges, highways, etc., and then you wish to free from taxation first one
branch of industry, then a second, then a third, always throwing back the
burden upon the masses. You do nothing more than create interminable
complications, without any other result than these complications themselves.
Show me that a rise of price caused by protection falls upon the foreigner,
and I could discover in your argument something specious. But if it be true
that the public pays the tax before your law, and that after the law is
passed it pays for protection and the tax into the bargain, truly I cannot
see what is gained by it.
But I go further, and maintain that the heavier our taxes are, the more we
should hasten to throw open our ports and our frontiers to foreigners less
heavily taxed than ourselves. And why? In order to throw back upon them a
greater share of our burden. Is it not an incontestable axiom in political
economy that taxes ultimately fall on the consumer? The more, then, our
exchanges are multiplied, the more will foreign consumers reimburse us for
the taxes incorporated and worked up in the products we sell them; while we
in this respect will have to make them a smaller restitution, seeing that
their products, according to our hypothesis, are less heavily burdened than
ours.
Finally, have you never asked yourselves whether these heavy burdens on
which you found your argument for a prohibitory system are not caused by that
very system? If commerce were free, what use would you have for your great
standing armies and powerful navies?
But this belongs to the domain of politics.
