The Deepening Tariff Darkness

I

THE recent presidential campaign is commonly held to have represented a distinct advance in the sphere of public discussion of important national problems. The supporters of Governor Smith in particular find some solace in the thought that, though defeated, their candidate has made a valuable contribution to public education. I should not care to argue against this view in a general way. On certain questions, notably that of power, his service was unquestionably great. But I should like to call attention to the setback which the campaign has administered to intelligent treatment of the tariff.

The number of people in the United States capable of discussing the tariff impartially and sensibly, without reference to self-interest, has always been small. Historically it has been the battle ground for conflicting interests, or at least for interests conceived to be conflicting. Originally these interests divided mainly on territorial lines, and have reshaped themselves by the processes of industrial change, as illustrated by the conversion of New England from free trade to protection, as its central preoccupation turned from shipping to manufacture, between 1815 and 1830. The dominance of a protectionist or free-trade interest in each section has, however, caused the Congressional history of the tariff to be written in terms more strictly sectional than the facts justify. Across the territorial lines have run lines of horizontal cleavage, creating in each section majority and minority interests not disclosed in Congressional votes.

Since 1816, and particularly since the Civil War, the tariff argument has never run strictly on the grounds of protection versus free trade. The nature of an industrial organization reared behind tariff walls has made it impossible for any but the most doctrinaire free traders to conceive the establishment of free trade for the United States within the calculable future. Nevertheless, the Democratic Party has had continual resort to the armory of logic developed by the liberal English economists in favor of freedom of trade. In our own day one is apt to look somewhat askance at that logic, as at many other aspects of liberal negativism. But its continued presence in the realm of practical tariff politics was of inestimable value, by reason of the fact that it carried with it the most profound available analysis of the nature of the benefits which arise from international trade. It was a perpetual corrective of the veiled mercantilism which insinuates itself into all popular discussion of the tariff. Whatever its concessions to expediency or to fiscal necessities, the logic of the Democratic position on the tariff has been the logic of free trade. That logic is universal in character, in the sense that it promises the maximum wellbeing for all nations, not for one nation, and for all members of each nation, not for privileged classes within each nation.

It is difficult, if not impossible, to frame the protectionist, argument in these terms of universality. Nationalism is, indeed, of its essence, and its direct implication, not. disagreeable to its proponents, is national gain at. the expense of other national units, or their members. To make it; politically effective, however, in a democratic society, it has been necessary to adopt the other half of the free-trade argument — maximum benefit to each class and person within the country affected.

This attempt to construct an argument designed to prove the harmony of interests within a country supporting a protective policy places an almost prohibitive strain upon the human capacity for intellectual plausibility. It is easy enough for a protected manufacturer to see the benefits to himself. With the abridged mental processes characteristic of their kind, manufacturers have mainly been content — quite sincerely, of course — to generalize the sum of their private interests into a concept of the general good. This short-cut process has, however, been politically insufficient, since it has been necessary to convince other classes, not directly protected, of the benefits to themselves. These classes have mainly consisted of farmers, for whom the home-market argument was designed and for whose benefit often fictitious rates on their products have been scheduled, and the wage-earning class, for whom the argument that high wages and steady employment depend upon the tariff has been developed. The complete argument has at times taken on a form of extraordinary plausibility, as in McKinley’s speech on the Mills Bill. At other times its crudeness in political debate would have been supposed to be an insult to the human intelligence had it not been that the hearers were not insulted.

II

It ought to be apparent that neither the free-trade nor the protectionist contention is capable of objective proof. That America has been protectionist and prosperous proves no more than does the fact that England has been free trade and prosperous. Nor does the relatively greater prosperity of protectionist America over free-trade England prove any more than does the relatively greater prosperity of free-trade England over protectionist Germany or France. The historical dominance of the two diverse policies in England and America runs back to a common source — the effectively propagated interests of the manufacturing class. In England those interests were in the direction of foreign markets and cheap imported materials and food. In America they were in the direction of home markets, cheap imported labor, and cheap home-grown food. Consequently the abstract economic analysis which was congenial to the English industrial interests was anathema to the similar American interests.

As an argument, the tariff argument thus inhabits the field of intellectual abstractions. The problem it puts upon the mind is the problem of which keeps closer to the concrete facts, which analyzes those facts the more completely and astutely, which attains the higher degree of intellectual credibility. On these grounds it is a very striking fact that the free-trade argument has been so almost unanimously the more impressive upon the highly trained minds of well-informed and impartial students of the problem. Many of these men have, however, found in peculiar American conditions adequate grounds for supporting a moderate protectionist policy — grounds mainly connected with what is known as the ‘infant industry’ argument. It is further true that men of this sort, while contemptuous of the political hokum of protectionism, are not ordinarily advocates of a free-trade policy for the United States. The reason, of course, is that our future industrial policy must be built upon our present foundation, and our present foundation is an industrial structure into which the tariff has been irrevocably built. One of the most effective elements of the present protectionist argument, is the fear of the upsetting consequences, the industrial ruin and unemployment, which might attend unwise downward revision of the tariff. Those fears are of course justified, but they do not in any comprehensible sense lend support to the positive arguments for protection.

Because of this recognition of the fact that the fundamental American tariff problem is, first, to attain an exact knowledge of the effect of the tariff in the several industries, as distinct from a theory of its effects upon the country at large, and, second, to make tariff adjustments in line with such detailed knowledge, it has been generally felt by intelligent students of the problem that an expert commission with wide powers should, so far as the Constitution permits, supplant Congress in the adjustment of rates, though of course operating upon the lines of general policy dictated by Congress.

These general remarks upon the history and the recent status of the tariff controversy are so much the commonplaces of economists and other students of the tariff that they would hardly be worthy of repetition were the atmosphere not so clouded with campaign dust. Under the circumstances some such introduction seemed desirable before considering the state of the tariff question as it emerged from the recent campaign.

III

Concerning the Republican contribution to public knowledge of the tariff, it is very easy to arrive at an adequate and inclusive conclusion. It was exactly nothing. That is to say, the party as such reaffirmed its historic position, its spokesmen repeated the timeworn arguments stressing the disaster which would befall the nation if any but the Grand Old Party were entrusted with tariff policy, and Mr. Hoover, with emphasis and corollaries of his own, repeated the familiar story. My acquaintance with economists is less than universal, but if I may generalize my experience with many of them I should say that economists were on the whole favorably disposed toward Mr. Hoover at the start, that they were startled by certain economic passages in the speech of acceptance, and completely dumbfounded by the Boston address on the tariff. They were convinced that out of his wide experience he must have learned more of the theory and the nature of foreign trade than he there displayed, and were forced to conclude either that he knew less than they had credited him with knowing, or, more cynically, that a just and adequate survey of our foreign trade and tariff problems was less important to him than his satisfaction of his party and his election to the Presidency.

In the nature of the case, the Republican Party is incapable of any constructive addition to tariff theory or policy, since its sinews of war derive from the people who are the direct beneficiaries of protection. Its task is simply to generalize the benefits of its policy, and that task was completed a generation ago and now calls only for repetition. The strength of its argument lies in its plausibility, its apparent simplicity, and the direct appeal to self-interest, whether real or only apparent. Its practical potency is not disturbed by the fact that every impartial mind that has ever examined the argument finds it larded with fallacy, delusion, and simple faith, which do not darken the sincerity, but only the intelligence, of its advocates.

In a way, the present campaign represents a retrograde movement, because of the magnitude of the victory, and because of the peculiar confidence with which the party was able to speak in this year of prosperity — in severe contrast to 1908 and 1912, when the ‘high cost of living’ and the ‘trusts’ compelled it to draw in its claims for the protective system.

When one turns to the Democratic Party, there are two developments to observe, one having to do with the platform, the other with Governor Smith’s treatment of the question. On the first point, it is apparent that the party has abandoned its historic position — with reservations, no doubt, but it would seem irretrievably — and become, if not as protectionist as the Republicans, at least as much so as they were in 1908. This conversion was perhaps inevitable as a matter of practical politics, since the South’s growing industrialism has implanted a protectionist sentiment there, and since proposals for farm relief have taken the guise of effecting a mechanism for creating benefits for the farmer similar to those which the tariff creat es for industry. The McNary-Haugen bill is in effect the tariff for those farmers raising crops of which we produce an exportable surplus. Whatever the political exigencies which led to this aboutface in Democratic tariff policy, it is unquestionable that it has removed from the field of public discussion the whole of those ideas about the mutual benefits of foreign trade which are commonplaces to economists but somehow penetrate with difficulty into the common mind. The result is to raise the protectionist theory to the elevation of a national dogma, instead of a merely party dogma as formerly.

So preposterous a situation would be unbelievable were it not plainly the fact. No one could suppose that the Democratic Party has been the chosen vessel of truth against Republican error. Its political opportunism, on the tariff as elsewhere, has been equally great. But by chance its tariff position compelled it to have continuous resort to the best-authenticated results of economic investigation and analysis. Its reversal thus withdraws from current politics any channel by which expert economic knowledge can penetrate to the electorate. One result of the Democratic change of policy must necessarily be to widen the gap between economic knowledge and national economic policy.

It may, of course, be that the interpretation given of current Democratic policy is exaggerated or incorrect. The platform may be read to mean merely — what any sensible person would advocate — that schedules will not be unwisely tampered with to the inevitable distress of our industries. If, however, such was the meaning, it was excellently concealed during the course of the campaign in appeals to that doubtful part of the electorate which it was hoped to inveigle into the Democratic net. It is certainly my belief that the volte-face is irrevocable, because of the dominant protectionism in the country at large. From the point of view of political expediency there can be little doubt of the necessity of the step. Nevertheless, the episode throws its own light upon the educational value of the present campaign.

With regard to Governor Smith’s personal contribution to tariff education, many well-informed people have thought his Louisville speech to be on the right side and in the right direction. In it he exposed the evils of Congressional tariff-making, on two counts — first, of the disturbance to industry occasioned by a general tariff bill, and, second, of the unscientific process of bargaining, logrolling, and interested lobbying by which the rates are arrived at. He emphasized what all impartial students of the tariff have long pointed out, the evils which arise from the necessity that Congressmen please their powerful constituents and supporters. He displayed the ineffectiveness of the commission as at present organized. And finally he arrived at his solution of a reconstituted commission with wide powers to adjust individual rates in the light of detailed economic studies of American industries. This proposal is, as we have earlier seen, the point to which the thinking of most of the more intelligent students of the tariff had brought them. It is the heart of what is known as ‘taking the tariff out of politics.’

No one, of course, really thinks that the tariff can be taken out of politics. Any question so closely affecting the economic interests of large numbers of influential people is bound to be of political concern. Nevertheless, the hope has been that an administrative system might be devised for applying a general policy with more intelligent concern for economic realities and less resort to political bargaining. So long as there existed within the country a real conflict of opinion it also appeared that any such commission would, if properly constructed as to pay and tenure, probably command the services of at least some men able to bring to its deliberations the ripest economic judgment and knowledge.

IV

The probability is, however, that such hopes are optimistic and vain. No better evidence of this could be asked than the recent turn given to the interest of the National Association of Manufacturers in the subject of tariff administration. This Association originally owed its existence to a conference called in 1894 for the purpose — to quote its official organ, American Industries (November 1928)—of discussing ‘ways and means of bringing the country out of the doldrum epoch into which the Wilson bill had plunged it.’ This quotation is interesting because it shows that the Association belongs to that large group of people who attribute the depression of the middle nineties to Democratic tariff policy and the escape from that depression to Republican tariff policy. The persistence of this theory is of much interest, since it illustrates the great difficulty of disseminating accurate information concerning the tariff. The theory has been exposed and discarded by every economic historian and every disinterested student of the tariff who has studied this period. It continues, nevertheless, as part of the stock in trade of Republican orators, the Tariff League, the National Association of Manufacturers, and in fact of every organization directly interested in protection. It is not a case of willful misrepresentation, but rather of ‘wishful thinking,’ which makes it impossible for any directly interested group to comprehend or accept any accurate economic analysis of the nature of international trade relationships or of the effects of protective tariffs.

I have referred to the history of this Association only to establish the nature of its interest in this question. The real immediate interest in the Association is due to the fact that the entire number of its journal to which reference has been made is given over to an argument against general tariff bills and in favor of continuous adjustments by an administrative commission with much wider powers than the present commission. This, it will be recalled, is exactly the reform which impartial students of the tariff have tended to advocate, and the one which constituted practically the whole of Governor Smith’s constructive proposals. It is certainly an interesting phenomenon to see the thunder of tarilf reformers, who wished to prevent the rates being written by those who stood to benefit, being thus stolen by those very interests which are most directly and powerfully affected by the tariff.

If those who think the rates generally too high and hope for downward revision, those who wish to maintain high rates or to make them higher, and those who are less interested in rates than in effective administration and less in political aspects than in impartial economic analysis of the tariff, all tend to concentrate in the direction of a commission with greater power to adjust rates, there must stand in the eye of each a somewhat different view of how the commission shall be constituted and what its general instructions from Congress shall be. The first group has expected adequate representation for other than protectionist sentiment and interests. The third group has generally conceived that the commission, properly constituted, should scientifically study the effects of the tariff in relation to each affected industry with an open mind, that it should be manned by our most expert students of the subject, and that its recommendations to Congress or its substantive adjustments should be ruled solely by competent economic analysis. Of necessity, competent economic analysis must start from a position in which any original bias toward protectionism is absent.

The expectation of the other group is made sufficiently plain in the words of the president of the National Association of Manufacturers, that ‘it is possible for the first time to disregard the question of a protective policy. That has been settled by the American people in no uncertain terms. . . . It is a question now of how that policy is going to be applied, whether it is going to be applied politically by Congress in a bunglesome way . . . or whether it is going to be . . . committed as far as possible to a body properly equipped for treating the subject as it should be treated.’ The first assumption of this group is that there is no longer any controversy over the protectionist policy. Of course, there is not, in the sense that any sane policy will start from the base line of our present industrial situation. But, if it be meant that the dogma of protectionism, the logic of which is exclusion of all goods that can be domestically produced, is now unquestioned, there may indeed have been an end of controversy between Democratic and Republican parties, but certainly no end of it between the direct beneficiaries of the tariff and all impartial students of foreign trade who have a smattering of sense and economic knowledge.

The second assumption of the group is that, where distress appears in any industry affected by the tariff, rates should be quickly and effectively raised. That is why a commission is wanted, to act more rapidly than a protectionist Congress. Such more or less automatic raising of rates when evidence is produced of insufficient protection to some members of an industry has nothing to do with scientific analysis of the effects of a tariff. It might well be sound tariff policy to adopt rates which would not protect the least efficient, or highcost, enterprises. A competent survey might conceivably dictate a gradual decline in rates as the general policy best adapted to promote the fullest utilization of our labor and capital resources. Almost inevitably the treatment accorded different industries would be different, according to their importance in the national economy, the degree of their dependence on the tariff, and the complex of factors determining their present prosperity and status. But no such discriminating treatment is implied in the project of the manufacturers for a strong commission.

In advocating a strong commission to make more effective the protect ive dogma in practice, it has of course been necessary to do lip service to the power to reduce rates when they are unnecessarily high. But experience has shown that rates can seldom be too high, in the manufacturers’ apprehension. The reason is that, at whatever level a rate is set, almost every industry can point to firms that are unprofitable. It is the existence of such submarginal firms that lends plausibility to the demand for almost endless increases. The effectiveness of such considerations has led to the result that the bulk of the American electorate has been convinced, by the sheer weight of propaganda of the interested parties, that it is better to pay more for goods than less, to direct our energy into wasteful channels rather than into those where we can get the most return for our effort. Some subtle poison of national pride, some obtuseness in the face of gross sophistry, has clouded our intelligence — to such a point that the protected interests can step in to capture and operate the one improvement in tariff administration which had been looked to as a barrier to their incessant grasping.

V

The conclusion, then, seems to emerge with an air of inevitability that the sort of tariff reform advocated by Governor Smith has promise in it only if the commission be free to bring a critical economic intelligence to its task. By shaking off its early tariff principles, the Democratic Party has greatly lessened the chance that such would be the outcome, and has made it possible for manufacturers to assume that the commission would be their constant ally and support. With no effective political support remaining, enlightened economic analysis seems more remote from American tariff policy than ever in its history. Seen in this light, and in reference to this one issue only, the recent political campaign seems to have been the exact reverse of educational. The tariff, politically considered, moves from deep shadows into utter darkness.

That is the only conclusion to which I have cared to carry this analysis. Had it been desired to deal more technically with the problems of tariff administration, it would have been necessary to indicate that there are limitations upon the avarice of tariff beneficiaries. They lie primarily in the interests of importing houses, in the interests of manufacturers mainly producing for export, and in conflicts of interest between manufacturers and producers of raw materials. It would have been necessary to show also the different effects of the tariff upon different types of industry, the purely nominal character of many of the existing rates, and the relation of the tariff to our export trade. To deal intelligibly with such matters would carry the discussion far afield and to great length.

The impression created upon the mind is that American tariff policy follows the line of least resistance in the midst of those conflicting forces which feel an immediate economic interest in it. That is a line of thought which has by some observers been elevated into a philosophy of politics. I am not myself inclined to so simple a philosophy, but the hard evidence of facts appears to make it inescapable in this limited field. An economist, without conscious loyalty to any political party and interested only in the competent analysis and direction of our national economy, may be forgiven a mild cynicism in the face of the existing situation. It is the manufacturing interest which now dominates the scene, and gives the main direction within the parallelogram of tariff forces. It would doubtless be an exaggeration to say that no manufacturer is capable of understanding the effects of a tariff. But he would be ill-advised to attempt this, unless he is an exporter. It is so much more comfortable to remain opaquely unaware of those facets of knowledge inimical to one’s personal and private interests. Clothed in such ignorance, it is possible, in utter sincerity and benevolence, to propagate the gospel of the historical dependence of American prosperity upon the tariff. Thus we have with us, in a field the very essence of which is differential gain and loss, a dogma of complete harmony of interest. Such is the prevailing metaphysics of the perennial American optimism.