The Political Power of Economic Ideas: Protectionism in Turn of the Century America
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Abstract
One of the main economic debates taking place in late nineteenth and early twentieth century America was between supporters of protectionism and advocates of free trade policies. Protectionists won this debate, as the 1897 Dingley Tariff raised tariff rates to record highs. An analysis of this outcome highlights the overlapping interests of Republican politicians and business groups. A key feature of this analysis is a discussion of how both of these groups endorsed particular economic arguments in favor of protectionism. Contemporary studies by academic economists are also analysed as they provide fodder for the debates surrounding protectionist policies. The evidence from politicians, business owners, and economists combine to provide a broad view of who favored protectionist policies in turn of the century America, and suggests a political economy framework for understanding why protectionism won out over free trade policies at this time.
Comment by Eithne Murphy, National University of Ireland, Galway.
Peter Bent’s paper “The Political Power of Economic Ideas: Protectionism in Turn of the Century America” addresses an important question as to why the US in the late nineteenth and early twentieth century was still a champion of protectionism. I would add that this is a particularly interesting question, given that by the 1890s, the US was the world’s most productive economy. As an academic contributor to the debate stated at the time “… have we not reached a point in our industrial condition when it may have become a more important problem how to keep the door open for our exports to foreign countries than how to close the door to foreign imports?” (Atkinson, 1903, p. 281). Or is it a case of applying Joan Robinson’s verdict (on the case of free trade in Britain) to protectionism in the US; that is to say, that it was an ideology that had outlived its usefulness, but one that still had a grip on the public consciousness, proving that ideologies can be difficult to counter with reasoned debate and that it takes time to replace one ideology with another. (see note i)
I am surprised that Bent did not use more material from Frank Taussig. The latter wrote extensively from the late 1880s right up until the 1930s on every aspect of US tariff history and US business, as well as engaging with arguments for and against protection. At the very least, it would provide context for changing tariff legislation. For example, Bent refers to the period preceding the Dingley Act of 1897 (when the Democrats held the Presidency and both houses of Congress) as being one where the government enacted “free trade legislation”. By contrast, for Taussig the Tariff Act of 1894 “made no deep reaching change in the character of our tariff legislation … [with the exception of] … the removal of the duty on wool” (Taussig, 1909a, p. 317). The most it did was “[begin] a policy of lower duties; but most of the steps in this direction were feeble and faltering” (p. 318). This was clearly a matter of regret for Taussig, as he believed the Democratic success in Congressional elections of 1890, followed by their victory in the Presidential elections of 1892 (in which Republicans were comprehensively defeated) reflected public disaffection with the protective system. Taussig, like Bent, acknowledged the importance of economic events in the mid 1890s, such as the economic crisis that started in 1893 and the attendant fiscal deficits that accompanied it and which lasted the duration of the Democratic Presidency. For Taussig “the occasion for action was the more urgent because of the condition of the finances” (Taussig, 1897, p. 45) and this, allied with the ease with which Republican party strength could be consolidated on the question of protection, and the clearly expressed wish of the incumbent President McKinley to deal with import duties and fiscal matters, meant that tariff legislation was the first pressing issue of the new government.
Taussig (1905), in his address to the American Economic Association, attributed the extreme form of protectionism then current in the US to historical accident (meaning the Civil War from 1861 to 1865), going so far as so deny that it was the product of deliberate choice (Taussig, 1905, p. 62). For him, the revenue exigencies of the Civil War resulted in very high tariffs and these were maintained afterwards because of “… custom and iteration … The industries of the country have become habituated to it; and what is no less important, public feeling has become habituated to it.” (pp. 62-63). He compared protectionism in the US, and its public support, to free trade in England, in terms of being “accepted doctrines” which gained extra hold because of the concomitant material prosperity that these countries enjoyed. For Taussig it was clearly a case of post hoc ergo propter hoc, and he felt that change in the legislation was not likely until that correspondence was broken (p. 63). He reiterated this point when talking about the Tariff Act of 1909, claiming that populations’ thoughts become habituated to the legislative status quo, which he found to be, not only natural, but sensible (Taussig, 1909b, p. 8). The upshot of this is that abrupt policy shifts are both inexpedient and politically impossible, so that change has to happen in gradual steps. Yet, Taussig also explained the protectionist bias of US legislation at that time, as being a product of the US government structure, where the US Senate exercised greater power than the House, due to its smaller size and longer term. That the US Senate had a protectionist orientation was due to the greater subservience of the Senators to monied interest, and the unique representative nature of the Senate, where thinly populated States had disproportionate power (pp. 16-17). Taussig also alluded to a certain incoherence that could occur in the legislative process in the context of parliamentary politics. So, for example, he viewed the re-imposition of duties on wool and hides in the 1897 Dingley Act as a Republican gesture to win over farmers, for whom the Democrats were the usual advocates (Taussig, 1897, pp. 50-51). However such tariffs on raw materials would have had adverse knock-on effects for manufacturing in the absence of higher tariffs on manufacturing goods. So those had to be increased as well.
None of these issues; the fiscal exigencies that existed at the time (and the underdeveloped nature of the taxation system, with its limited range of fiscal instruments), the impact of the structure of government on legislation, and the possibility that there could have been an incoherent element to the protectionist system are explored. And I would suggest that they are worthy of more investigation.
While Bent alludes to the links between the business community and the Republican party at that time, citing Stern (1970), he could have devoted more space to developing the nature of those links and the interests at stake in the different States, that were conducive to a policy of protectionism, as opposed to a policy of tariff reduction and attention to exporting interests. Or, it would be interesting to know if there are other examples of how protectionism in one sector invariably resulted in escalating protectionism in other sectors, in order to maintain equity across sectors (as mentioned in the case of the wool), since this points to a certain incoherence in policy outcomes, when looked at in the aggregate.
Where I have most difficulty with Bent’s analysis is on the view of economists. He cites Sidgwick and Taussig (indirectly through the writings of Irwin) to give the view that there was much academic support for protectionism. Yet, Sidgwick is often viewed as a pragmatic free trader who, while accepting the theoretical exceptions to free trade, denied their practical application. In the UK, the home of Classical Political Economy, most theoretical economists were free traders, so much so, that during the tariff controversy of 1903, fourteen economists penned a letter rejecting the abandonment of free trade in favour of a policy of imperial preference and affirming support for free trade. A feature of that particular public debate was that those who favoured a return to tariffs, were, by and large, economic historians. (see note ii) Also, to my mind, the citation from Taussig (1905) that “Free trade would seem to be the waning doctrine” is misleading, since, in the same article (which incidentally Bent does not cite directly), Taussig was referring to the stance of the German Historical School (GHS) with whom he took great issue. What upset Taussig about the position of the GHS (on trade as on other matters) was that they denied the existence of established theory on economic matters and embraced a policy of relativism and opportunism when it came to a country’s trade policy stance (Taussig, 1905, p.57). As he said
“I confess to little patience with this attitude …. On all such questions of principle, we often find a sad lack of clear-cut reasoning among our German colleagues” (p. 57). Furthermore “It is easy to account for this stage of thought, especially among writers of the second rank” [my emphasis] (pp. 57-58). Indeed he concluded the article with a clarion defence of free trade stating “… the doctrine of free trade, however widely rejected in the world of politics, holds its own in the sphere of the intellect (p. 65 ).
I am also a bit bemused by the literature selected as representing the views of economists on the matter or protectionism versus a more liberal trading regime. Bent states that a defining characteristic of the literature was that it used the method of case studies, usually confined to particular sectors (of which more anon). But the studies he cites, Clossen (1894), Kuzinsky (1901) and Willoughby (1904) are not related to the tariff debate; they deal respectively with unemployment in American cities, the fecundity of native and foreign born populations in Massachussets, and the integration of industry. While I accept that the point might be to show deficiencies of method, would it not have been more useful to concentrate on those articles that dealt with the issue of US trade policy? The only Quarterly Journal of Economics (QJE) article relating to tariffs that he cites is Line (1912), which looked at the effects on the sheep industry of the removal of tariffs under the 1894 Act (which were reversed in 1897) and concluded that it had had a very adverse impact on that industry. I did a trawl through the literature in the QJE on trade policy issues and from my (admittedly) cursory search, was surprised to find (in the light of Bent’s assertions) that the majority of writers were advocating a more liberal trade regime. (This is quite apart from the anti-protectionist stance of the pre-eminent trade economist of the day, Frank Taussig) (see note iii). The following are some examples.
Atkinson (1903) used the 1901 census to evaluate the impact of a reduction in tariffs on employment, categorising worker numbers according to the sector where they were employed and the extent to which that sector was subject to foreign competition. He concluded that there was no justification for duties on machinery, many metals and raw materials and the tools of domestic industry, as well as on necessities (Atkinson, 1903. p. 291). He only defended revenue tariffs on luxury items, which he viewed as being for the use of millionaires. This was not free trade but it was a call for freer trade!
Beardsley (1901) drew attention to the fact that most monopolies in the US were to be found in protected industries. He believed that so rapid had been the consolidation of industries in the sectors protected from foreign competition, that the tariff issue needed to be reconsidered. While he was not calling for complete trade liberalisation, he was calling for liberalisation in sectors characterised by such monopolies (see note iv).
Hess (1911) made an elaborate and subtle case for liberalisation of the paper industry, citing not just benefits to the consumer but environmental benefits as well. It is interesting to note that he took issue with the defence of wages argument (that US wages needed to be protected from low wage international competition) referring to the argument as “wearisome” and making the point (so often made by those of a liberal trade orientation) that it is cost of labour per unit of output that is relevant. This is worthy of note as the US protectionists were increasingly citing the wage case, as opposed to the infant industry case, to justify their policy appeals. And Hess was challenging this defence of protectionism!
Whitney Wright (1905) reviewed the impact of varying tariff legislation on the wool-growing industry since 1890. His study was wide-ranging as he looked at the changing pattern of the industry and how sheep rearing had moved west. He explained industry dynamics, not just in terms of responses to tariff legislation, but also as a consequence of the expansion of the rail-roads, alternative uses for land, and changes in demand patterns for different types of textiles. For him, while tariffs did benefit wool growers, he claimed that they probably benefited less than one would have expected from the size of the nominal tariff. The fate of the industry he saw as being determined more by general economic developments than tariff legislation, and in this regard, he predicted the gradual decline in the wool industry in the US, a fate that he did not believe tariff legislation could reverse.
The view of Commons (1892) on trade policy is interesting, given that he is considered one of the pioneers of American Institutional economics, which was very influenced by the German Historical School. But his position on protectionism was ambiguous. He acknowledged that the advantages of free trade went to natural monopolies in agricultural land and transportation. But, he also asserted that protectionist trade policy benefited other natural monopolies, namely, the natural sources of raw materials for manufactures and the land used for manufacturing purposes. So as far as he was concerned, whoever won the protectionist-free trade debate, the gainers were never labour nor, what he referred to as free capital, but different types of natural monopolies, who reaped such gains by virtue of their ownership of scarce resources. So Commons could be considered agnostic on the issue of protection versus free trade, and indeed his recommendations were for free trade in raw materials (but not in manufactures, or at least he does not say) and a special tax on speculative holdings of scarce natural resources.
Finally, a very interesting contributor to the debate was Powers (1899), not just because he predicted that the US would move away from protectionism and towards free trade, but because he explained the public mood, not on the basis of the victory of economic arguments in favour of free trade, nor the outcome of victory of vested interests who would stand to gain from free trade, but on the basis of a change in the prevalent culture and ideas and temper of the nation. For Powers, the protectionist stance of the US trade policy for much of the 19th century was not due to the persuasiveness of the infant industry argument or the pauper labour argument (though he was not disparaging those arguments, simply claiming that they were irrelevant). Instead, he asserted that they were the outgrowth of unique special conditions of US post-independence history, such as the need for nation building and the creation of a national identity. In this he sounds remarkably like Taussig, in his reference to historical accident to explain US protectionism. But Powers goes further in his reference to national moods, which he acknowledged exasperated the economists but which he claimed can be useful and necessary. For him economic arguments are a product of policy not a cause (Powers, 1899, p. 372). So he predicted a change in the public mood more favourable to liberal trade, not least because of US military engagements with Spain and the Philippines at that time, which would change the national imagination. Also, “The very growth of foreign commerce itself, from whatever cause, tends to create powerful and organized interests, restive of commercial restraint and forming a hitherto lacking counterweight to the closely organized manufacturing interests which have so successfully supported the policy of protection (p. 376). To my mind, Powers presents a very subtle and powerful argument about the development of national consciousness which can be deployed in favour of whatever particular policy stance is useful.
The reason for citing the above QJE articles is to illustrate that, from my search, there appeared to be a consensus among those publishing in this outlet in favour of greater trade liberalisation. At best, they were agnostic on the issue (in the case of Commons) or, not making a normative case either way, but attempting to explain why public sentiment had traditionally favoured protectionism in the US and was now moving towards support for trade liberalisation (in the case of Powers). So, while not claiming that my search was definitive, it behoves Bent to cite directly the academic research supportive of maintaining the trade policy status quo, which he does not do.
There are two issues at stake here. One is to explain the twists and turns in US trade policy history and the other is the efficacy of those self-same policies. Many commentators, who acknowledge the role played by protectionism in the development of US industry, would still admit that by the late nineteenth, early twentieth centuries, US industry had overtaken European industry in terms of efficiency, thus rendering the infant industry argument for protection obsolete by that time (see note v). The interesting question is that raised by Taussig (1905), whether there is any established theory on commercial policy or whether the appropriateness of free trade versus protectionism depends, above all, on a country’s particular circumstances. For the German writer Friedrich List, who advocated infant industry protection of nascent manufacturing industry (for some countries at a particular stage in their economic development), there were no absolute principles when it came to a country’s trade policy stance. Relativism ruled. Adopting this view, the eventual change in the US policy position after World War II, when the US finally liberalised its trade and became the most vocal global advocate of free trade, was to be expected, given its industrial supremacy. For others, such as Douglas Irwin (1996) and possibly even Bent, the change is due to the triumph of sound economic ideas and improved economic methods, which have established the soundness of the principles of free trade, and eventually convinced legislators of the rightness and righteousness of this position.
The last issue that I wish to address is the question of economic method. Bent appears to be implying that academic studies on the effects of a country’s trade regime at the time period that he was interested in, were defective, to the extent that they were often case studies narrowly focused on particular sectors. This he attributes to a lack of nation level data and modern statistical techniques. The implication is that better data and better techniques have led to more enlightened policy stances in recent times on trade issues. While more comprehensive data and better statistical techniques are to be applauded, they are not without dangers. In particular, a recent tendency of economists has been to not recognise empirical evidence if it does not come packaged in the form a statistically significant coefficient attaching to the relevant explanatory variable. This was clearly the case when it came to understanding the causes of the economic success of the Newly Industrialised Countries (NICs) of South East Asia and the complex role played by the State and Industrial and Trade policies in their success. Many economists for too long failed to recognise just how interventionist governments in these countries actually were, some going so far as to erroneously hail them as exemplars of free trade orthodoxy, while others claimed that they industrialised and developed despite protectionism. My point here is not to rubbish statistical analysis or to argue for a return to case study methods, but to highlight the dangers of relying exclusively on one form of evidence. As Mary Morgan (2014) points out, case studies are a respectable epistemic genre that are eminently suitable as part of social science research, where controlled experiments are impossible. What recommends them is the multi-dimensional nature of the observations, which can be evidentially very rich. By contrast, statistical analysis derives its force by selecting comparable, numerically expressed observations of a few aspects of social reality, and looking for patterns and correlations in the objects selected and measured. This is sometimes called a thin description of social reality, reflecting the uni-dimensional nature of the observations and the fact that only certain features of social behaviour are selected and studied. If history has shown us anything, it is that there are many paths to knowledge, and, given the complexity of the social world, we cannot expect enlightened economic policies if our approach to studying social and economic phenomena is unnecessarily narrow.
Atkinson, E. (1903), Occupations in their Relation to the Tariff, Quarterly Journal of Economics, Vol. 17 (2), pp. 289-292.
Bairoch, P. (1993), Economics and World History, The University of Chicago Press, Chicago.
Beardsley, Charles (1901), The Tariffs and the Trusts, , Quarterly Journal of Economics, Vol. 15 (3), pp. 371-389.
Chang, H. J. (2002), Kicking Away the Ladder: Development Strategy in Historical Perspective, Anthem Press. London.
Clossen, Carlos, C. (1894), The Unemployed in American Cities, Quarterly Journal of Economics, Vol. 8 (2), pp. 168-217.
Hess, Roscoe, R. (1911), The Paper Industry in Its Relation to Conservation and the Tariff, Quarterly Journal of Economics, Vol. 25 (4), pp. 650-681.
Irwin, Douglas A. (1996). Against the Tide: An Intellectual History of Free Trade. Princeton: Princeton University Press.
Kuczynski, R. R. (1901), The Fecundity of the Native and Foreign born Population in Massachussets, Quarterly Journal of Economics, Vol. 16 (1), pp. 1-36.
Line, Robert, C. (1912), The Effect of Free Wool in the Northwest, 1893-96, Quarterly Journal of Economics, Vol. 26 (3), pp. 528-530.
Morgan, M. Case Studies, in, Cartwright, N. and Montuschi, E. Philosophy of Social Science: A New Introduction, Oxford University Press, Oxford.
Robinson, J. (1962), Economic Philosophy, C. A. Watts and Co. Ltd, London
Stern, C. A. (1971). Protectionist Republicanism: Republican Tariff Policy in the McKinley Period. Ann Arbor: Edwards Brothers Inc.
Taussig, F. W. (1897), The Tariff Act of 1897, Quarterly Journal of Economics, Vol. 12 (1), pp. 42-69.
Taussig, F. W. (1905), The Present Position of the Doctrine of Free Trade, American Economic Association, Papers and Proceedings, 3rd Series, Vol. 6 (1), pp. 29-65.
Taussig, F. W. (1909a), The Tariff History of the United States, 5th ed., G. P. Putnam’s Sons, New York and London.
Taussig, F. W. (1909b), The Tariff Debate of 1909 and the New Tariff Act, Quarterly Journal of Economics, Vol. 24 (1), pp. 1-38.
Whitney Wright, Chester (1905), Wool-Growing and the Tariff since 1890, Quarterly Journal of Economics, Vol. 19 (4), pp. 610-647.
Willoughby, W. F. (1901), The Integration of Industry in the United States, Quarterly Journal of Economics, Vol. 16 (1), pp. 94-115.
Endnotes:
(i) Joan Robinson was trying to explain why there had been such an outcry when Keynes turned apostate and argued for protection in Britain in the 1930s. Her conclusion was that the ideology of free trade (that served Britain so well in the nineteenth century) still reigned, despite the very different economic circumstances of the country, showing that an ideology can outlive its usefulness, as well pointing to the irrational element that is inherent in all ideologies (Robinson, 1962, p. 84).
(ii) The Tariff reform controversy was a product of an unsuccessful campaign launched by Joseph Chamberlain (the Colonial Secretary in the government of the day) in 1903 to abandon Britain’s free trade policy for a policy of imperial preference.
(iii) The reason why I confined my search to the QJE was because Bent explicitly cites the QJE as the outlet where academic economists aired the results of their research.
(iv) Rather presciently, Beardsley alluded to the fact that monopolies can also arise under free trade, what he refers to as international combinations.
(v) This is the position of Bairoch (1993, p. 36), who mentions that the Republican Party based its case for the introduction of the McKinley tariff of 1890 on the need to safeguard the wages of American workers and give some protection to the agricultural sector. See also Chang (2002, pp. 29-30) who, while arguing that the US would probably not have developed as quickly as it did without infant industry protection, does accept that, especially by the late nineteenth century, US tariffs were probably too high due to interest group pressures and factional politics.
I am sincerely grateful for Eithne Murphy’s detailed comments on the first draft of my paper. The comments will go a long way toward making this a better paper, and I am thankful for the depth and scope of Murphy’s suggestions.
To step back for a moment, I realize that the first draft of my paper is in many ways incomplete. The motivation behind it grew out of another research project I had been working on (Bent, forthcoming). That research focused on the role that protectionist policies played in the economic recovery from the 1890s depression in the United States. In that paper I focus on the wool industry as a case study in order to discern the impact that protectionism had on a major industry, and the effects this had on the broader economic recovery from the depression. I argue that protectionism, and even just the anticipation that protectionist policies would be implemented in the future, helped instill confidence and encouraged economic activity, ultimately helping the economy grow again.
In order to better understand these issues, I wanted to write a paper analyzing the economic debates on free trade versus protectionism that were taking place in the late-nineteenth century United States. My goal was to study the history of economic thought at this time in order to better understand the intellectual and historical context of these debates. In my paper I focus more on the protectionists’ points of view, both in Congress and in private industry. But I am also interested in how academic economists engaged in these debates. Murphy is correct in suggesting that I should draw more from Taussig in my analysis. I rely on Taussig’s work extensively in my earlier paper on the recovery from the 1890s depression, and his research offers great insights into the controversies and impacts of tariff legislation. Going forward, I will bring more of Taussig’s work into this paper.
I completely agree with Murphy that I need to devote space to discussing the “fiscal exigencies that existed at the time (and the underdevetaloped nature of the taxation system, with its limited range of fiscal instruments), the impact of the structure of government on legislation, and the possibility that there could have been an incoherent element to the protectionist system.” Some of these issues I discuss in my previous research, but it would be very useful to include an analysis of these factors in this paper, and I’m glad Murphy pointed that out. I appreciate when the history of economic thought is discussed in light of the political, economic, and social contexts out of which that thought developed. The debate surrounding free trade versus protectionism occurred at a time of societal change, leading up to the Progressive Era. These developments are relevant for my study of the economic thought of the late 1890s, and I will incorporate more research on these issues into my paper.
I am especially grateful for Murphy’s pointing out the shortcomings in my understanding of Sidwick’s and Taussig’s views on protectionism. I was relying too heavily on secondary sources here, and I will go back to the original documents in order to broaden my understanding of these authors’ positions. Similarly, I think Murphy is fair to question my reliance on the Quarterly Journal of Economics (QJE). I chose the QJE because it published articles on a wide range of economic issues, and I was interested in seeing the types of academic research economists were doing on protectionism in late-nineteenth and early-twentieth century America. I didn’t mean to suggest that this was a comprehensive survey of economists’ views at this time. I should be more careful in presenting the papers I cite as offering just several examples of the type of research on protectionist policies that economists were undertaking at that time. My intention was to focus on the arguments about the impacts of protectionist policies specifically. I agree with Murphy that it would be prudent to also discuss economic analyses of free trade from this time period, in order to have a more complete analysis of what economists were studying and advocating for at this time. The papers Murphy cites (Beardsley, 1901; Hess, 1911) provide good examples of the type of nuanced analyses of tariff policies that economists were undertaking in the early twentieth century, and I appreciate having these papers brought to my attention. Indeed, these papers demonstrate one of the issues I want to highlight in my paper — that economists were engaging with the nuances of the free trade versus protectionism debate, in contrast with the more one-sided rhetoric employed by politicians and business owners.
In the next version of this paper I will be more careful about how I frame my discussion of the methodological approaches employed by turn-of-the-century economists. As mentioned above, this paper grew out of earlier research of mine which focused on the ways that protectionism helped the US economy recover from the 1890s depression. Thus my arguments align more with, say, Amsden (1989) than with Irwin (1996) in this regard. Murphy notes that the United States adopted more liberal trade policies later in the twentieth century, and that for some researchers this change “is due to the triumph of sound economic ideas and improved economic methods, which have established the soundness of the principles of free trade, and eventually convinced legislators of the rightness and righteousness of this idea.” I do not want to be included in this category, as I think there are important cases where heavy government involvement has helped promote economic growth and development (e.g. Amsden, 1989). I will make this clear in the next version of this paper.
I regret that my discussion of turn-of-the-century economists’ methods led to the impression that I think their methods were “defective.” I certainly don’t think that is the case. If anything, I thought it was notable that economists at this time used case studies so effectively, and that is something I am interested in doing in my own research. For example, in my earlier research on the recovery from the 1890s depression I discuss the limitations of relying exclusively on aggregate-level economic data. This is an especially important issue for historical research, since measures such as GDP did not exist during the time period studied in this paper. To deal with this issue I employ a case study methodology to focus on the wool industry, in order to study the impact that protectionist policies had on a particular industry. I think turn-of-the-century economists used case studies effectively (though I appreciate Murphy’s reference to Morgan (2014) on the limitations of case studies). I don’t think that it is necessarily true that “better data and better techniques have led to more enlightened policy stances in recent times on trade issues.” In fact, one of the issues I am interested in is how politicians and business owners pursue their own interests regardless of what the broader economic evidence is. I agree with Murphy that economists are also often guilty of focusing too narrowly on empirical evidence that confirms their own biases.
Murphy’s concluding sentence begins: “If history has shown us anything, it is that there are many paths to knowledge….” I completely agree, and it is this sentiment that I want to guide my paper. In order to gain a comprehensive understanding of the issues influencing the free trade versus protectionism debate in turn-of-the-century America, I draw from three categories of voices that participated in this debate: Economists, politicians, and business owners. My intention is to understand economic thought broadly at this time, from academic journals to trade publications to debates in Congress. Murphy’s comments on the first draft of my paper are extremely useful and I am very thankful for their depth and level of detail. Incorporating these suggestions into my paper will help clarify my points and encourage me to think more deeply about a range of important issues.
References
Amsden, Alice (1989). Asia’s Next Giant: South Korea and Late Industrialization. Oxford: Oxford University Press.
Beardsley, Charles (1901). The Tariffs and Trusts. Quarterly Journal of Economics. Vol. 15 (3), pp. 371-389.
Bent, Peter H. (forthcoming). The Stabilising Effects of the Dingley Tariff and the Recovery from the 1890s Depression in the United States. In: Crises in Economic and Social History: A Comparative Perspective. Alex Brown, Andy Burn, and Rob Doherty, eds.
Hess, Roscoe R. (1911). The Paper Industry in Its Relation to Conservation and the Tariff. Quarterly Journal of Economics. Vol. 25 (4), pp. 650-681.
Irwin, Douglas (1996). Against the Tide: An Intellectual History of Free Trade. Princeton: Princeton University Press.
Morgan, Mary S. (2014). Case Studies. In: Philosophy of Social Science: A New Introduction. Nancy Cartwright and Eleanora Montuschi, eds. Oxford: Oxford University Press, pp. 288-307.
Peter Bent’s paper leads us to rethink the sources of protectionism within the economic thought, as well as to reconsider the moods of regulated business. And I accept the challenge. My comments are, firstly about the economic ideas used to support the protectionism; I agree with Peter Bent, the protectionism won the debate. Secondly the economic theory used to promote the laissez-faire, as the business man wanted.
Let me start by the root of protectionism in the United States. Since the beginning of economics as a science, the intervention of states in private activities could be accepted, on condition that interference must be clear, infrequent and precisely justified. In this context, as far as I know, the protectionism should be analysed. There are powerful reasons to believe that John Stuart Mill had an important influence on the American Economists at the end of the 19th century, according to Morgan, and a direct one on John Bates Clark, from our point of view the American economist who achieved political relevance, being the main supporter of the state intervention when the market failures appear.
Mill published in 1848 his Principles of Political Economy, in Book V, chapter I, entitled “Of the functions of Government in General”, Mill wrote his doctrine of protection to native industry, following the line of Jean Baptiste Say, “From the necessary functions of government, and the effects produced on the economical interests of society by their good or ill discharge, we proceed to the functions which belong to what I have termed, for want of a better designation, the optimal class; those which are sometimes assumed by governments and sometimes not, and which it is not unanimously admitted that they ought to exercise”.(Mill, [1848] (2006): 913)
John Stuart Mill is not considered an advocate of state intervention in the economy, especially in private business. Even so, he described some special circumstances that must be considered as exceptional, and this is the case that concerns this debate. Theoretically, protection generates losses to the country due to the excess of price paid by inhabitants over the price of the good were it to be imported. However, he described that materials and instruments of production are susceptible to being protected exceptionally, because they are required by the economic system itself. The argument to defend exceptional protection cases is not exactly old; it defended that free trade generates foreign labour instead of domestic labour. J.S. Mill wrote that free trade means: “That the alternative is not between employing our own people and foreigners, but employing one class and another of our own people” (Mill J. S., [1848] (2004): 915)
J.S. Mill also argued that “The only case in which, on mere principles of political economy, protecting duties can be defensible, is when they are imposed temporarily in the hope of naturalizing a foreign industry, in itself perfectly suitable to the circumstances of the country […] but only a present superiority of acquired skill and experience” (Mill J. S., [1848] (2004): 918). Some pages later, Mill continued his line of argument paying special attention to the fact that the “infant industry” also has other advantages to afford, the main disadvantages being only skills and experience; Mill widened his argument to include natural advantages and pointed out that carriage costs [note 1] are probably temporary and only deserve to be provisionally protected.
We can say that protection for national industry had already been considered by the Classical School. This is a good reason to bear in mind there are some exceptions about the free trade, even within the birthplace of liberalism as line of economic thought.
That is the connection between international trade protection and infant industries. The fight to reduce taxes and other instruments developed to impede the free trade of goods among countries is the cornerstone of liberalism´s school of thought, but even some extremely liberal authors accepted some kind of protection for infant industries. We can use the same argument to support, even within domestic competition, the belief that protection for nascent companies deserves to be exceptionally considered.
The influence of Mill in John Bates Clark’s thought reaches the argument of international trade beyond the infant industry theory. Clark believed in the protection of national infant companies against foreign producers until the domestic industry could achieve a sufficient advantage. This is an old argument first supported in The control of trust (1901) but precisely defined later in Economic theory (1907) “If the natural price of an article is based on the cost of making it in the United States, and if that is twenty per cent higher than the cost in a foreign country, a duty of twenty per cent will place the American product and the foreign product on an equal basis. The American maker will not be driven from his market until he begins to charge an abnormally high price” (Clark, J. B., [1907] (1915): 1352)
But this is not the case of monopoly, because protecting a monopoly in any industry means that “the trust shall be enabled to sell a portion of its goods abroad at one price and the remainder at home at a much higher price” (Clark, J. B., [1907] (1915): 1356). This proposal leads Clark to claim: “but an essential point is that one means which the trust adopts in order to crush him depends on the existence of great profits in most of its territory; and these would not exist if it were not for the unnecessary and abnormal part of the duty” (Clark, J. B., [1907] (1915): 1361).This is an interesting point developed by Clark, the question of monopoly is not a domestic issue, it reaches international trade and he probably was thinking of the wider implications of this argument, what would happen with American competitive industries outside? Do they have to suffer extra duties in retaliation for American monopolies´ behaviour beyond its borders? These questions are linked with Millian’s demand reciprocity theory.
There are several lines of thought in Clark, clearly connected, on the one hand the defence of infant industries and international trade, on the other profits and social justice [note 2]. He kept in mind that free competition is the only target to reach. First support of this idea is that while international trade exists, the domestic industry is threatened by foreign industry [note 3], and it is economically worthwhile, and every domestic duty maintained in the long run due to the argument of “infant industry” became a monopoly. The second argument pro competition is not quite clear, economic progress improves the wealth of nations but the distribution of this wealth became the center of Clark’s thought. He believed strongly that private property is a basic social institution and government should interfere in economic activity only for the protection of property, enforcement of contracts and improving competition.
The second part of my comments are about the regulated people, I mean, the Robber Barons, which name belongs to the “dukes,” “barons” and other “nobles” of the Middle Ages” [note 4], and refers to the business man at the end of the nineteen century in American; the business man who worked on railroads [note 5], oil [note 6] and steel; indeed they were the people who claimed for laissez-faire. The technical argument was developed by George Gunton; who argued that if commodity prices fall so real wages rise and then wealth is transferred to the working class, from 1860 to 1891, the purchasing power of a day’s work was increased slightly over 72 per cent [note 7]. Henry Ford in his book entitled My Life and Work used the same argument [note 8]. The argument of Gunton was hold on in the fact that “we find that from 1860 to 1890 the average purchasing power of the same wages was increased 236 per cent or more than four times as much as those of the non-trust corporations” (Gunton, G. 1899: 40). Gunton’s article includes a table which shows the percentage of increase of the purchasing power of weekly wages in cotton-seed oil, sugar refined, freight New York and Chicago, telegraph messages and petroleum refined; to conclude that the trusts analysed have shared the gain with the community by giving lower prices and better service, all such contribute to the improvement of the society. As a result of these evidences there are not economic reasons against laissez faire.
– Ana Rosado, Complutense University of Madrid, Spain.
Endnotes
(note 1) This argument is the same that J. B. Clark argued in Economic Theory, 1907, to keep under control the railway companies in the US.
(note 2) It is convenient to bear in mind that the academic analysis of industrial profits survived until the eighties of the twenty century. Within the Structure-conduct-performance paradigm profits have been considered per se a consequence of market prices high due to monopolisation of industry.
(note 3) Clark J. B., 1900, Disarming the Trusts, pp. 53.
(note 4) Josephson M., 1934, Robber Barons, pp. 63
(note 5) William Z. Ripley, from Harvard University and an authority in this field, estimates conservatively that three-fifths of the cost of the railroads was originally borne by government, some $707,000,000 in cash, $335,000,000 in land.
(note 6) Rockefeller had a legend of “Machiavellian” guile and relentlessness with which he has always negotiated as the prince of oil.
(note 7) Gunton, G. 1899, Trust and the public, pp. 74
(note 8) Ford, H., 2002. My Life and Work, pp. 51
Some references
Clark, J. B., [1888] (1973), Big business economic power in a free society, New York: Arno press.
Clark J. B., 1900, “Disarming the Trusts”, Atlantic Monthly, 85, 507: 47–55.
Clark, J. B. and Clark J. M., [1901] (1914), The control of trusts, New York: Macmillan co
Clark, J. B., [1907] (1915), Essentials of Economic Theory as applied to modern problems of industry and public policy, New York: The Macmillan Company.
Clark, J. B., [1914] (1973) “Social justice without socialism”, in J. B. Clark, Big business economic power in a free society, New York: Arno press
Ford, H., 2002. My life and work, http://www.blackmask.com
Gunton, G., 1888, “The Economic and Social Aspect of Trusts”, Political Science Quarterly, 3, 3: 385-408
Gunton, G., 1899, Trust and the Public, https://archive.org/details/trustsandpublic01guntgoog
Gunton, G. 1899-1913. The Outlook, http://www.unz.org/
Josephson, M., 1934, Robber Barons, The great American capitalists 1861-1901, New York: Harcourt, Brace and Company.
Mill, J. S. [1848] (2004), Principles of Political Economy with Some of Their Applications to Social Philosophy, Indianapolis/Cambridge: Hackett Publishing Company, Inc.
Morgan, M., 1993b, “Competing Notions of “competition” in late nineteenth-century American Economics”, History of Political Economy, 25, 4: 563-604
Morgan, M., 1994 “Market Place Morals and the American Economists: the Case of John Bates Clark” in Higgling, Transactors and Their Markets in the History of Economics (edited with N. De Marchi) Annual Supplement to Volume 26 of History of Political Economy, Duke University Press, Durham NC: 229-252.
Morgan, M. and Rutherford M., 1998, “American Economics: the Character of the Transformation”, in Mary Morgan and Malcolm Rutherford (eds.), From Interwar Pluralism to Postwar Neoclassicism. Annual Supplement to Volume 30 of History of Political Economy, Duke University Press: Durham NC: 1-26.
I really appreciate Ana Rosado’s detailed comments on this paper. Rosado’s discussions of debates over both protectionism and trusts are enlightening and useful, and introduce new sources for me.
I’d be very interested to hear more about the observation that “Since the beginning of economics as a science, the intervention of states in private activities could be accepted, on condition that interference must be clear, infrequent and precisely justified.” Rosado mentions the work of Mill, Say, and Clark to this end, but I’d be interested to know who else during the nineteenth century adopted this position, and what their detractors said of their arguments. My own research on this subject focuses on the last decade of the nineteenth century, but Rosado’s comments will prompt me to go further back into the origins of this debate.
The economists I cite in the paper are engaged in applied research. They study, for example, the effects that protectionist policies had on farmers’ and mill owners’ investment decisions during the mid-to-late 1890s. So it is interesting for me to hear about Clark’s more theoretical work and how he was inspired by Mill.
Rosado provides a clear picture of both Mill’s and Clark’s positions on protectionism. I think that one of the most interesting findings from my research on the wool industry in turn-of-the-century America is that mill owners relied on arguments other than infant industry status in their push for protectionism. Instead of the infant industry line of reasoning, I find evidence that the heads of the wool manufacturing industry argued for protectionist policies in order to stabilize expectations about future economic conditions (e.g. tariff rates). I look forward to reading Clark’s work in more detail, to see if these concerns played a role in his analysis of protectionism.
Rosado’s comments about business owners in the railroad and steel industries were interesting because of the contrast with the protectionist positions held by the wool industry. The evidence presented by Rosado suggests that there were indeed overall gains in quality of life under the trusts that operated in major industries. I would do well to keep these other industries in mind for comparison’s sake when discussing the policies favored by the wool manufacturing industry. While I certainly agree with Rosado that it is important to take a broader view how the actions of different industries impacted the “improvement of society,” in this paper I focus more narrowly on the wool industry in order to highlight the diversity of views that industry can take in the free trade versus protectionism debate. That said, I am most grateful for Rosado’s comments and references, and I look forward to having Clark’s discussions of these issues offer more insight into what economists were debating at the turn of the century.