American Ideas on Protection

American Ideas on Protection

America seemed more fruitful soil for the growth of protectionism than England. From the earliest days of the United States there were sponsors for protectionist views. The burning resentment felt for the mercantilist policies adopted by England in the 17 th and 18th centuries did not prevent several great Americans from supporting a paternalistic attitude of government toward industry. The economic ideas of Alexander Hamilton (1757-1804) were born out of his efforts to stabilize the financial structure of the new United States. Not that the ideas were original, for many of them had appeared centuries earlier in the writings of the English economists. Nevertheless, Hamilton wrote in the face of the growing popularity of the doctrine of free trade and the disappearance of protection as a national policy in England. As the first Secretary of the Treasury in the United States government, Hamilton was asked to assume the economic leadership of the new nation. He expected to exercise authority comparable to that of the English Chancellor of the Exchequer, but American political organization prevented the settling of such important powers outside the national legislature proper. In spite of this rebuff Hamilton continued to advocate programs of national policy in reports such as the one on manufacturers submitted to the House of Representatives in 1791. He was concerned over the fact that restrictions in foreign markets curtailed the demand for American goods, while at the same time, the American market was completely open. The need, as he saw it, was for a program that would insure more of the American market for American manufacturers. Moreover, Hamilton saw the possibility of developing new industries in America to the advantage of the people of the United States.

Hamilton was well acquainted with the arguments of Adam Smith in favor of agriculture and against protection, just as he knew the objections and distrust of his fellow citizens against any government participation in economic activity. Nevertheless, he fought for a protective tariff to retain the domestic market for those industries which were just getting started, and a government subsidy to start enterprises that seemed desirable. The use of the protective tariff and subsidy was not to be an indiscriminate matter, a careful analysis of the industries to be assisted was necessary to see first of all if American conditions would support the industry in question, and secondly if the demand for the article warranted the effort, and thirdly if the industry contributed to national defense. The general theory which Hamilton sponsored foreshadowed the later work of Friederich List. There was the nationalistic spirit, the same conviction that government should assist economic development, and the same idea that tariffs should be used only until an industry had had time to prove itself adaptable to the natural conditions of the country. Whether List became acquainted with Hamilton's papers while in America is difficult to say. It is not hard to believe, however, that an awareness to the same conditions gave rise to the same ideas.

Henry C. Carey (1793-1879) was one of the first of American economists to stand as an ardent advocate of protection. His success in managing a family publishing business enabled him to retire with a comfortable fortune at the age of thirty-five. From then on he devoted himself to writing on economic subjects. The most important work from his pen was Principles of Social Science (1857-1860) in which his system of social organization was outlined. It was in one of his earlier works The Harmony of Interests, Agricultural, Manufacturing, and Commercial, published in 1851, that he presented his views on industry and trade. In general outline Carey's arguments were similar to those of Hamilton and List, but at various points he differed and took a more extreme position.

Manufacturing was a socializing and a civilizing force, while agriculture—as List had said—held a population in ignorance and semi-barbarism. Furthermore, Carey believed that agriculture without a neighboring market could not survive, the cost of transporting produce to distant markets more than consuming the farmer's profit. But through protection the people of the nation would be knit closer together and the value of natural resources which America possessed would be retained by the people. A word of explanation will clarify these arguments. Protection would increase the diversification of occupations in America, bringing about cooperation and exchange among various elements of the population, and consequently the intellectual development of the nation as a whole. On the second point, Carey had a peculiar notion. Selling agricultural products and raw materials abroad took out of the earth its valuable qualities and left the people of America poorer. Produce sold within the nation was returned at least in part to the earth as fertilizers. It is difficult to follow this argument, for the sale of agricultural products would enable the people to import goods they considered more valuable than cereals or dairy products. If necessary, fertilizer could be artificially created or imported, as John Stuart Mill pointed out in his criticisms of Carey.

However, a later writer took pains to clarify this point. Simon N. Patten (1852-1922), the well known economist at the University of Pennsylvania, followed Carey in the defense of protectionism. While economists in general throughout the United States were supporters of free trade in theory at least after the masterful arguments against protectionism made by William Graham Sumner, the nation in general supported protection; and political parties merely disputed with one another over a higher or lower rate of protection. Patten, on many things considered quite liberal, argued for the economically conservative policy of protection. This paradox is easily resolved. The so-called liberal strain in Patten consisted of his support of a policy of government intervention in the interest of labor, consumers, and of economic planning. This, of course, was not foreign to government protection of home industries, in fact, the success of the former might clearly depend upon the latter. For example Patten believed that economic prosperity depended upon building a market for goods in the immediate vicinity where they were produced. And he also believed, in the same vein as Carey, that free trade would lead to the exhaustion of American raw materials, since without the protection necessary to produce manufactured goods these would be the chief source of money income to the country.

Exportation of natural resources would lead to exhaustion of soil and mineral wealth. The history of the American southern states where the tremendous export trade in cotton has led to most severe cases of soil exhaustion gives strong support to this idea. Finally, while subscribing to the "infant industry" argument as a bona fide reason for protection, he pointed out that a nation would always have "infant industries" as long as it continued a dynamic economic existence. There would always be efforts to start new manufacturers after their successful introduction in a foreign country. Thus protective tariff for that reason alone would be ever present.