Economics for Helen by Hilaire Belloc

In this matter of international trade there rose up, about a hundred years ago, a great political discussion in England between what was called _Free Trade_ and what was called _Protection_.

This discussion is still going on and affecting the life of the country, and it is important to understand the principles of it, for we have here one of the chief applications of theoretical Political Economy to actual conditions.

I dealt with this subject briefly in the first part of this book under "Elementary Principles," but I return to it here in more detail because it has given rise, in political application, to the most important economic discussion in modern England.

The Free Traders were those who said that England would be wealthier, as a whole, if there were no restriction upon exchange at all, whether internal or external. A man having something to exchange with his English neighbour was, of course, free to exchange it without any interference; but the Free Trader's particular point was that a man having something to exchange with a _foreign_ purchaser should be equally free to exchange it, without any interference at the ports in the way of export duty taxing the transaction. In the same way he said that the foreigner should be perfectly free to send here any goods he had to exchange against ours, and should neither be kept out by laws nor restricted by special import duties at the ports.

"In this way," said the Free Traders, "we shall get the maximum of wealth for the whole country."

The Protectionists, on the other hand, said: "Here are a lot of people engaged on a particular form of production in England. Those who have their capital in it are making profits, those who own the land on which the capital is invested are getting rents, and the working people are getting wages. The foreigner, having special advantages for this kind of production, which make him able to produce this particular thing more cheaply than we can, brings in that cheaper produce and offers it for sale to Englishmen. The people to whom it is offered for sale will, of course, buy the foreign stuff because it is cheaper. The result will be that the English people who have invested their capital in producing this particular thing -- that is, who have got implements together and buildings, and the rest, suitable for producing this thing -- will be ruined. It will not be worth their while to go on, for no one will buy their goods. Their profits will be extinguished, and their capital will decay to nothing. The rents on the land they occupy will also disappear, and, what is worst of all, the large population which live on wages produced by this kind of work will starve or have to be supported, idle, by other people. Their power of producing wealth will be lost to England. Therefore, let us tax this cheap foreign import so that our production at home shall be _protected_. Let us tax the foreign goods as they come in, so that the cost of producing abroad, with this tax added, comes to at least as much as the cost of producing the same stuff at home. In this way it will still be worth while for our people at home to go on producing this kind of thing. The Englishman at home will be just as ready to buy his fellow-citizen's produce as the foreigner's, for the price of each will be the same."

The Protectionist even said: "Let us make this tariff so high that the foreign goods are sold at a _dis_advantage -- that is, let the tax on the foreign goods be such that, added to the cost of production abroad, they cannot be sold in England save at a _higher_ price than the English goods. In this way only the English goods will be bought here and the home industry will flourish as it did before."

Such were the two political theories, standing one against the other.

Now let us look into the economic principles underlying these two opposing parties, and see which of them had the best of the argument.

We have already seen, in the first part of this book, the elementary economic principle that Exchange is only the last stage in the process of production.

And we have also had fixed the principle that _freedom of exchange tends to produce a maximum of wealth within the area to which it applies_, and that interference with freedom of exchange tends to reduce the total possible wealth of that area. This is so obvious that all the great modern nations are careful to let exchange be as free as possible _within their own boundaries_.

Goods can be freely exchanged without interference all over the United States and all over Great Britain and all over France, etc., because if you were to set up tolls and interferences with exchange _within_ the country the total wealth of the country would necessarily be diminished.

Now the Free Traders extended this principle to foreign trade. They said: "If the foreigner comes to us with something which he can sell to us cheaper than we can make it ourselves that is an advantage to us, and it is short-sighted to interfere with it under the idea that we are benefiting the existing trade which is threatened by foreign competition. For it means that we are producing something with difficulty which we could get with much less work if we turned our attention to things which we can produce with ease. Or, again, it means that with the same amount of work devoted to things we make well and exchange against the foreigner's goods we shall get much more of the things which the foreigner can make more easily than we can."

If we take a concrete example we shall see what the Free Traders' argument means.