Nations, as we know, put up tariffs against goods which come from abroad: That is, their Governments tax imports of certain goods and thereby interfere with the freedom of exchange. For instance, the French have a tax of this kind upon wheat. Wheat grown in France will cost, let us say, £1 a sack, but the Argentine can send wheat to France at an expense of only 10s. a sack, because the land there is new, and for various other causes. If the wheat from the Argentine were allowed to come in freely, and the French to export against it things which they can make more easily than wheat they would have more wheat at a less total expense; but they prefer to put a tax of ten shillings upon every sack, that is, to put up a barrier against the import of wheat from abroad, and so keep up the price artificially at home.

When a nation does this with regard to any object that may be imported, if the object can also be produced within the nation (which it nearly always can) it is said to protect that object, and the system of so doing is called Protection. The word arose from the demand of certain trades to be “protected” by their Governments without considering whether it was for the good of the whole nation or not. It obviously would be a very nice thing for people who breed sheep, for instance, in this country, if all mutton coming from the Colonies were taxed at the Ports, while the mutton grown inside the country were not taxed; for in this way the value of the mutton would rise in England, and the rise would benefit the sheep owners. But it would be at the expense of all the other people who did not grow sheep, and who would have to pay more for their mutton.

As opposed to this system of Protection, and interfering with international exchange by a tariff, intelligent people a long lifetime ago began to agitate for what they called “FREE TRADE,” that is the putting of no tariff on to an import, or at least no tariff high enough to give an artificial price to the producer of the same thing at home. Thus, when England was completely Free Trading (which it was until the war) there was a tariff on tea; but that was not Protection, for those who would try to grow tea here would have to grow it in hot houses and at an enormous expense, and the tax on tea, though heavy, did not make it anything like so dear as to make it worth while to produce tea here.

Another principle of Free Trade was that if it was thought advisable to put a tariff on to anything coming into the country which could be produced in the country, then you would have to put what was called “an equivalent excise” on the thing produced at home. For instance, in order to get revenue, one might put a tax of a 1d. on the pound on sugar coming from Germany, but, according to the doctrine of Free Trade, you must put a similar excise (that is, a home tax of 1d. on the pound) upon any sugar produced in England. If you did not do that you would be benefiting the sugar manufacturer in England at the expense of all other Englishmen, which would be unjust and also make England less wealthy because it would be inducing Englishmen to make sugar by offering them a reward and so take them away from some production for which they were better fitted.

This idea, that Free Trade must necessarily be of advantage to everybody, and that it was only stupidity or private avarice which supported Protection, was very strong in England, and, in the form you have just read, it seems beyond contradiction.

But if you will look closely at Formula No. 3 written in the last division on page 59 you will see that there is a fallacy hidden in this universal Free Trade theory. It is perfectly true that free exchange over any area tends to make the wealth of all that area greater, and if the area include the whole world, then free exchange all over the whole world, that is, complete Free Trade, would make the world as a whole richer.

But it does not follow that EACH PART of the area thus made richer is itself enriched. That is the important point which the Free Trade people missed, and it is this which supports, in some cases, the argument for Protection.

If we allow free exchange everywhere throughout England, England as a whole will, of course, be the richer for it; but it is quite possible that Essex will be the poorer. If we allow Free Trade throughout all Europe, Europe will be the richer for it; but it is quite possible that some particular part of Europe, Italy or Spain, may be made poorer by the general process, and as they don’t want to be poorer they will by Protection and tariffs cut themselves off from the area of free exchange.

So we may sum up and say that the theory of universal Free Trade being of benefit to the world as a whole is perfectly true. If we are only considering the world, and do not mind what happens to some particular area of the world, then the case for Free Trade is absolute. But if we mind a hurt being done to some particular area, such as our own country, more than we mind the hurt done to the world as a whole, then we should look at our particular conditions and see whether our country may not be one of those parts which will be drained of wealth by Free Trade and will be benefited by artificially fostering internal exchanges.

In the second part of this book I will go into this again, and show how the discussion arose in England and what the arguments are for and against Universal Free Trade, and how true it is that a sound economic argument for Protection exists.