Book IV, Chapter II, 3

Whether taxes on the necessities of life, such as those in Great Britain on soap, salt, leather, candles, etc., necessarily raise the price of labor and consequently that of every other commodity, I shall consider later, when I discuss taxes. For now, however, suppose they have this effect—as they undoubtedly do. The resulting general rise in the prices of all goods, brought about by the rise in labor costs, differs in the following two respects from a rise in the price of one particular commodity caused by a tax laid directly upon it.

First, one can always determine quite precisely how much such a tax might raise the price of a particular commodity; but no one can determine with tolerable precision how much a general rise in the price of labor might affect the price of each different commodity made with labor. It would therefore be impossible to proportion the tax on each foreign good, with tolerable precision, to the increase in the price of the corresponding domestic good.

Secondly, taxes on the necessities of life have much the same effect on the people’s circumstances as poor soil and an unfavorable climate. They make provisions dearer, just as though extraordinary labor and expense were required to produce them. It would be absurd, in the natural scarcity caused by soil and climate, to dictate how people should employ their stock and industry; it is equally absurd in the artificial scarcity caused by these taxes. In either case, their clear advantage lies in being left to adapt their industry as best they can to their situation and discover the employments in which, despite their unfavorable circumstances, they may have some advantage in domestic or foreign markets. To impose a new tax on people because they are already overburdened with taxes and already pay too much for necessities, making them pay too much for most other goods as well, is surely a most absurd form of compensation.

When such taxes reach a certain height, they become a curse equal to barren earth and an inclement sky; yet they are most commonly imposed in the richest and most industrious countries. No other countries could bear so great a disorder. Just as only the strongest bodies can survive and remain healthy under an unhealthy regimen, only nations with the greatest natural and acquired advantages in every sort of industry can survive and prosper under such taxes. Holland is the country in Europe where they are most abundant; owing to its peculiar circumstances, it continues to prosper not because of them, as has been most absurdly supposed, but in spite of them.

As there are two cases in which it will generally be advantageous to place some burden on foreign industry to encourage domestic industry, there are also two in which it may sometimes be worth considering a question: in one, whether to continue admitting certain foreign goods freely; in the other, whether, or in what manner, to restore their free importation after it has been interrupted for some time.

It may sometimes be worth considering whether to continue free importation of certain foreign goods when another nation restricts imports of some of our manufactures by high duties or prohibitions. Revenge naturally calls for retaliation in this case: we should impose similar duties and prohibitions on imports of some or all of its manufactures. Nations accordingly seldom fail to retaliate in this way. The French have been particularly eager to favor their own manufactures by restricting imports of competing foreign goods. Much of Mr Colbert’s policy consisted of this; for all his great abilities, he appears in this instance to have been taken in by the sophistry of merchants and manufacturers, who are always demanding a monopoly against their own countrymen. The most perceptive men in France now hold that measures of this sort did not benefit their country. By the tariff of 1667, that minister imposed very high duties on a great many foreign manufactures. When he refused to reduce them for the Dutch, the Dutch in 1671 prohibited imports of French wines, brandies, and manufactures. The war of 1672 seems to have arisen partly from this commercial dispute. The peace of Nimeguen ended it in 1678 by reducing some of these duties for the Dutch, who consequently lifted their prohibition. At about the same time, the French and English began imposing similar duties and prohibitions on each other’s industry, though the French appear to have set the first example. The spirit of hostility that has prevailed between the two nations ever since has so far prevented either side from easing them. In 1697, the English prohibited imports of bone lace made in Flanders. The government of that country, then under Spanish rule, retaliated by prohibiting imports of English woolens. In 1700, the ban on importing bone lace into England was lifted on condition that English woolens entering Flanders should regain their former status.

Retaliation of this sort may be sound policy when it is likely to secure the repeal of the high duties or prohibitions complained of. Recovering a large foreign market will generally more than make up for the temporary inconvenience of paying more for certain goods for a short while. Judging whether retaliation will have that effect may belong less to the science of a legislator, whose deliberations ought to follow enduring general principles, than to the skill of that cunning and crafty animal commonly called a statesman or politician, whose counsel follows the passing turns of events. When there is no likelihood of securing such a repeal, it seems a poor way to compensate for harm done to some of our people to inflict another injury ourselves, not only on those people but on nearly everyone else. When our neighbors prohibit one of our manufactures, we usually prohibit not only the same manufacture of theirs, since that alone would seldom affect them much, but another as well. This may certainly encourage a particular class of our workmen and, by excluding some competitors, enable them to raise their prices in the domestic market. But the workmen hurt by our neighbors’ prohibition will not benefit from ours. Instead, they and nearly every other class of our citizens will have to pay more than before for certain goods. Every such law therefore imposes a real tax on the whole country, benefiting not the workmen injured by our neighbors’ prohibitions but another class altogether.

The case in which it may sometimes be worth considering whether, or how, to restore free importation of foreign goods after it has been interrupted for some time arises when particular manufactures have grown, through high duties or bans on all competing foreign goods, so extensive that they employ a great multitude of workers. Humanity may then require trade to be freed only gradually, with considerable restraint and care. If the high duties and prohibitions were removed at once, cheaper foreign goods of the same kind might pour into the domestic market so quickly that many thousands of our people would suddenly lose their regular employment and means of subsistence. The disruption might undoubtedly be considerable. It would probably, however, be much less than is generally imagined, for the following two reasons.

First, manufactures that regularly export any portion of their goods to other European countries without a bounty could be very little affected even by completely free imports. Their goods must sell abroad as cheaply as foreign goods of the same kind and quality, and therefore must sell more cheaply at home. They would accordingly retain the domestic market. Though a capricious fashionable person might sometimes prefer foreign wares simply because they are foreign, even when cheaper and better goods of the same kind are made at home, this folly must by its nature be confined to so few that it could have no appreciable effect on employment generally. Yet much of every branch of our woolen manufacture, our tanned leather, and our hardware is exported to other European countries each year without a bounty; these are the manufactures employing the greatest number of workers. Silk is perhaps the manufacture most likely to suffer from free trade, followed by linen, though linen would suffer much less.

Secondly, even if a large number of people were suddenly displaced from their usual employment and ordinary means of subsistence by the restoration of free trade, it would not follow that they would have no employment or means of subsistence at all. When the army and navy were reduced at the end of the last war, more than 100,000 soldiers and sailors—equal in number to the workers in the largest manufactures—lost their regular occupations at once. Yet, although they undoubtedly suffered some inconvenience, they did not lose all work or subsistence. Most sailors probably entered the merchant service gradually as opportunities arose; meanwhile, both sailors and soldiers were absorbed into the wider population and employed in a great variety of occupations. From so great a change in the circumstances of more than 100,000 men, all used to bearing arms and many to robbery and plunder, there arose not only no great upheaval, but no appreciable disorder. The number of vagrants scarcely increased noticeably anywhere; so far as I have learned, wages did not fall in any occupation except among merchant sailors. Compare the habits of a soldier with those of any kind of manufacturing worker, and we shall find that the worker’s habits are far less likely to disqualify him from a new trade than the soldier’s habits from any trade at all. The worker has always been accustomed to depend for subsistence on his labor alone, while the soldier expects his pay. Steady work and industry are familiar to the one; idleness and dissipation to the other. Surely it is much easier to turn industry from one kind of labor to another than to turn idleness and dissipation toward any labor. Besides, as has already been noted, most manufactures have related branches so similar that a workman can readily transfer his industry from one to another. Most such workmen also do agricultural labor from time to time. The stock that formerly employed them in one manufacture will remain in the country and employ an equal number of people in another way. With the country’s capital unchanged, demand for labor will likewise be the same, or very nearly so, though it may be directed to different places and occupations. Soldiers and sailors discharged from the king’s service, moreover, are free to pursue any trade in any town or place in Great Britain or Ireland. Let the same natural freedom to practice whatever kind of industry they choose be restored to all his Majesty’s subjects as to soldiers and sailors: abolish the exclusive privileges of corporations and repeal the statute of apprenticeship, both of them real encroachments on natural liberty; repeal as well the law of settlements, so that a poor workman displaced from one trade or place may seek work in another trade or place without fear of prosecution or removal. Neither the public nor individuals will then suffer much more from the occasional disbanding of a particular class of manufacturing workers than from the discharge of soldiers. Our manufacturers undoubtedly deserve well of their country; but they cannot deserve better than those who defend it with their blood, nor merit more delicate treatment.

To expect free trade ever to be fully restored in Great Britain, indeed, is as absurd as to expect an Oceana or Utopia to be established there. Public prejudice opposes it, but far more insurmountably so do the private interests of many individuals. Imagine army officers opposing any reduction of their forces with the same zeal and unanimity with which master manufacturers oppose every law likely to increase their domestic competitors; imagine those officers inciting soldiers, as manufacturers inflame their workmen, to attack the proponents of such a measure with violence and outrage. Reducing the army would then be as dangerous as it has now become to diminish in any respect the monopoly our manufacturers have secured against us. This monopoly has so enlarged certain groups among them that, like an overgrown standing army, they have become formidable to the government and on many occasions intimidate the legislature. A member of parliament who supports every proposal to strengthen this monopoly is certain to gain both a reputation for understanding trade and great popularity and influence with a body of men whose numbers and wealth make them important. If, on the contrary, he opposes them—and still more if he has enough authority to thwart them—neither the most widely recognized integrity, the highest rank, nor the greatest public services can shield him from the vilest abuse and slander, from personal insults, or sometimes from real danger at the hands of enraged and disappointed monopolists.

The proprietor of a great manufacture forced to abandon his business because the domestic markets were suddenly opened to foreign competition would undoubtedly suffer severely. The portion of his capital ordinarily used to buy materials and pay his workmen might perhaps be put to another use without much difficulty; but the portion fixed in workshops and tools could scarcely be disposed of without substantial loss. Fair regard for his interests therefore requires that changes of this kind never be introduced suddenly, but slowly, gradually, and after very long notice. If the legislature’s deliberations could always be guided not by the clamorous demands of special interests but by a broad view of the general good, it ought, perhaps for this very reason, to take particular care neither to create new monopolies of this kind nor to expand those already established. Every such regulation introduces some real disorder into the constitution of the state that will later be hard to cure without causing another disorder.

How far it may be proper to tax imports of foreign goods, not to prevent their importation but to raise government revenue, I shall consider later when I discuss taxes. Taxes designed to prevent imports, or even reduce them, plainly damage customs revenue as much as they damage free trade.

I will consider later, when discussing taxes, whether taxes on necessities such as soap, salt, leather, candles, etc. in Great Britain necessarily raise wages and therefore the prices of all other goods. For now, suppose they do have this effect, as they undoubtedly do. A general rise in the prices of all goods caused by higher labor costs differs in two ways from a rise in the price of one particular good caused by a tax on that good.

First, we could always know quite precisely how much a direct tax raises the price of a particular good. But we could never know with reasonable precision how much a general rise in wages raises the price of each different good produced with labor. So we could not set the tax on every foreign good to match, with reasonable precision, the increased price of every domestic good.

Secondly, taxes on necessities affect people's circumstances much like poor soil and a bad climate. They make food more expensive, just as if producing it required extra labor and expense. It would be absurd to tell people how to use their stock and industry when poor soil and climate create a natural shortage. It is equally absurd when such taxes create an artificial shortage. In both cases, people clearly do best when left to adapt their industry to their circumstances as well as they can. They can find work in which they have some advantage at home or abroad despite their unfavorable conditions. They already face excessive taxes and pay too much for life's necessities. Putting another tax on them, so that they must also pay too much for most other goods, is certainly a ridiculous way to compensate them.

When these taxes rise high enough, they are as great a curse as barren land and harsh weather. Yet they have generally been imposed most in the richest and most industrious countries. No others could bear such a serious problem. Only the strongest bodies can stay alive and healthy on an unhealthy diet. Likewise, only nations with the greatest natural and acquired advantages in every kind of industry can survive and prosper under such taxes. Holland has more of these taxes than any other European country. Its special circumstances let it keep prospering, not because of these taxes, as some have absurdly claimed, but despite them.

There are two cases in which a burden on foreign goods will generally help domestic industry. There are also two others that sometimes call for careful judgment. In one, the question is whether to continue allowing certain foreign goods to be imported freely. In the other, it is how far, and in what way, to restore free imports after they have been restricted for some time.

The first question may arise when another nation uses high duties or bans to restrict some of our manufactured goods from entering its market. The natural response is to seek revenge by placing similar duties or bans on some or all of its manufactured goods entering ours. Nations rarely fail to retaliate this way. The French have been especially eager to protect their manufacturers by restricting imports that might compete with them. Much of Mr Colbert's policy did this. Despite his great abilities, he seems here to have been misled by the deceptive arguments of merchants and manufacturers who always demand a monopoly against their own countrymen. The most knowledgeable people in France now think these measures did not benefit their country. By the tariff of 1667, Colbert put very high duties on many foreign manufactured goods. He refused to lower them for the Dutch. In 1671, the Dutch responded by banning imports of French wines, brandies, and manufactured goods. This trade dispute seems partly to have caused the war of 1672. The peace of Nimeguen ended it in 1678 by lowering some French duties for the Dutch, who then lifted their ban. Around the same time, the French and English began to harm each other's industries with similar duties and bans. The French seem to have acted first. Since then, continued hostility between the nations has prevented either side from easing its restrictions. In 1697, the English banned imports of bone lace made in Flanders. Its government, then under Spanish rule, responded by banning English woolens. In 1700, England lifted its ban on imported bone lace on condition that English woolens could enter Flanders under the previous terms.

Such retaliation can be sensible policy if it is likely to get the offending high duties or bans removed. Regaining a large foreign market will generally more than make up for the temporary inconvenience of paying more for some goods for a short time. Deciding whether retaliation is likely to work may belong less to a legislator, who should follow stable general principles, than to the skill of the sneaky, crafty creature commonly called a statesman or politician. Such a person's advice follows the passing changes in public affairs. When there is no prospect of getting the restrictions lifted, it is a bad way to compensate some of our people for an injury to inflict another injury ourselves. That new injury affects both those same people and almost everyone else. When our neighbors ban one of our manufactured goods, we generally ban not only the corresponding good of theirs, which alone would seldom hurt them much, but some other good of theirs as well. This can encourage one particular group of our workers. By shutting out some competitors, it may let them raise prices at home. But our ban will not help the workers hurt by our neighbors' ban. Instead, those workers and almost every other group of citizens will have to pay more than before for certain goods. Each such law thus imposes a real tax on the whole country. It benefits not the workers injured by our neighbors' restrictions but a different group.

The second question concerns how far and in what way to restore free imports after a period of restriction. It arises when high duties or bans on all competing foreign goods have allowed particular manufacturing industries to grow until they employ a great many people. In that case, concern for people may require restoring free trade slowly, carefully, and with some restraint. If the high duties and bans disappeared all at once, cheaper foreign goods of the same kind might flood the home market. Many thousands of our people could suddenly lose their usual jobs and means of support. The resulting disruption could certainly be considerable. It would probably be much smaller than commonly imagined, however, for two reasons.

First, fully free imports could do very little harm to manufacturing industries that already export some of their goods to other European countries without a bounty. Their goods must sell abroad as cheaply as similar foreign goods of the same quality and kind. They must therefore sell even more cheaply at home. They would keep their home market. A fashionable person might occasionally prefer foreign goods solely because they are foreign, even over cheaper and better domestic ones. But so few people would act this foolishly that it could not noticeably affect overall employment. A large share of our various woolen goods, tanned leather, and hardware is exported each year to other European countries without a bounty. These are the industries employing the most people. Silk might suffer most from free trade, followed by linen, though linen would suffer much less.

Secondly, even if restoring free trade suddenly cost many people their usual jobs and ways of earning a living, it would not follow that they would lose all work and support. When the army and navy were reduced at the end of the late war, more than 100,000 soldiers and sailors lost their usual jobs at once. That number equals the workforce of the largest manufacturing industries. They certainly faced some difficulty, but they did not lose every way of working and supporting themselves. Most sailors probably moved gradually into merchant shipping as opportunities appeared. Meanwhile, both sailors and soldiers joined the general population and worked in many different occupations. This change in the circumstances of more than 100,000 men caused no great upheaval or even noticeable disorder. All were used to weapons, and many were used to theft and looting. Hardly anywhere did the number of people wandering without work noticeably increase. As far as I can tell, wages fell in no occupation except among sailors in merchant shipping. Compare a soldier's habits with those of any manufacturing worker. The worker's habits make it less difficult for him to enter a new trade than the soldier's make it for him to take up any trade. A manufacturing worker has always relied on his own work for a living, while a soldier expects his pay. The worker knows steady effort and industry; the soldier, idleness and wasteful living. Surely it is much easier to redirect industry from one kind of work to another than to turn idleness and wasteful living into work. Also, as noted already, most manufacturing industries have related industries so similar that workers can easily move between them. Most such workers sometimes do farm work as well. The stock that employed them in one manufacturing industry will stay in the country and employ an equal number of people in another way. If the country's capital stays the same, demand for labor will also stay the same, or very nearly so, even if it shifts to different places and occupations. Soldiers and sailors discharged from the king's service are free to take up any trade in any town or place in Great Britain or Ireland. Give all his Majesty's subjects the same natural freedom to choose their work. End corporations' exclusive privileges and repeal the statute of apprenticeship; both infringe natural liberty. Repeal the law of settlements too, so a poor worker who loses work in one trade or place can seek it in another without fearing prosecution or forced removal. Then neither the public nor individuals will suffer much more from the occasional loss of jobs in one manufacturing industry than from the discharge of soldiers. Our manufacturers have certainly served their country well, but not better than those who defend it with their blood. They do not deserve gentler treatment.

Expecting free trade ever to be fully restored in Great Britain is as unreasonable as expecting an Oceana or Utopia to be established there. Public prejudice opposes it, but the private interests of many people are an even stronger obstacle. Imagine army officers opposing reductions in troop numbers as eagerly and unanimously as master manufacturers oppose any law likely to increase their domestic rivals. Imagine the officers stirring up their soldiers, as manufacturers stir up their workers, to attack proponents of such measures with violence and abuse. Cutting the army would then be as dangerous as trying now to reduce any part of the monopoly our manufacturers hold against us. That monopoly has swelled the numbers of some groups of manufacturers so much that they resemble an oversized standing army. They have become a threat to the government and often intimidate the legislature. A member of parliament who backs every proposal to strengthen their monopoly is sure to gain a reputation for understanding trade. He also gains great popularity and influence among a group whose numbers and wealth make it powerful. If he opposes them, especially if he has enough authority to obstruct them, even unquestioned honesty, the highest social rank, and the greatest public service cannot shield him. Furious, frustrated monopolists will subject him to disgraceful insults and slander, personal abuse, and sometimes actual danger.

The operator of a large manufacturing business would certainly suffer greatly if suddenly opening the home market to foreign competitors forced him to give it up. He could probably find another use without much difficulty for the part of his capital normally spent on materials and wages. But he could hardly sell the part tied up in workshops and equipment without considerable loss. Fairness to him therefore requires such changes to be introduced slowly and gradually, never suddenly, and with a very long warning. If legislators could always take a broad view of the public good rather than follow the loud demands of particular interests, they should be especially careful for this very reason not to create new monopolies of this kind or expand existing ones. Each such rule brings real disorder into the structure of the state. Later, curing it will be difficult without causing another disorder.

I will consider later, when discussing taxes, how far it may be proper to tax foreign imports to raise government revenue rather than prevent imports. Taxes meant to prevent or even reduce imports clearly damage customs revenue as much as they damage free trade.