Protection or Free Trade: An Analysis of the Ideas of Henry George on International Commerce and Wages. (International Trade)

By Martin, Thomas L. | The American Journal of Economics and Sociology, December 2001 | Go to article overview

Protection or Free Trade: An Analysis of the Ideas of Henry George on International Commerce and Wages. (International Trade)


Martin, Thomas L., The American Journal of Economics and Sociology


THOMAS L. MARTIN (*)

Introduction

THE PROTECTIVE TARIFF became a divisive national issue in the United States with the nullification movement in South Carolina in the early 1830s. Fifty years later, when import competition increased following the recession of 1873-1878, reform of the tariff again became a critical national issue. As imports increased in the early 1880s, so did the political pressure to provide more protection from the growing import competition. At the same time, the opposite pressure to reduce tariffs was created by a persistent federal budget surplus. Reduction of revenues through lower tariffs became the Democratic solution, while the Republicans favored increased spending. This conflict of interests set the stage for the rise of the tariff issue to primary importance in national politics.

During this critical period, Henry George spoke out often and emphatically for free trade, although he was not a free trader from the beginning. As he explained,

I was educated a protectionist and continued to believe in protection until I came to think for myself and examine the question (George, TS, 9/29/1888, IV, 13:1).

When he examined the question for himself he concluded that tariff protection did not actually protect the workers of America because it failed to raise wages. In Progress and Poverty, George (P&P:18) stated his position clearly: the fallacies of protectionism have "a tenacious hold, in spite of their evident inconsistencies and absurdities." The survival of the mistaken idea, according to George, was due to the inappropriate acceptance of the wages-fund theory. This theory implied that since the total of all wages is fixed, the competition of foreign products or foreign labor would only further subdivide this fund and reduce wages. The answer was not protection, but the replacement of all taxes, including taxes on imports, with the single tax on increases in land values.

After the success of Progress and Poverty and his increased opportunities to speak on the issues of the day, George was eager to spread his ideas on import tariffs and the interests of labor. The protectionists in Congress had "so long held sway," according to George (PFT:205, 214), that for decades the protected industries had enjoyed it "all their own way." The time was right for popular education on the issue of taxation and tariffs, and with it, the means of bringing "the whole social question, into the fullest discussion" (George TS, 2/18/1888,III, 7:1).

To help promote such popular education, George published in 1886 his book Protection or Free Trade: An Examination of the Tariff Question, with Especial Regard to the Interest of Labor. (1) In addition to this book, he attacked what he called the "protectionist delusion" in a series of articles appearing in the North American Review in 1886 and 1887 entitled "Labor in Pennsylvania." Finally, he argued for free trade as the editor of The Standard from January 1887 until December 1890.

This paper demonstrates that George's ideas on protection and wages contained in these works were fundamentally sound. As Cord (1965:241) has suggested, Henry George "received less mention than is his due" in the field of history of economic thought, and this paper provides evidence from the field of international trade theory by examining George's analysis of the effects of free trade on relative wages. Section I examines George's thought on the trade issue within the setting of the political economy of the 1880s. Section II examines George's two factor trade model and compares it with the modern theory. Finally, Section III offers conclusions on the effects of George's work and the tariff reform efforts of the 1890s.

I

The Political Economy of Protection in the Early 1880s

NOT LONG AFTER Progress and Poverty appeared in 1879, interest in the tariff issue increased as the 1880 presidential campaign reached the party conventions. …

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