Jacob Viner, the Cost of Protection, and Customs Unions: New Light from a Manitoba Consulting Assignment

Article excerpt

Abstract: This paper considers an extraordinary and almost unknown document which came out of a consulting assignment Jacob Viner undertook for the Canadian Province of Manitoba in the late 1930s as part of the Canadian Royal Commission on Dominion-Provincial Relations. Viner analysed the Canadian Federation as a customs union and the evidence points to it having an important influence on his development of the theory of customs unions, in particular providing a concrete example of trade diversion, and developing his understanding of the circumstances which affect the magnitude of trade diversion losses when assessing the overall impact of customs unions. Despite a sophisticated understanding of the role of tariffs on inputs in Viner's report, and connections to subsequent development of the concept of effective protection, it does not have a place in the story of the concept of effective protection.

1 Introduction

This paper considers an extraordinary and almost unknown document which came out of a consulting assignment Jacob Viner undertook for the Canadian Province of Manitoba in the late 1930s as part of the Canadian Royal Commission on Dominion-Provincial Relations. (1) Viner saw the calculation of the burden on Manitoba of being part of the Canadian Federation as equivalent to estimating the net benefits of a country joining a customs union, and carried out detailed dollar calculations of what he would later call trade diversion losses in the report he prepared for the government of Manitoba. It is extraordinary given the state of development of tariff theory and the available data in the 1930s.

Viner's work in connection with the Royal Commission has escaped the attention of historians of international economics, writers on the economics of customs union, and even writers on Canadian tariff policy (for instance it is not cited in Barber 1955). Max Corden was one international economist aware of its significance, as Viner mentioned his report in reply to a letter from Corden sending Viner offprints of his work on the calculation of the cost of protection (Corden to Viner, 22 October 1957; Viner Papers). Following Viner's reply, Corden was able to track down Manitoba's 1937 Submission Presented to the Royal Commission on Dominion-Provincial Relations in his university library, and made detailed notes on it, comparing it with the method used in the famous Australian Brigden Report (Corden to Viner, 30 April 1958; Viner Papers). Corden could not locate Viner's 1938 Supplementary Statement to the Commission so Viner later sent him a copy (Viner to Corden, 9 May 1958). (2)

As well as alerting international economists and historians of economics to the existence of this document, the paper considers its significance for two questions.

The first is the question of the influence of the Manitoba assignment on Jacob Viner's work on customs unions, which culminated in his classic The Customs Union Issue (Viner 1950). Viner had been thinking about this issue since his employment by the US Tariff Commission as a special expert in 1917-18, an appointment sandwiched between his Harvard PhD under Frank Taussig, on the international adjustment mechanism in Canadian trade (published as Viner 1924a), and his appointment as an assistant professor at the University of Chicago. He published two early articles (Viner 1924b; 1931) on the economics of preferential trading arrangements but nothing else of substance on the topic until the 1950 book.

The second question concerns the place of Viner's Manitoba work in the story of the concepts of the cost of protection and effective protection in international economics. Some of the circumstances of the work, such as the geographical and temporal connections with the Manitoba economist Clarence Barber's discussion of the concept of effective protection (Barber 1955, which Max Corden cites in his own account of the story of effective protection, Corden 2005), and the early correspondence between Corden and Viner, might suggest that Viner's work contributed to the development of the idea of effective protection. …