[Footnote 8:  See ch. 7, sec. 7.]

[Footnote 9:  This varies also with conditions; after the outbreak of the war in 1914 it was for a time as high as $.05 because of high war rates of insurance.]

[Footnote 10:  The connection between a high rate of interest and falling price is a dynamic phenomenon of a very temporary nature.  In long-time static conditions the general level of prices and the prevailing rate of interest are dependent on entirely different sets of forces.  See on the theory of interest, Vol.  I, p. 308.  In long-time movements of prices, in contrast with brief changes due to foreign trade such as are referred to above, high rates of interest are connected with rising prices, and vice versa. See above, ch. 6, sec. 8, on fluctuating price-levels and the interest rate.]

CHAPTER 14

THE POLICY OF A PROTECTIVE TARIFF

Sec. 1.  Military and political motives for interference with trade.  Sec. 2.  Revenue and protective tariffs.  Sec. 3.  Growth of a protective system.  Sec. 4.  The infant-industry argument.  Sec. 5.  The home-market argument.  Sec. 6.  The “two-profits” argument.  Sec. 7.  The balance-of-trade argument.  Sec. 8.  The claim that protection raises wages.  Sec. 9.  Tariffs and unemployment.  Sec. 10.  Exports and exhaustion of the soil.  Sec. 11.  Protection as a monopoly measure.  Sec. 12.  Harm of sudden tariff reductions.

Sec. 1. #Military and political motives for interference with trade.# The considerations set forth in the last chapter raise a strong presumption in favor of the sovereign state permitting its citizens to trade freely across its boundaries, as the best way to further their own prosperity and, on the whole and in the long run, that of the nation.  Indeed, this presumption and belief has been held by nearly all serious students of the question, with more or less of modifications and qualifications, ever since Adam Smith published his work on the “Wealth of Nations” in 1776.[1] But in conflict with this belief has been the all but unanimous policy of nations from early times, throughout the Middle Ages, and down to this day, of interposing some special hindrances (of varying degrees and kinds) to this kind of trade.  Sometimes this has been done by prohibitions, but more often by taxes imposed upon either imports or exports.  Sometimes the attempt is made to justify the policy of governmental interference with foreign trade by arguments which crumble before the slightest examination, and again it is admitted that free trade is true in theory, but it is declared to be false in practice.  The latter view is not to be entertained for a moment.  If free trade in theory (as an explanation) is complete and true, it will in practice (as a plan of action) be sound and workable.  In truth, however, the practical policy of governmental interference with foreign trade has always in part rested on other than the simple economic grounds.