# The Knickerbocker/Volume 1/Number 1/Political Economy

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POLITICAL ECONOMY.
[In giving place to the following well written article from a practised hand, we by no means intend committing ourselves to the opinions it so zealously upholds. But, a periodical like this would be essentially defective in its plan, if it did not afford facilities for disseminating information, upon questions of great and growing interest, without identifying itself with partisan publications of either side; and we shall be happy, in the existing curiosity upon the subject of Political Economy, to contribute all in our power toward arriving at sound principles, by inviting those skilled in The New Science, to unfold their different views in our pages. In availing themselves of the offer, however, so circumscribed are our limits, that brevity must be kept continually in view, by writers, however able—Ed. Knickerbacker.]
In February, 1830, Sir Henry Parnell, one of the most influential members of the British Parliament, published the first edition of his work on "Financial Reform." It is an excellent synopsis of the most approved doctrines of political economy, in practical adaptation to the affairs of Great Britain, and has produced, in the course of the four editions through which it has passed, a decided effect, with important changes, upon the legislation of that country. In France too, a result of the remarks it contains upon foreign commerce, has been the institution, in concert with Great Britain, of an inquiry still going on at Paris, into the means of removing the obstacles which fetter the trade between the two countries; and a pamphlet, upon which we are about to comment, was published at Paris, to point out to the commissioners acting in the matter, the principles upon which the customs duties ought to be adjusted reciprocally.
In these "observations," as well as in his principal work, the author has advanced propositions bold, sweeping, and calculated to startle most readers even on this side of the Atlantic. They belong, however, to intellectual liberty, and form but a part of that grand system of reform on which the British nation has now fairly embarked. That they should be cordially inculcated here, with others reaching even further, is merely their due, and our duty, and yet it may be that they will be greeted with ridicule, which is not the test of truth, and by denunciation which cannot fix the standard of merit, instead of frank investigation, and liberal discussion. He who, in influencing the press, timidly, or sordidly, from bigotry, or prejudice, warps its channels, or stifles argument, is, negatively at least, an enemy to the welfare of his species. Certainly, ​public opinion does not seem to be made up either as to the to- pics, the scope, or the auditors of free discussion, but it is time that the right should be established above the danger of impeachment. From the date of Milton's "Areopagita," to the recent appearance of an anonymous but admirable "Essay on the formation and publication of opinions," the argument in its favor has been powerfully maintained, and there should no longer be a doubt that "all opposition to free and public discussion, arises from conscious weakness, and fear of the result."
Upon such a subject especially as political economy, no hesitation should obtain in publishing freely propositions however novel, or extreme. If wrong they can be argued down, or will sink of their own defect, and the discussion of them may lead, as did the pursuit of the philosopher's stone, to much abiding benefit. Still are there propositions, which, although grounded in common sense, and conducive to freedom, would be banned from a hearing as paradoxes, and wild theories. For example, such as, that custom houses are an opprobrium, and ought to be abolished as the machines of unequal taxation, manifold crimes, and national hostility—that the American industry which traverses the ocean in the modifications of foreign commerce, should be as free as in any shape it may assume while passing along our rivers, our roads, and our streets—that this ought to be a country—and such would make its proudest boast before the world—a country without debt, without beggars, and without taxes—that the creation of monopolies by law must cease totally—that government have no power to make a constituent rich, because that implies a power also to make him poor—that the citizen should be as free, and uninfluenced in his avocations as he is in his person, and his conscience—that interference upon these subjects is incompatible with the idea of liberal institutions, and that the constitution can confer no such authority, because it militates with the perfect and unalienable natural right of man, to regulate his own industry in the "pursuit of happiness."
The sitting of this commission is as yet but a little cloud above the horizon; fraught, however, to the ken of those who stand on that "vantage ground," whereof Lord Bacon makes mention, with the highest associations and mighty consequences. This should be the modern "Field of the Cloth of Gold." The victims, though once the champions, of the mercantile and manufacturing systems, have met in treaty to abjure the ​policy, hitherto so rife, with hatred, war, and mutual loss. The results will be, a palinode of long cherished absurdities, a triumph to the rights of industry and the principles of political economy, and tidings of exceeding joy to the Christian and philanthropist. While scanning the European map, it behooves us to avert our eyes from the contests of rival tyrants, and the protocol disputes between heads which "the likeness of a kingly crown have on;" but to make the coming general wreck of such things more numerous in the catalogue, and to settle our most intense gaze on this noiseless, but momentous assembly, and ponder deeply the principles constituting the basis of their councils and action. Those principles have been, long, and strenuously, inculcated by the "schoolmasters" of the science of political economy. Let the nations hear, and now between them let the sole contest be who shall be foremost in profit, and in glory to act up to their scope. They teach the abolition of discrimination, restriction, retaliation, and monopoly—the freedom of trade, and the right of man individually to consult his own interests—they deny any power inherent, delegated, or expedient in government, in protecting, (encouraging) regulating, enriching, or impoverishing; and, inasmuch as most wars have sprung from the protective system, the creature of national animosity, they proclaim as their motto, "peace on earth, and good will to all men."
The leading propositions submitted by Sir Henry Parnell to the commission, are:
1. That each nation (France and Great Britain) should begin by wholly abolishing their tariff laws, as they now exist.
2. That each nation, in making a new tariff, should proceed strictly on the principle of consulting only its own interests, and without, in any degree, making the details of its tariff matter of diplomatic negotiation, or reciprocal arrangement.
The reasons for the first are, the impossibility of remedying in any other mode the defects of the present tariffs, on account of their number; and because this course will open the way for the substitution of reason and sound principles, in the place of those erroneous theories about trade and manufactures, on which the existing customs duties were formed. His second proposition goes to the utter subversion of the selfish and illiberal schemes of retaliatory duties, and reciprocal arrangements, upon the philanthrophic principle that "whatever either country shall do which is really useful to itself, cannot ​fail to be useful to the other." And, to sustain his project in all its parts, he lays out the broad and sure doctrines, that "every benefit which is obtained by individuals through protection, is acquired at the loss of the public at large"—that "every thing in the nature of what is called legislative regulation of industry, is an evil"—and that "all that has been done in attempting to establish trades and manufactures at home, by imposing duties on the foreign, is highly pernicious, and had its origin in a theory on national prosperity which is entirely erroneous."
The arguments he uses against the protective system are brief, but masterly, and he challenges those who still maintain the policy of keeping the affairs of trade under the guardianship of legislation," to refute them, if they can, by reasons founded on fact and experience. After stating that "the whole object of protecting duties is to establish higher prices at home than the prices abroad," (and this must be their intent, or they are senseless) he goes on to demonstrate that, however burdensome this may be to the consumers, it shortly is of no avail to the manufacturers themselves, for their profits are brought and kept down by domestic rivalship; and that "no trade, or manufacture, has ever become really flourishing, until the prices have settled to the natural level, and the whole effect of factitious aid has been done away, (quond the manufacturers) by home competition."
The competition between capitalists at home being free, the incentives held out by protecting duties in the prospect of high prices, and corresponding profits, bring about rapid and greedy investments in manufacturing, and the market being restricted to home consumption, (for if exports can be made, imports of the same articles never will occur) the supply will tend always to exceed the demand, and prices, in consequence, must go down. They cannot, however, in all cases, as Sir Henry supposes, become as low as if foreign goods were admitted free of duty." This must depend upon the relative cost of production. Below that grade they cannot permanently fall. Wherever the want of sufficient skill, capital, and experience, a sparse population, high wages, superabundant lands, migratory habits, and the free spirit of agricultural labor exist as in America, they will always enhance the cost of production beyond the rate in other countries differently situated.
High prices do not necessarily imply high profits. Thus while the protective system compels the consumer to pay ​higher prices to the home, than he would to the foreign manufacturer, by reason of the different cost of production, the domestic manufacturer derives no more, after a season, than the ordinary profits on capital, in consequence of the competition of his neighbors and "the system becomes wholly inefficacious, and wholly useless with reference to its original object." The corollary drawn from which, by this enlightened statesman; is:
"That all the duties should be reduced, so as no longer to leave any thing of the character of seeking to give protection, but so as to be only for the purpose of obtaining revenue."
He then makes the distinct proposition, that France and England shall admit all the products of each other at a duty of ten per cent. ad valorem, that being "the highest rate which can with propriety be imposed." That such a measure is now actually pending in negotiation between these two great nations, with a likelihood of success, will scarcely perhaps be believed in this country, but every patriot, understanding the subject, must cordially wish that our government would anticipate its competitors, and secure the custom of the world in advance, by throwing our ports open to a trade perfectly free. Were there but two nations engaged in commerce, should one of them adopt restrictions upon its imports, the other might, perhaps with some semblance of wisdom, resort to retaliatory duties. But, where all countries nearly are contending for the common custom, that which purposes to break down competition, and engross the most business, must welcome all comers to its ports without let, tax, or restriction. The best retaliation upon restriction is free trade—the worst enemy of monopoly is competition. By the philosophic inquirer, the origin of this vicious and preposterous system of legislation, may be traced to the wrong theory of government, so long prevalent in the old world, and still lingering in the new, from a habitude of thought little short of superstition. Men have been in the custom of regarding government as a mysterious, and self-existent abstraction, endowed with creative and magical powers, and administered by motives and rules which are sublimated far above common sense, and utterly inapplicable to the individual citizen. The reverse exactly is the case, and political is barely domestic economy applied to the business of those shopkeepers called nations. Were one merchant in a city to exact of all the customers who entered his store, one per cent. on their dealings, and another, because he was affected by it, ​to retaliate with a duty of half per cent., and a third to demand nothing at all, which of them would have the greatest run of business, and most custom? There is no substantial difference between this instance, and that of commercial nations, and the true policy of the United States most assuredly is, at once to throw wide her ports, and by drawing to herself the custom, and the carrying trade of the world at large, to give to American industry the only encouragement her free-men should deign to ask, or condescend to receive—an open field, and no favor.
In adjusting the tariffs, at this rate per cent., and for revenue merely, the principles for fixing the duties, are thus stated:
"1. That the collection of them may be as little inconvenient as possible to the importing merchant.
"2. That they should be so moderate as not to add much to prices, and thereby diminish to a large amount the consumption of the goods on which they are imposed."
Appeals are constantly made to the pride and patriotism of our citizens, in aid of the protective system, on the plea of encouraging American industry; and this ad captandum pretext, we are persuaded, has gone further with the people than conviction through knowledge, or reflection upon the subject. It involves one, or perhaps all, of three absurd principles—either, our government is supported by taxes which are paid by foreigners; or, they send their goods to us gratuitously without receiving any thing in exchange; or, to tax the industry of eleven million five hundred thousand consumers, for the benefit of five hundred thousand manufacturers, is for the good of the whole nation.
"This is a most important point to attend to," says Sir Henry, "because as the only means of paying for imported goods is by exporting the domestic productions of industry, every restriction upon importation is really a restriction on industry; and on the contrary, every encouragement to importation is an encouragement to industry."
Foreign manufactures are obtained, how? Unquestionably by, and for the products of American industry. The moment the barter, or purchase, is made, the American industry is infused into the foreign articles. Where these are cheap their consumption is increased, and American industry is stimulated, and encouraged to obtain additional means wherewithal they may be purchased. That is as much American industry which, with its earnings buys foreign manufactures, as that ​which builds a house, cultivates a farm, or navigates a ship. There is no good reason, beyond convenience, in collecting the revenue, why the whole load of federal taxation should fall upon that comparatively small portion of American industry, which happens to pass through the custom-house, while the whole immense residue is exempted. On the contrary, the gross inequality of taxation, both individual and sectional, it necessarily engenders, is an objection that ought to be fatal to the whole system, in a country of equal benefits, and equal burdens.
The canons of taxation by impost, as laid down by Sir Henry Parnell, are the following:
1. All foreign articles, which consist of materials for the operations of industry, to be free.
2. All foreign articles, which are necessaries of life, to be free.
3. None but those foreign articles which are luxuries, to be made subject to duty.
To these details there are strong objections. They embody a departure from his own principles. In them is recognized the right of government to intermeddle with the interests, and occupations of its citizens, and the moment the principle of protection, and the prerogative to regulate are conceded, monopolies, restrictions, and unwise legislation will rapidly pour in. There should be no manner of discrimination. If the government must support itself by this system of taxation, let it be by a tariff of ten per cent. ad valorem duties upon every thing brought into the country, regardless of what it consists, where it was made, or to what use it is destined. The idea of taxing luxuries especially should be wholly exploded. It is but a remnant of that scheme of sumptuary laws always found so impracticable, and now so universally abandoned. Besides the difficulty of discriminating between luxuries and necessaries, and the other objections to such a tax stated by Adam Smith, in the United States the abolition of the law of primogeniture, and the quick subdivision and rotation of property, make luxuries in the ancient, or European sense of the term, almost unknown. The inhabitant, whether rich or poor, of a free country, has a right to spend his money as he pleases, either unproductively, or reproductively; either on necessaries, or luxuries; and government should leave the matter for morality and religion alone to regulate.
With these qualifications we agree, that the tariff's proposed ​to the commission to be established between England and France are, in the words of the writer of the "Observations," "exactly the kind of tariff that all nations at all times would have had, if their commercial legislation had been founded on the established principles of political economy."
Undoubtedly "every change in the public economy of a great nation, ought to be cautiously and gradually effected," and "with the smallest amount of inconvenience and loss to the individuals who have vested their capital on the faith of legislative protection." Without mooting the point whether vested rights can accrue under a nudum pactum; or urging the argument that the manufacturers were parties to, if not sole actors in, that legislation, and can take no advantage of their own wrong; or dwelling on the consideration that, if they do suffer, the intermediate cause being low prices, the public at large will be the gainers, let it be admitted that the duties must be gradually reduced, and then the inquiry arises how is this to be effected? The answer is furnished by the paper under review.
"In order that no capitalist who is now engaged in manufactures may be injured by the change, it should be provided that the duties should continue as they now are for three years, and be reduced one third in each of the three following years. Such an arrangement would afford ample time for every one, who is at all interested in any existing enterprise, to prepare for the altered state of circumstances, and to avoid loss."
One of the greatest abuses prevalent in this country is, the misapplication of public money. Our legislators, whether federal, state, or municipal, seem to forget that the funds at their disposal are raised by taxation, and that taxes are no blessing; nor do they even pause to inquire for what purposes the taxes were paid by the people. Their situation is exactly that of a private agent. They are the trustees of the people, and have their power of attorney, and letter of instructions—and yet, were an individual to misapply money entrusted to him for specified objects, half so grossly as do the public servants, he would be broken by his employer, and branded by the community for dishonesty and faithlessness. It is in vain to rely upon written directions, or the merit of public agents without responsibility constantly enforced by the vigilance of the principal. That vigilance can only be kept up in the people by making them feel the taxes, and understand distinctly for what uses they are enacted. By direct taxation this may ​be accomplished, and economy and honesty secured in the administration of public money. In this connexion we quote the following passage, from perhaps the best writer in America, (Dr. Channing) upon a subject becoming daily of greater and more pressing importance.
"We should rejoice," says the Christian Examiner for May, 1829, "if by some great improvement in finance, every custom-house could be shut from Maine to Louisiana. The interest of human nature requires, that every fetter should be broken from the intercourse of nations, and that the most distant countries should exchange all their products, whether of manual, or intellectual labor, as freely as members of the same community. An unrestricted commerce we regard as the most important means of diffusing through the world, knowledge, arts, comforts, civilization, religion, and liberty; and to this great cause we would have our country devoted. We will add, that we attach no importance to what is deemed the chief benefit of tariffs, that they save the necessity of direct taxation, and draw from the people a large revenue without their knowledge. In the first place we say that a free people ought to know what they have to pay for freedom, and pay it joyfully; and that they should as truly scorn to be cheated into the support of their government, as into the support of their children. In the next place, a large revenue is no blessing. An over-flowing treasury will always be corrupting to the governors, and the governed. A revenue rigorously proportioned to the wants of a people, is as much as can safely be trusted to men in power. The only valid argument against substituting direct for indirect taxation, is the difficulty of ascertaining with precision the property of the citizen. Happy would it be for us if tariff's could be done away!—for with them would be abolished fruitful causes of national jealousies, of war, of perjury, of wranglings, of innumerable frauds and crimes, and of harassing restraints on that commerce which should be as free as the wind!"
In the great financial reform about to take place in our federal system, it should be kept in mind that our general government, properly administered, requires an annual income of but ten millions of dollars. The public debt being paid off, what is to be done with the public lands? The only remaining use for them is that to which they were dedicated by the original grant from the old states—the support of the government—already they yield three millions and a half annually, and with ​better husbandry may be sold, or farmed out, so as to furnish as much federal revenue as is needed. There are then, as we conceive, three modes, in either of which alone the expenses of the general government ought to be defrayed:
First, from the proceeds of the public lands.
Secondly, by a system of direct taxation, bearing equally on all the products of industry throughout the country.
And lastly, by a tariff of ten per cent. ad valorem duties, laid upon all imports without discrimination.