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British trades exposed to such competition. The proper method of dealing with this difficulty, however, is not by a tariff war, but by attempts at organising international agreement. Industrial legislation along the same general lines is a common policy of all modern civilised states. Conferences and informal agreements as to pace and methods of labour legislation have already been established; further progress along this road to political internationalism of a real though limited kind may be expected. Nothing short of international government can serve to exercise over inequalities of international exchange a control corresponding to that
which a national government can exercise over in: equalities of internal exchange.
$5. Protective tariffs are in no sense a counterpart of legislation in “protection” of the interests of labour. They do not even protect capital as a whole, but only certain sorts of capital at the expense of . other sorts of capital and of the general industrial interests of the country. They also protect certain sorts of labour, though far less effectively, as we have seen, Whereas the essence of sound industrial legislation is a restraint of unfree competition and unequal bargaining in the exchange of goods and services, the essence of protective tariffs is to bestow privilege upon those very interests which are already strongest in their powers of advantageous exchange of the goods and services they sell, i.e. the landowners
and the better-organised, wealthier, and more influential capitalists in manufacture and in commerce.
Inequalities exist in the processes of exchange between members of different nations, though not so large, so numerous, or so complex as in the processes of domestic exchange. But while national legislation may by judicious restraints do something to redress or mitigate the latter, it cannot, save in rarely exceptional cases, do anything to redress or mitigate the former. For in the one case both parties to the act of exchange and the entire process of exchange are within the jurisdiction of the national government, in the other case only one of the parties and one end of the process of exchange.
$6. Thus the claim sometimes advanced on behalf of Protection that it can serve the interests of the general body of producers in a nation by securing them against an injurious competition of foreigners is perceived to be fallacious. It can only set up privileged classes of producers at the expense of the other producers of the nation. This fundamental truth is sometimes obscured by a false antithesis between producer and consumer. Free imports are represented as a consumer's policy ; Protection as a producer's policy. Although this fallacy has already been unmasked by our proof that Protection cannot increase the volume of employment of the factors of production, it deserves further attention on account of the superficial support given to it by the universally
accepted habit of distinguishing producer and consumer in discussing the incidence of taxation. For convenience we say the producer pays this duty, the consumer that, or that they each pay a proportion of the duty; and in dealing with tariffs on foreign trade which have regard to what are in effect halves of acts of international exchange, it is not improper to mark this distinction. But in any close scrutiny into real incidence of taxation the antithesis of producer and consumer disappears; the latter has no rightful place. In the distribution of wealth there is no consumer, unless that title be reserved for pensioners and other receivers of fixed incomes. With the exception of this abnormal class, all incomes are paid to the owners of a factor of production for the use of the factor which they own. The true incidence of every tax is its effect upon the real income received as rent by landowners, as interest by capitalists, as profit or salaries by employers, as the fees by professional men, and as wages by employees. When we say that a duty falls on the consumer, we simply mean that the price of a commodity has risen, and that those who buy it are primâ facie injured in their real income, which is reduced in its purchasing power. But this is only the beginning of the analysis of incidence. The real incomes thus assailed have more or less power of resistance ; the attempt embodied in the tax to reduce the real payment received for the service of a factor of production is only fully successful when the
factor yields a scarcity rent or other surplus income which is not a payment necessary to induce the owner of the factor to employ it. The landowner who receives economic rent cannot recoup himself for a rise in prices of commodities by raising his rent, and the recipient of high dividends from a manufacturing monopoly cannot raise the prices of the goods he sells, which are ex hypothesi already fixed so as to yield the maximum net return on the business.
But where incomes are determined by normal competitive conditions the attempt of a tax to reduce real incomes will not be equally successful. Capitalists, professional men, and wage-earners, receiving payments which are what they regard as minimum profits or subsistence wages, will in some cases refuse the use of their factor of production for a lower real payment than before, and this reduction in the supply of certain sorts of capital, skill, or labour will cause a rise of the price so as to maintain the former rate of real payment, and to throw the onus of the duty upon some other class. More simply stated, the incidence of a tax falling in the first instance on the consumer is an attempt to reduce his customary standard of comfort; this he will resist so far as he can by raising the price of the factor of production which furnishes his livelihood. Every class whose remuneration is competitively determined has some power of resisting an attack upon the standard of comfort by throwing
upon other classes the burden of a tax directed at it. But that power of resistance differs widely in different classes, and depends upon a great variety of special circumstances : upon the stability which habit has given to a standard of consumption ; upon the effect of a reduction of consumption upon efficiency of labour; upon the strength of organisation of a trade or a profession ; upon the ability of individuals to refuse to sell their factor of production for a lower real payment. Each of these circumstances opens up a very intricate series of considerations, each of which would require to be considered both by itself and in its relation to other circumstances before we could form any reasonable judgment of the probable effects of (say) a tax on grain raising the price of bread 10 per cent. upon the real income of any single class or trade in the nation. Such an investigation would require answers to be given to a series of important and difficult questions such as the following: What proportion of the income of such a class is expended in the purchase of bread ? How far could and would some other form of food, not proportionately raised in price, be substituted for bread? What effect, if any, would a reduced consumption of bread, or of some other commodity, less of which is now purchased in order to buy more bread, have upon the efficiency and wage-earning power of the chief wage-earner and the supplementary wageearners respectively? How far is it possible for such