We turn now to a treatment of the tax character of protective duties: (1) In the first place, it is clear that the more " protection " the duty gives, the less will be the revenues afforded to the government, and the greater the possible revenues to the subsidised producer.

1  See the article by Professor Folwell on "Protective Tariffs as a Question of National Economy," in The National Revenues, a collection of papers by American economists, edited by Albert Shaw, Chicago, 1888. Contrary to the popular opinion as to the views of economists, none of the writers who have contributed to this symposium finds it possible to attack protection on a priori grounds.

2 See above on expenditure for protection of industry.

Absolute protection means the exclusion of the foreign commodity and no revenue to the government. The subsidy that the producer can obtain is determined by the conditions of production ; it varies from nothing to the whole amount of the tax according as the cost of production varies above what the cost of the imported commodity would be without the duty. (2) Above a certain point high duties tend to diminish the revenues to the government, and increase the subsidy to the producer, by diminishing the amount of the commodity imported. The point beyond which the total revenues diminish is ascertainable by a principle similar to that of charging what the traffic will bear. In practice that point can be ascertained by gradually increasing the duty until it is found that the importation begins to diminish, and stopping the increase of the duty when it is found that the added duty checks more of the importation than the increased duty compensates for. A tariff of customs duties arranged throughout on this principle would be arevenue tariff, and if universal would yield enormous sums. It would, also, contain many protective features. The burden of such a tax would be insufferable.

No such general tariff has ever been enforced. (3) Protection is given only when the price is raised. The subsidy paid to the producer is paid by the consumers within the country. This part of the tax is never shifted to foreigners and generally remains on the consumer. (4) But that part of the tax which flows into the treasury of the government is not always, although generally, paid by theconsumer, whether protection is afforded thereby or not. There are a few rare instances in which the tax that forms a part of the government's revenue is shifted either to the foreigner, i.e. the producer or the speculator, i.e. the importer. These instructive instances may be summed up as follows : The consumer escapes that part of the tax which flows into the treasury on purchases of commodities actually imported : (a) When the amount of the commodity produced in the country laying the tax is sufficient in quantity to entirely supply the home market and to fix the price very close to the cost of production, while the foreigner has at the same time so large a supply that he must enter that market to dispose of it. In this case, if any revenue at all accrues to the government, it is clearthat it is paid by the foreigner, who isburdened by the whole tax and may lose more,— more, that is, if his entrance into the market still further depresses the price. The home producer gets no subsidy. A commonly cited example of this is the case of rye in Germany in good years when the outside crop is also good. (5) When a new tax is laid on goods produced by the aid of a large fixed plant for a limited market which would belost if the price were raised.

As long as the producer is unable to change the nature of the plant, he must pay the tax. An example is found in the iron products from the Rhine districts prepared for the trade as " Sheffield " cutlery. England could in this case tax the foreigner until such time as he could change the character of his product. (c) In the case of commodities that are used only as the substitutes for something else because cheaper, and which would, if the price rose higher than that of the commodity for which they are used, not be consumed at all. In this case the foreigner pays a part or the whole of the tax when the alternative commodity is cheap. For example, rye in Germany when wheat is cheap, especially if at the same time the crop of rye is short, (d) In the case of commodities a large part of whose total consumption is produced in the country, but not enough to absolutely fix the price, which is still above the cost of production. The foreigner in that case may pay part of the tax, since his arrival depresses the price, (e) The speculator regularly pays the tax in those frequently recurring instances when the commodity is massed in warehouses on the border ready for importation on a rise in the price, and on being imported, at the order of various speculators, in large masses depresses prices again. It is a pretty well-established fact, from the investigations of Cohn and Kandtorowicz, that the speculators on the Exchange as a whole lose more than they gain. This loss is in part the consumer's gain through the relief from taxation.1