A century and more ago there was a common belief in Europe that a favorable balance of trade, that is, a condition where the exports of a country exceeded the imports, was a good thing because the balance must be made up in specie; that is, in gold and silver. Bounties of various kinds were given as inducements to export goods and restrictions were placed upon imports so as to discourage them and to secure an import of gold and silver. The navigation laws of England were formed upon this general principle and the irritation caused by them did much towards stirring up the spirit of revolt in the American colonies. Nowadays, it is generally recognized that a country will naturally get as much money as it needs in the course of international trade and that it is not necessary to take extraordinary pains to secure it. Restrictions are to-day placed upon international trade usually in the form of taxes on exports or imports. The Constitution of the United States forbids the taxing of exports by this country. Taxes on imports may be levied for the purpose of securing revenue for the government or they may be levied for the purpose of developing home industries. We speak of a tax of the former kind as a tariff for revenue only and a tax of the latter kind as a tariff for protection or a protective tariff. Where no tax at all is levied on exports or imports we have a condition of free trade. Where a few commodities are taxed for revenue only the condition is sometimes spoken of as one of free trade. 157. The argument for protection. - A great variety of arguments have been advanced to show that a protective tariff, that is, a duty upon imports so high as to discourage to some extent the importation of the goods so taxed, is beneficial to a country. We can here consider only a few of these arguments. We may enumerate, first, the balance of trade argument, second, the home market argument, third, the infant industry argument, fourth, the wages argument, and fifth, the diversified industries argument.

The balance of trade argument was the argument of the old mercantile school. It is no longer of good repute, although it is sometimes still used. According to the balance of trade argument a nation must restrict imports in order to secure enough gold and silver to satisfy its needs. In answer to this it may be said that under modern commercial conditions, as has been shown in the last chapter, each nation tends to get and to keep the amount of gold which it needs under conditions of freedom of trade. Moreover, exports may exceed imports without the difference being paid in gold, for it is balance of payments rather than balance of trade which determines in which direction gold shall be shipped. Moreover, if a nation should continue to receive gold indefinitely in exchange for its commodities, it would not be improving in well-being. After a country has secured enough gold to do its money work it is not benefited by the presence of more gold obtained at the cost of other commodities which must be shipped abroad.

According to the home market argument, it is desirable to build up manufacturing industries and cities in this country so as to furnish a market for home agricultural produce. The claim was made that as long as agricultural produce was shipped abroad only those varieties of things could be shipped which bear the cost of distant transportation. Quickly perishable commodities and those which were bulky or heavy in proportion to their value tended thus to be shut out from exchange and hence would not be produced. This would result in a specialization of agriculture to the detriment of the American farmer. This argument has been weakened considerably in recent decades by reduction in the cost of transportation and by improvement in facilities for preserving perishable commodities. Still it is undoubtedly a benefit to the farmer to have a large market at home. The real question at issue, however, is whether in exchange for this market he does not pay excessively for the goods which he consumes. In other words, as a producer the home market argument should appeal to him. As a consumer, it may and often will happen that all of the advantages he has received as a producer will be taken away from him by the higher prices which he must pay.

According to the infant industry argument, it will often happen that an industry which would be amply able to sustain itself after it is once developed is unable to get a start because foreign competition is so keen that the native industries during the years of their infancy cannot compete with them. The proposal is made that in such cases as these the government foster such industries by a protective tariff until they are able to stand on their feet and compete on even terms with foreign products. The implication is that as soon as the infant industry has been developed into an adult the protective duty is to be removed. Another form of the infant industry argument declares that in the development of nations from the agricultural stage to the manufacturing stage the nations which first arrive at the manufacturing stage have an advantage over the agricultural nations and are able to prevent the latter from developing as rapidly as they would develop if the competition were absent. In order to permit this development of the backward nations a protective tariff is useful, it is held. With foreign competition restricted the nation will be able to develop normally. When it has taken its place as an industrial nation protection should cease.

The wages argument varies in different countries. In countries where wages are high, as for example in the United States, it is argued that there should be a protective tariff so as to protect the industries of the country from cheap foreign labor. In countries where wages are low it is argued that there should be protection to protect the poorly paid wage earners from more efficient wage earners of competing countries. Those who advance this argument fail to realize that labor costs may be the same where high wages are paid as where low wages are paid because of the greater efficiency of the more highly paid laborers. The more highly paid worker may produce more in proportion to his pay and therefore the costs may be the same where wages are high as where they are low. At the present time it is argued that the high wages of the United States are due to the protective tariff, but in the earlier history of the United States when the effort was being made to introduce a protective system and when wages were already high without protection it was argued that we must adopt a protective system not to make wages high but to keep them high.

It is argued that a country with diversified industry is better off than a country whose industries are specialized, for the reason that the country of specialized industries is too dependent upon the foreign markets both for its sales and for its purchases. Thus German protectionists have argued that it would be a mistake for Germany to neglect her agriculture, that a duty on agricultural products ought to be maintained so that the country would be able to support itself in case of war. Moreover, it is explained that where a nation depends upon its manufactures for a livelihood and its manufactured goods are shipped abroad to less developed countries, as soon as these less developed countries develop industries of their own, the market will be closed to them and then the country will have to depend upon its own resources. If it has neglected its agriculture, it will then face the problem of finding a home market for its manufactured products and food for its citizens.