5 AUGUST 1905, Page 20

THE declared object of the Compatriots' Club is to "advance

the ideal of a united British Empire." Apart from this object, the Club describes itself as a " non-partisan " body. Its members appear, however, to be without exception partisans of Mr. Chamberlain's policy, and the volume of essays which they have issued is to all intents and purposes a reasoned defence of a policy of Protection based on Colonial preferences. As such it will be welcomed by all thoughtful Free-traders. Hitherto the Protectionist case has been so clumsily presented that it required a considerable exercise of patience to treat its exponents seriously. This volume of essays by the Compatriots' Club stands on a different plane. It is the work of a group of well-known men, who obviously believe what they write, and who in many respects hale advanced beyond the crude fallacies and cheap-Jack promises which have disfigured Mr. Chamberlain's presentment of his own case. Nor, except in a few passages, can any complaint be made of the polemical tone adopted by this little group of Protectionist writers. They understand that abuse is not argument, and having convinced themselves, they write with the honest purpose of convincing others. It is worth while to see why such men are Protectionists, and where the flaw in their reasoning lies.

The perusal of a very few pages of this volume will show that its authors are Protectionists primarily because they look out upon the world from a Protectionist standpoint. In their view, international trade is a form of war. If they note that another country is prospering, they feel as much alarmed as we should all feel if a hostile army were drawing near to our gates. It does not seem ever to have occurred to any one of them that trade is a form of co-operation, and that if our neighbours grow more prosperous they are better able to pay for our goods. Nor is it certain that the " Com- patriots " would be satisfied even if that reflection did occur would farther strengthen her as an industrial or as a military Power, and would thus still farther endanger our relative position. It is always, indeed, the " relative " position which occupies the minds of these Compatriots of the twentieth century, as it did those of the mercantilists of the eighteenth.

They care nothing for an increase of prosperity that we share with other countries. They would accept with cheerfulness an economic loss for their own country, if they could thereby inflict a greater loss on some industrial rival. "Supremacy or nothing ! " is in effect their motto, and their Imperial ideal is a great British Power, dominating • the world, not a united commonwealth of self-governing and peaceful communities.

Starting from this standpoint, the members of the Com- patriots' Club find little difficulty in persuading themselves to become Protectionists. If trade is war, then the community must be organised for trade war as for other forms of war. Freedom to buy and sell must be curtailed in order to stimu- late the national production of those things which are nationally advantageous, while hampering the progress of the foreigner by putting obstacles in the way of his trade. This is the basis of what Mr. Garvin calls "constructive economics." The phrase is a good one ; but when we come to examine the working out of the idea, we find that the writer, in spite of his ability, is quite unconscious of some of the essential difficulties of the problem that be light-heartedly undertakes to solve.

In the first place, what industries are nationally advan- tageous ? Mr. Garvin assumes, without a word of explanation, that manufacturing industries are those that the State ought to encourage. Yet Mr. H. W. Wilson, who writes the second essay, declares that "agriculture is of quite exceptional im- portance, as it is one of the very few industries that strengthen the human physique." That is the first difficulty that these two Compatriots must settle with one another. There is a further difficulty that Mr. Garvin must settle with himself. He assumes that the State can encourage manufactures by shutting out foreign manufactured goods and admitting raw materials free. He scoffs at the "classical economists" who "like our contemporary Cobdenites forgot the fundamental distinction between raw material and manufacture," and he is so confident that this distinction exists that he does not even attempt to explain what it is. Economic argument on such lines is easy. If Mr. Garvin had taken a little more pains in studying his subject, he would have known that classical economists and contemporary Cobdenites ignore this "funda- mental distinction" for the simple reason that it does not exist. What is raw material to one industry is a finished product to another. Pig iron is a finished product to the smelter, and a raw material to the steel-maker. Steel in turn is a raw material to the machine-maker, while machinery is a raw material to almost every manufacturing industry. Even table linen and table cutlery are raw material when used in the equipment of an Atlantic liner, and as such are admitted free of all duty into German shipbuilding yards.

These simple facts dispose of the imaginary distinction on which Mr. Garvin bases his whole theory of "constructive economics." Nor is he more fortunate when he shifts his ground, and substitutes for the distinction which he has called fundamental a new distinction between "competitive" and " non-competitive " products. Possibly he imagines that the distinctions are identical, but obviously they are not. The Compatriots' Club, echoing Mr. Chamberlain, is emphatic that wool is a raw material, and as such ought to be admitted free. But foreign wool competes with British wool, and therefore, according to Mr. Garvin's second distinction, it ought to be heavily taxed. Iron ore is another obvious case in point. Our iron and steel industries are largely dependent on imported ore. But this ore competes with British ore, and therefore, according to Mr. Garvin, it ought to be excluded. The case of maize is even more instructive. Mr. Chamberlain picked out maize for exemption from taxation, because pre- sumably be thought it was a non-competitive import. But the Lincolnshire Branch of the Tariff Reform League, at their Conference at Market Deeping in December last, unanimously passed a resolution demanding that maize should be taxed, on the ground that it competed with oats and barley. Illustra- tions of this character could be multiplied indefinitely. Almost every article that we import simultaneously competes with some British industry and subserves the purposes of another British industry.

So much for Mr. Garvin's "constructive economics." Let us pass to Professor Ashley. His main grievance is that the wicked Cobdenites have mutilated the phrase "political economy" by omitting the politics. The wise and patriotic Germans, on the other band, always look at political economy from the national and historical point of view. This appeal to the German historical school is a common note among the Compatriots, but it is difficult to obtain either from Professor Ashley or from his colleagues any clear idea of what practical inferences we are to draw. Apparently the German historical teaching, as interpreted by the British Compatriots, amounts to this : "Whatever was, was right; whatever is, is wrong."* This doctrine is certainly convenient to men who have spent a large part of their lives in glorifying the Free-trade victory of 1846, and now wish to undo what then was done.

Apart from this consideration, the Compatriots appear to gain nothing by so forgetting their new principles as to import political economy "made in Germany." The doctrine that economic considerations must yield in the last resort to national considerations is not German, it is universal, and it was never better laid down than by Adam Smith. His famous dictum that "defence is more than opulence" is, indeed, quoted with unction in these essays ; but, having quoted it, the Compatriots proceed to show that they do not in the least understand how to apply it. Adam Smith, in the passage whence this dictum is taken, is demonstrating that the Navigation Acts, by interfering with the free course of trade, diminished national wealth. He concludes his argu-

ment in the following words :—" We are thus likely not only to buy foreign goods dearer, but to sell our own cheaper than if there was a more perfect freedom of trade. As defence, however, is of much more importance than opulence, the Act of Navigation is perhaps the wisest of all commercial regulations of England." In a word, Adam Smith, like every other sensible man, was willing to sacrifice national wealth for what he believed to be a necessary addition. to national security. But the Compatriots do not believe that their schemes will lead to a sacrifice of national wealth Their main proposition is that by various Protectionist devices they can add to the wealth of the nation. Adam Smith's dictum is therefore absolutely irrelevant to their case, and by quoting it they in effect show that they are half doubtful in their own minds about their main proposition.

To this main proposition we now turn. It is best dealt with in Sir Vincent Caillard's essay on "Imperial Preference and the Cost of Food." The other writers are content to assume, whenever it suits their argument, that the foreigner will pay the tax. Sir Vincent Caillard tries to prove it. He begins by stating that the "producers of the world are bound to come to us to dispose of their surplus production," and that "in order to keep our market they will dispose of that surplus to us at any price which will leave them a small all- round profit over cost of production." This statement is unexceptionable, but it obviously applies to Colonial as well as to foreign producers. There is no reason to believe that the Colonial food-grower secures larger profits than the foreign food-grower. Indeed, if it were so, it is certain that, without any preferences, Colonial food-growing would every- where expand and foreign food-growing would everywhere decline. But though Canada attracts farmers from the States, the Argentine equally attracts farmers from Australia and New Zealand. Profits—using the word in its widest sense— tend to an equality in the different food-producing areas of the world ; nor do the profits or advantages obtainable in the business of food production differ greatly from those obtainable in other occupations.

If Sir Vincent Caillard had grasped these somewhat elementary considerations, it would have been impossible for him to have continued his argument. He proceeds to assert that if a small duty is imposed on foreign, but not on Colonial food, the foreign producer will reduce his margin of profit in order to counteract the preference, with the result that "the import price in this country would not, so far as regards the action of the preference, be allowed to rise by the slightest

• For an admirable criticism of the historical school of economists the reader may be referred to Dr. Pierre Aubry's Po/algae Commerciale de L'Angleterre (Toulouse, 1904), a book that ought to be far better known than it is among English Free-traders.

fraction." Having made this statement, he next asserts that tha preference, though it is not to raise prices by the slightest fraction, will stimulate Colonial production. Lest it should be imagined that this is a parody of his argument, the actual words may be quoted :— "It is in fact by the very reason of the preference being Imposed that our Imperial supplies will increase far more rapidly, and in order to keep his place in our market the foreign producer will reduce his margin of profit. Leave that incentive unemployed and Imperial supplies will increase far more slowly, while the foreigner will keep his profit; it is really too much to ask us to believe that out of pure largeness of heart he will forego it in favour of the English consumer!"

It is difficult to know where to begin with such a tangle of fallacies. If there is no increase of price, the Colonial farmer has no increased incentive to produce. Men do not break up land in the backwoods of Canada for the beaux yeux of Mr. Chamberlain. They break it up for the sake of obtaining a higher profit than they could obtain in other countries or in other industries. Again, the statement that the foreign food-producer will, at the bidding of the British Government, reduce his margin of profit, implies that this margin is at present exceptionally high as compared with profits in other occupations. But if that were the case, men would at this moment be rushing from all parts of the world to embark their labour and capital in this industry, and it is their competition, not Mr. Chamberlain's tax, that would compel the present body of foreign producers to forego their (assumed) excessive profits.

Perhaps the whole matter can best be summed up as follows :—If no additional profit is given to the Colonial producer, there will be no additional Colonial production. Conversely, if the profits of the foreign producer are diminished, there will be a diminished foreign production. Therefore if a tax on foreign food is temporarily paid by the foreign producer, the net effect will be to diminish the world's total production of food, and thus ultimately to raise food. prices above the point they would 'have reached if there had been no tax. In a word, a differential tax against the foreigner must produce the same effect as would be produced by some change in the configuration of the earth which moved our foreign areas of supply to a greater distance without bringing our Colonial areas any nearer.

Whether or not Sir Vincent Caillard and his friends will be able to grasp this reasoning we cannot be certain. The fact is, they are so enamoured of the conception of binding the Empire together by means of tariffs that they unconsciously distort their economic arguments. They would command far greater respect if they boldly said :—" Empire is greater than Economics ; the scheme which we advocate is worth the sacrifice of wealth." They will not say this, either because they dare not, or because they have not learnt the simple truth that it is impossible to have your cake and eat it.

Of the minor fallacies, and blunders as to fact, which are to be found in abundance in these essays, there is not space to speak here ; but it is worth while to bring into the light one gem of unconscious humour that illustrates the whole mental attitude of some of the people who support Mr. Chamberlain. Sir Vincent Caillard quotes with marked approval the following passage from a paper on "Australia as a Food- Producing Country" :— "Wanting refrigeration Mr. Chamberlain's scheme for pre- ferential trade would have been impossible, or at least shorn of its far-reaching significance. In a word, refrigeration has eivalised climate and annihilated distance, has revolutionised m 3dern life, and may yet be the most potent factor in the Ltderation of the Empire."

That is the last word of the Compatriots' Club,—refrigeration! Those of us who have dreamed of an Empire bound together by the common inheritance of a glorious history, by ties of blood, of language, and of allegiance, are out of date. The true bonds of Empire are food-taxes and frozen beef.

Let us say in conclusion that we cannot open our columns to a general economic discussion. Only if it is asserted that we have misrepresented or misquoted any of the writers in the present volume can we consider the publication of letters on the controversy with which it deals.