ELEMENTS OF POLITICAL ECONOMY

Otago Witness, Issue 2883, 23 June 1909, Page 13

ELEMENTS OF POLITICAL ECONOMY

By H. D. "Bedfobd, M.A. (Lecturer on Political Economy, Otago University).

XXII. -PROTECTION (Continued). 7. " Protection checks the necessity of recourse to inferior coils." We have seen that the rent of any piece of land represents its differential advantage over the poorest land in use. The superiority of one section over another, whether in point of fertility or situation, is measured exactly by the difference in rent. Anything, therefore, which causes recourse to inferior soils increases the relative superiority of the soils already under cultivation, and thereby increases" their rent. Now, tho price of any commodity is determined by the cost of the production of that portion which is on the margin of profitableness. For instance, we will assume that a certain quantity of wheat is sufficient to meet the requirements of the people of New Zealand. With an increase of population moiie wheat must be grown. If the increase were substantial this would certainly necessitate bringing under wheat cultivation land less suitable than the land already used for this purpose. Ac a general rule the best lands are taken up first, and, with pressure of population, the inferior ones have to be resorted to. But to raise the same amount of produce from poor as from a rich soil requires mo r a labour. Henoe with every increase in the demand for agricultural and pastoral products — the- direot fruits of the carth — tho cost of producing them on th© margin of cultivation increases. Ie follows that the price of the produce must rise. Where the price of a commodity does not cover the cost of its production, men will cease to produce it. So that, if the consumers require an augmented quantity of wheat, j they must pay the price which will comi pensate for the extra lafcour cost of p^o- | ducing wheat from inferior soils. And as there cannot be two prices for the same commodity at the same time in the same market, there will be a general riso in the price owing to the necessity of bringing land of poorer fertility under cultivation. Now, exactly the same results arise where the increased demand for anything is due to foreign commerce as whore it is clue to increased local population. The price of meat and butter is higher in New Zealand to-day than it was 20 years ago, because of the illimitable market which the United Kingdom offers for these products. The price obtainable in London for the produce of dairying has lect much land to be devoted to this purpose that it would not have paid so to farm at the prices sruling before the Home trade wao started. The effect of that trade, then, by necessitating recourse to inferior soils, has been to raise prioes to New Zealand consumers and to • raise the rent- of New Zealand land. The question is whether the trade brings with it advanta-epq to counterbalance these evils. High prices increase the cost of living, and high rents hamper the cultivator of small means. To answer this question we must look at the cost of living generally. If we ceased our export of farm products, undoubtedly meat and butter would be cheaper, but the 'iron, steel, and manufactured goods for which we exchange our meat would greatly rise in price. The truth is that the cost of living on the whole is lees in New Zealand than it would be if we discontinued our foreign trade. But this argument, it will be noticed, concerning the effect of trade on the cultivation of inferior soils, is only of force when applied to a country that exports farm produce. It is directed, tco, against the evil of exporting. Still, of course, whatever checks exports checks imports, and whatever diminishes imports lessens exports. The Protectionist generally attacks imports, but he admits that in doing so he assails exports, for the one are payment for the other. It will be seen that this very argument, which ie used in agricultural countries as a ground for Protaction, is equally powerful as a reason for Freetrade in countries naturally adapted for manufacturing, like Great Britain. With Great Britain it is Protection, the restriction of foreign trade, which would occasion the recourse to inferior soils. If she had to grow all her own corn, the price of it would be enormously raised. So that Freetrade in tho Old Country secures those ehoap foodstuffs for which we are asked in the colonies to adopt Protection. From this it would soem that the advantages of Freetrade to a country like Great Britain are greater than they are to a country like New Zealand. Foreign trade, in the former case, means exchanging goods which obey the law of increasing return for goods which obey the law of decreasing return. In the latter case it means the reverse. The more extensively manufacturing is carried on the cheaper "the cost of production, the more extensively agricultuie is pursued the dearer the coat of production. Hence the gain of Freetrade to Great Britain was simply incalculable. 8. " Protection secures employment for labour." Tins argument is made to do much service. Its plausibility givos it much influence, yet it rests on an easihexposed fallacy. Protection nevpr does, never has done, and never can give employment to labour. What would happen if New Zealand were to cease importing? Labour would have to be employed to produce cotton and steel for ouiselves. That is true. But if New Zealand stopped importing she ivould also stop exporting, for it is not to bo supposed that she i& going to export goods for nothing. The con-sequence is that the labour engaged in producing for expert would be thrown out of employment. So that Protection, whilst giving employment on the one hand, would takr; it away on the other. Its only effect on labour ujould bs to cause a transference from a more lucrative to a less lucrative employment. 9. "Protection raises wages. " This also is derconstrably fal^e. Whence do wages come? From' the products of industry. Ihis is. the only fund from which labour can ba remunerated. Anything which diminishes productiveness diminishes this fund. The paramount advantage of Freetradf; is that it secures that each country shall ho employed in those industries for which its natural resources and the aptitude of ils people mc«t adapt it. Whatever the drawbacks of trade it cannot be gainsaid that it adde to the wealth of a country and augments the produce of industry from

which labour is paid. It is, therefore, absurd to suggest that Protection, by diminishing the fruitfulness of labour by lessening 1 the wages fund, can increase wages. Whatever effect it has upon wages must be in the way of lessening, not raising, wages. This result is generally produced by increasing the price of commodities, and thue le&jeryng the purchasing power of wages of a -given amount.

10. "Protection is necessary to safeguard local industry against tihe products of cheap foreign labour." "This is a favourite argument, and one that meets with much approval. A little consideration, however, shows that it possesses but feeble strength. We have not much to apprehend fnom -the opening up of China o-n-d Japan with their cheap labour. We know at anyrate that to whatever extent they swell our imports they must swell our exports. They will not give us their goocte for nothing, and the, invincible laws, which we have seen to govern the movements of money, will prevent them from depriving us of our currency. Perforce, they must take our goods in exchange. The introduction of a cheap product must seriously embanrass the affected -local industry, but it will at this same time stimulate another, which produces the commodities that are" to be exported in exchange. It is perfectly true that Freetrade may cause the ruin of one or more particular indwstrics, but under no conditions can it lessen the .aggregate' amount of employment in a country, lessen wealth, or reduce wa.jes. It can occasion depression in a particular industry, bxit it cannot cause a general depression, because of the paramount ti-uth th.ait any increase of imports must be accompanied by am increase of experts. 11. "Protection by encouraging 'home' trade gives double employment to capital. ' A variation of this argument is that Protection keeps the money in the country 1 * with ail the blessings saioh a result is supposed to bestow. It ie arsrued that if tho local product is purchased, the purchase! money is first passed over to the seller, and then the seller employs it in a furrhor commercial transaction, whereas if a foreign product is purchased the money .oroc-e out of the country in payment, and there is no further local employment of it. The fallacy of this argument is clear when we lemember .that trade is an exchange of goods. Money does not leave the country, nor is there less employment of capital. The capital that would have been employed in making th© goods that are imported ie employed in making the croods that are to be exported in exchange. Protection neither gives double employment of capital nor does it keep money circulating in a country which would otherwise leave its shores. When a man buys a foreign commodity ho does not give employment to foreign capital at the expense of " home" capital. He only takes an indirect way of employing the "horns" capital. Much misconception respecting foreign trade will be avoided if we remember that it is only a large exporting country that can be a largo importing eountrv.

Wo have next to deal with the subject of taxation.