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Mr. DINGELL. Without objection, it is so ordered. (The material above referred to is as follows:) Some of the popular arguments in favor of protection call for brief consideration: that it creates a home market; that it makes employment; and that it raises wages or keeps them high.

When imports are checked, and the things previously imported are made at home, a home market is supposed to be created. It is created; but there is not, as protectionists commonly state or imply, an additional market. Another and different market is substituted. Here again most people's ideas do not get beyond the range of sales and of money dealings. When the linen manufacture, say, is established, those engaged in it buy food and other supplies; and here, it is supposed, is an additional market for food. The real market--that is, the real exchange is of food for linens. That same market existed when linens were imported, and food or other things were exported in payment. To cut off imports is to cut off exports also; it means simply the substitution of exchange within the country for exchange between countries. The essential question is whether for a given quantity of food (i. e., of labor exerted in producing that quantity) more linen is got in one way than in the other. The very fact that linen can be got cheaper by importation shows that the foreign market is better than the domestic market. The home market argument is most frequently used in the United States with reference to the farmers, who are supposed to get benefit from a greater demand for their products because of the establishment of manufactures. The presumption is, however, that they do not gain, but lose; the market which is created offers less in exchange for their products than does the foreign market.

A special form of the home market argument, also much used in the United States, is suggested by the truck farm. Suppose a manufacturing town is established in onsequence of protection: the nearby farmers profit by the sale of milk, vegetables, and the like. These farmers do in fact profit; but simply because, while they sell all their produce in the town, they purchase a very small share, if any, of the particular things there made. If they had previously ex. ported all their vegetables and dairy products, and if the manufacturing town, after the duty, supplied precisely the goods which they had previously procured by importation, they would lose, not gain. The truck farmers, in truth, are ordinarily within the limited circle of real beneficiaries from protection. They gain, however, not as farmers, but as landowners. There are the lucky holder of urban sites in a newly established town. The great mass of farmers do not gain, but lose--those who supply most of the needs of the manufacturing population and who buy most of its products. The nonlanded people of the manufacturing town also fail to gain. As will appear more fully in the sequel, neither employers nor workmen are permanently better off. Only those gain in the end whose sites, whether agricultural or urban, are more advantageously situated under the new distribution of the population.

Closely connected with the home-marke argument is that in regard to employment. That protective duties add to the demand for labor seems patent to the everyday man and especially to the workingman. When imports are kept out, is it not clear that more employment exists for the workmen who make at home the things formerly imported? Here again people only see the first and most obvious results, and do not stop to think what other results must follow. If there are less imports, there will be less exports; and labor, if employed more in the new way, is employed less in the old. One of the most persistent of economic errors is the notion that employment is an end, not a means; and one of the hardest things to fasten in the average person's thinking is that the end to which employment should be directed is the increase of the national incomethe total flow of consumable goods and of services which constitutes the real revenue of the community. Most workingmen, for reasons which are stated elsewhere, oppose labor-saving appliances and welcome arrangements which seem to increase the demand for labor. Most of them are instinctively protectionists, since the same fallacies are current in arguments for protection as in arguments for increasing the employment of labor. The workmen of any one group or set a re concerned solely with their own share of the national income. Anything which adds, or seems to add to the demand for their particular kind of labor is, of course, welcomed ; and then by an easy transition from the particular to the general, it is inferred that all labor is more in demand because of the circumstances which increase the demand in this particular direction.

One form of this argument--that employment is created-alleges that there is always unemployed labor and always unemployed capital. Put on a duty,

bring this labor and capital together for making an article previously imported, and is there not a gain? The answer is that this problem is far removed from the protective controversy. Unemployed labor is a grave social evil; unemployed capital is a real waste. Some proportion of unemployment, no doubt, is inevitable both for labor and for capital; it results from the shifts between occupations, from the processes of change and transition from progress in industry. To minimize it is among the most important of public tasks. It is also among the most difficult. But there is no ground for supposing that a system of protection would affect it one way or the other.

If a new industry is stimulated in a country by a protective duty, it by no means follows that the labor which is unemployed is adapted to that particular industry or is in a place where it can take advantage of the new opportunities. Those who are out of a job cannot drop at once into the new places provided. Transfer and adaptation require time. Given time, however, all the forces of spontaneous activity tend to bring together unemployed labor and unemployed capital in any case. And even supposing the improbable outcome that the unemployed labor and capital were really brought together in an industry created by protection—the solution of the problem would be but temporary. Inventions and improvements, redistribution of industries and of population, crises with all their dislocating effects, would ere long cause the problem to present itself again. A country quite without international trade, shut within its own borders, would still be confronted with unemployment, as with other evils, so long as its industry rested on private property, complex division of labor, free movement of labor and capita; on hopes, fears, and mistakes in the business world. (From F. W. Taussig, Principles of Economics, vol. I, pp. 509-512.)

Notice, from these two charts, how the various indexes—imports, exports, industrial production and employment, pay rolls, and national income-all moye up and down together. All are the results of powerful forces that determine the business cycle. To maintain, superficially, that imports bring on depression by flooding the home market is preposterous, as even a casual examination of the charts indicates. When business is bad imports are low, and when business is good imports are up. Indexes of imports, exports, "national income," and pay rolls

[Indexes of value,:1935–39=100)

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Index of value of imports.--Index on a 1923-25 base as reported by the U. S. Department of Commerce in 1942 supplement to Survey of Current Business, shifted to a 1935-39 base by the U. S. Tariff Commission.

Index of value of exports.-Index on a 1923-25 base as reported by the U. S. Department of Commerce in 1942 Supplement to Survey of Current Business, shifted to a 1935-39 base by the U. S. Tariff Commission.

"National income." -Value figures for 1919 to 1937 from "National income exceeds $76,000,000,000 in 1940" in Survey of Current Business for June 1941. Values for 1938 to 1941

86405-43-27

from Corporate Profits and National Income Estimates, Quarterly, 1938-42, in Survey of Current Business for June 1942. Index computed by U. S. Tariff Commission. "National income is the measure of the net output of coinmodities and services produced by the private and public enterprises of the economy" (Survey of Current Business, June 1942).

Index of pay rolls in manufacturing industries. Combined index of the U. S. Department
of Labor for durable and nondurable goods industries on a 1923–25 base from the 1942
Supplement to Survey of Current Business, shifted to a 1935-39 base by the U. S. Tariff
Commission.
Indexes of employment, production, and imports

(1935-39=100)

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Factory employment.-Indexes on a 1939 base from Federal Reserve Bulletin for February 1943, shiited to a 1935-39 base by the U. S. Tarif Commission.

Industrial production.-Indexes for 1919 to 1941 from Federal Reserve Bulletin for October 1942; preliminary figure for 1942 from issue for February 1943.

Index of quantity of imports.-Index and a 1923–25 base as reported by the U. S. Depart. ment of Commerce in 1942 Supplement to Survey of Current Business, shifted to a 1935-39 base by the U. S. Tariff Commission.

Mr. KNUTSON. I realize, of course, that this is somewhat of a dry subject. It would be fine if we could intersperse the testimony with Browning and other great poets, but, unfortunately, we are dealing with a matter involving jobs, trade, production, and, last but not least, bread and butter for our people.

Mr. Crowther, if the Hawley-Smoot Act caused all the evil effects alleged by the gentleman from Virginia, can you imagine why the Democrats have not repealed it, as they promised us in the campaign of 1932 they would ?

Mr. CROWTHER. Well, their argument being purely emotional, they had to have this thing to call names.

Mr. KNUTSON. It is sort of a straw man for them?

Mr. CROWTHER. Yes. They would lose a lot of their case if that were out.

Mr. KNUTSON. What I get from your reply is that they must, being emotionalists, have something to shadow-box with.

Mr. CROWTHER. Precisely, sir.

Mr. KNUTSON. The Hawley-Smoot Act went into effect on June 14, 1930. I desire, at this time

Mr. CROWTHER. A very convenient act. Mr. KNUTSON. A very convenient act. In fact, the Democrats should erect a monument to it because it made them, and it has kept them in by this cry of "Wolf! wolf!"

I would like to call to your attention a graph containing a summary of the foreign trade of the United States for the calendar year 1941,

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INDEXES OF IMPORTS, EXPORTS, 'NATIONAL INCOME AND PAYROLLS IN INDUSTRY, 1919 TO 1941

(UNITED STATES)

1935-39 : 100

250

250

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INDEX IUMBERS

INDEX NUMBERS

180

180

INDEXES OF EMPLOYMENT, PRODUCTION, AND IMPORTS, 1919 TO 1942

(UNITED STATES)

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QUANTITY OF IMPORTS

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