To Save Our Hides

Mr. Law is President of the Cudahy Tanning Company in Wisconsin.

Protectionist sentiment in the nation seems more prevalent today than it has been in many years. This trend is unfortunate.

I have some knowledge of the subject, inasmuch as baseball glove leather was the principal product of our firm until 1957 when Japa­nese-manufactured ball gloves en­tered and ultimately captured 70 per cent of the United States mar­ket. Today we tan no baseball glove leather. Sentiment in the ball glove industry at that time was very strong for protective action. I investigated the matter in some depth but found that I could not in good faith urge protectionist action on my representative. Such action would have been wrong economically, politically, and mor­ally. It simply makes no sense.

My sentiments are colored by the fact that I look on myself not as a tanner whose product is leather, but as a capitalist whose product is profit. That climate most beneficial to capitalists, and for that matter workers and so­ciety in general, is one in which there exists a minimum of gov­ernmental interference.

Unfortunately, the most active foes of capitalism seem to be cap­italists themselves, because they seek socialism for themselves but free enterprise for others.

The protectionist argument is almost as widespread today as it was two hundred years ago when Adam Smith so brilliantly demon­strated its fallacies. Fortunately, we have the work of Smith and his many successors plus the nu­merous empirical lessons of the benefits of free trade (of which the United States is a notable example) to demonstrate the ad­vantages of unrestrained ex­change; unfortunately, it seems that each generation must relearn the lesson.

The Highest Impertinence

No improvement can be made on Smith’s understanding that "it is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the economy of private peo­ple, and to restrain their expense, either by sumptuary laws, or by prohibiting the importation of foreign luxuries. They are them­selves always, and without any exception, the greatest spend­thrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will….

"To give the monopoly of the home market to the produce of domestic industry… must in almost all cases be either a useless or a hurtful regulation. If the produce of domestic can be brought there as cheap as that of foreign industry, the regulation is evidently useless. If it cannot, it must generally be hurtful. It is the maxim of every prudent master of a family never to at­tempt to make at home what it will cost him more to make than to buy. The tailor does not at­tempt to make his own shoes, but buys them of a shoemaker. The shoemaker does not attempt to make his own clothes, but em­ploys a tailor. The farmer attempts to make neither the one nor the other, but employs those different artificers. All of them find it for their interest to employ their whole industry in a way in which they have some advantage over their neighbors, and to purchase with a part of its produce, or what is the same thing, with a price of a part of it, whatever else they have occasion for. What is prudence in the conduct of every private family, can scarce be folly in that of a great king­dom….

"That it was the spirit of mo­nopoly which originally both in­vented and propagated this [pro­tectionist] doctrine cannot be doubted; and they who first taught it were by no means such fools as they who believed it. In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is so very mani­fest that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question had not the interested sophistry of merchants and manu­facturers confounded the common sense of mankind."

The "sophistry" of which Smith speaks is in essence that being advanced today by those protec­tionists desiring to limit or elim­inate the importation of foreign goods, and is basically as follows: The United States is a high wage country, its industry is unable to compete with that in other coun­tries, imports are increasing, and unless remedial measures are adopted, our industries will be destroyed, our defense posture will be weakened, and a large scale unemployment will ensue.

That argument is advanced in­nocently by the naive and sophis­tically by those who know better. It is no different from that ven­tured by the mercantilists whose errors Smith so ably exposed.

For Better Living

Attend, then, the rationale for free trade — the position, inciden­tally, supported by most econo­mists: We trade in order to ob­tain goods that are either unob­tainable domestically, such as as­bestos, or that can be obtained cheaper abroad, such as baseball gloves. Trade, between individ­uals, between states, between na­tions, is economic and it does not reduce living standards of the participants; rather, it enhances them. In short, trade raises wages. Those who think otherwise fail to understand that wages in the United States are the world’s highest for a reason; Americans work with the most and the best tools. American industry has the world’s highest average capital in­vestment (tools) per worker ($23,000) and therefore has the highest average productivity per worker. We have high wages; however, because of the multiplier (tools) we have low labor costs.

Certainly, labor intensive indus­tries—handmade lace, for instance — are unable to compete. Give an Italian girl a needle and $20 per week and she will produce lace for one-fourth the cost of the American girl who receives $80 per week. Their productivity must be equal. However, give an Amer­ican miner a giant mechanical shovel and $150 per week and by mining 20 tons of coal per day, he will produce much cheaper coal than the British miner with less efficient tools who receives $60 per week and only produces four tons. The labor cost per American ton at that ratio would be $7.50 and that per British ton would be $15. So we import handmade lace and we export coal; we im­port baseball gloves and we ex­port computers; we import coffee and we export jet planes.

We Pay with Exports

Exports must equal imports. If this were not so, we would hope for all the imports we could get.

Imagine receiving goods for noth­ing. But we must pay — and we pay with exports.

Those who would limit imports are taking a superficial view, and it is essential for the sake of our economic well-being that we con­sider this matter in depth. Con­sider not only the worker who competes with imports but also the worker who is helped by exports. The baseball gloves are seen, but the computers exported to pay for them are not seen because they have crossed the border; yet, they are nonetheless real.

Consider the consumers whose real wages are raised by cheap imports. Consider the merchants with whom the consumer who buys cheap imports spends the dol­lars saved. Consider the industries themselves which by competing in world markets are honed to a higher degree of competitive effi­ciency than they might otherwise be. Indeed, no one likes competi­tion; but it is competition that has given the United States the world’s highest standard of living.

Causing Unemployment

Let those who say that free trade causes unemployment ex­amine our history. They will dis­cover that our periods of highest unemployment occurred when tar­iffs were highest. Unemployment is not caused by imports, nor is it caused by automation or by growth of the labor force. Sup­porters of those doctrines would be hard put to find statistical support.

Unemployment is caused when money wages are arbitrarily forced or held above the level indi­cated by the market. Remember, the level of real wages in an area is in proportion to the capital in­vestment per worker in that area. But if money wages are arbitrar­ily oversupported, unemployment ensues. To illustrate: In the 1929 deflation the money supply fell by one-third; prices of goods fell, but the administration used all weapons at its disposal to hold money wages up, and for ten years 15 to 25 per cent of the work force was unemployed. The situation was not corrected until 1940 when the government took the opposite position (though for other rea­sons) and held wages down while it printed money to finance the war. Unemployment disappeared at once.

Most economists agree with the above position. One of them, Sir William Beveridge, said in his book, Full Employment in a Free Society: "This potential effect of high wages policy in causing un­employment is not denied by any competent authority… as a mat­ter of theory, the continuance in any country of a substantial volume of unemployment which can­not be accounted for by specific maladjustment of place, quality, and time is, in itself, proof that the price being asked for labor as wages is too high for the condi­tions of the market; demand for and supply of labor are not finding the appropriate price for meet­ing."

Let it be understood that if money wages fell, prices would fall and real wages would continue to rise.

Trade, then, does not cause un­employment; rather, it raises liv­ing standards. If industries find that they cannot exist in a free market, it may be that they should not. This should be a market determinant.

If Freedom Is the Goal, Rely on the Market

As for the final argument that national defense requires that the consumers subsidize these non­competitive industries, let it be said that this position has a better foundation than the others, though in most cases an insufficient one.

For instance, the head of a large steel company asks, "Can we, for example, be assured of the strong industrial base in steel we need for modern defense if one quarter or more of the steel we require is imported from coun­tries lying uncomfortably close to the Soviet Union and China?"

I imagine that we can, but prop­erly this is a matter for the stra­tegic planners within whose pur­view it falls. The decision should be made in a calm and rational manner and without distortions urged by parties whose interests are not necessarily those pre­tended.

The free market has the answer to imports, to unemployment, to gold outflow, and to most economic problems if we will but let it function. If the level of money wages (the distinction between real wages and money wages is important) is so high that unem­ployment threatens and that the balance of trade is negative, then a high tariff policy will simply re­duce exports and employment as it always has in the past. The solution of such a problem calls for hard money and the free mar­ket.

There is no other effective meth­od. Reliance on the market is the only method consistent with the highest possible standard of living and a climate of political freedom.

Our business, incidentally, is ex­cellent.