FREE TRADE AND PROTECTION however, and kept the organization alive until in 1854 it was absorbed by the Republican party. In the campaign of 1852, John P. Hale was the candidate and drew 156,667 votes but did not affect the outcome of the election. The Free Soil party, considered as a political organization, failed to gain its ends but it played a part in Congress altogether out of proportion to its strength, owing to the ability of Chase, Sumner, Hale in the Senate, Giddings (see), Julian and others in the House, and it served as the training school for many of the strongest Republican leaders. See COMPROMISE OF 1850; DEMOCRATIC PARTY; LIBERTY PARTY; REPUBLICAN PARTY; SLAVERY CONTROVERSY; WILMOT PROVISO. References: H. Wilson, Rise and Fall of the Slave Power (1874), II; T. C. Smith, Liberty and Free Soil Parties in the Northwest (1897), Parties and Slavery (in American Nation, 1906); E. L. Pierce, Charles Sumner (1893), III; A. B. Hart, Salmon Portland Chase (1899), 96-150; E. Stanwood, Hist. of the Presidency (1898); E. M. Shepard, Martin Van Buren (1899), ch. xi. THEODORE CLARKE SMITH. FREE TRADE AND PROTECTION What Free Trade Means.-Free trade means | vision of labor obviously tends to bring about that exchange between countries shall take cheaper and more abundant production and place without measures that cause the domestic so to be of advantage to both of the exchangproduction of articles which in the absence ing regions. of restriction would be imported. It does not mean that there shall be no duties and no restrictions. The imposition of revenue duties, on articles that would not be made at home even after the duties have been imposed (on tea and coffee, for example), is not inconsistent with the principle of free trade. Neither is the imposition of duties on other articles, if an internal tax at precisely the same rate is levied on those articles when made within the country. Protection means that in consequence of duties on competing foreign products, or of other similar measures, commodities are produced within the country which would not otherwise be produced. This end might be accomplished by direct bounties to the domestic producers, or by tonnage duties on vessels bringing in foreign goods. In practice, the only method of protection followed in the United States (with no exceptions of great importance) has been that of levying duties on competing foreign products. The Principle of Comparative Costs. In international trade one phase of the division of labor becomes conspicuous, resting on what are called "comparative costs." Though not peculiar to international trade, the principle of comparative costs is there of wide application; and it is of special importance in that trade between the United States and European countries with which the protective controversy has been chiefly concerned. Briefly stated, it is that a country (or region within a country) gains by confining itself to those industries in which it has the greater efficiency. The case of California illustrates the principle in domestic exchanges. California's soil and climate, while suited for grain raising, are peculiarly fitted for fruits; and her people found, when transportation of fruit to distant markets became possible, that, though they might with considerable efficiency give their labor and capital to grain-raising, they gained still more by devoting themselves chiefly to fruit. The United States as a whole, during the first century of national history, was under no disadvantage, as compared with European coun tries, in manufactures; but she had a marked advantage in agriculture. Her labor and capital were applied with more advantage in agriculture; hence manufactured articles, unless The Prima Facie Case in Favor of Free Trade.--The principle that trade between countries is most advantageous when unfettered is a simple corollary from the proposition that gain comes from the geographical division of labor. Prima facie, it is clear that productive efficiency is increased when iron is made in the Pittsburg region with cheap coal, and fur-affected by heavy transportation expenses or niture in Michigan with cheap lumber; when produced under conditions exceptionally favorcotton is raised in the South, and corn in the able, tended to be imported. The doctrine of corn belt; and when these several regions ex- comparative costs remains important for this change their products. Similarly, productive country, even though in recent years our adefficiency is increased when England digs coal vantages in agriculture have ceased to be as and makes iron, and sends these articles to marked as they formerly were. It bears on Italy, getting thence wines and oranges and the development of the various branches of lemons; likewise, if the United States digs and manufacture. To some manufactures our rerefines copper from her rich mines and gets in sources and industrial talents are better adaptexchange from Germany potash from Ger- ed than to others. The cause of special effectmany's great deposits. Whether within a coun- iveness among these more advantageous manutry or between countries, the geographical di- | factures may be the possession of great natural FREE TRADE AND PROTECTION ports are paid for by exports; international trade means in essentials just this and nothing else. If imports are cut off, exports in corresponding volume must cease. The process by which the exports are made to cease is not always a simple one, but it is none the less effective. Protection means that labor and capital, which might be given to producing exportable commodities and getting imports in exchange for them, are devoted directly to resources, such as coal and iron ore, or it may | be special skill, such as Americans seem to possess where intricate machinery is used or standardized products are turned out on a large scale. In manufactures having no natural advantages, or using machinery less, or turning out specialized products in small lots, we have no special superiority, even though we are in no way inferior. Between different sorts of manufactures, just as between manufactures and agriculture, a country gains most by giv-producing at home the importable commodities. ing its labor and capital to those industries in which efficiency is greatest. Such are the main principles applicable to the geographical division of labor and so to international trade. On them rests the presumption in favor of free trade. But there are considerations which, under some circumstances, rebut this presumption. In the following paragraphs the arguments most often urged in the United States in favor of protection will be taken up. Though some of the more familiar arguments are fallacious, others have weight, and at least call for discrimination before a conclusion can be reached. Imports Are not per se a Cause of Loss.Protection has often been advocated on the crudest mercantilist grounds (see ECONOMIC THEORY). Imports, it is said, take money out of the country; therefore they cause loss. Exports, on the other hand, are supposed to bring gain, because they draw money into the country. The domestic production of a commodity, after the imposition of a duty, is spoken of as if it were per se a good thing, since the previous importation had been a cause of loss. The countr is said to "save money" by making the article at home. The constant repetition of such long-exploded fallacies (examples in plenty can be found in the Congressional Record during the debates on any recent tariff bill) is the result of mere ignorance of the most settled principles of economics. Imports are not ordinarily paid for by the transmission of money; they are paid for (through the mechanism of bills of exchange) by the exports. Money flows from country to country chiefly in settlement of temporary balances, which some times cause a flow one way, sometimes another. There are some really difficult and debatable questions connected with the possible continued inflow of specie into a country. But these have nothing to do with the common fallacies about "saving money" or "keeping money at home" or "spending your money at home instead of sending it abroad." Is Domestic Industry Encouraged?-Different in form, but very similar in substance, is the argument that domestic industry is encouraged and domestic labor employed, by making at home a commodity which had before been imported. The real question is in what way domestic labor shall be employed; what kind of domestic industry shall be encouraged. Im This shift may or may not be to the country's advantage; prima facie it is not; but domestic industry and domestic labor are called on in either case. Does Protection Cause High Wages?-It is said that protection causes wages to be high, or at least keeps them high in the United States. This argument was not used in the earlier days of the American protective controversy. Until the middle of the nineteenth century higher wages usually supplied an argument to the free-traders, not to the protectionists. The free-traders maintained that high wages caused the expenses of production to be so great in manufactures that it was hopeless to try to carry them on at all. In any case, since the high wages were already there, before any system of heavy tariff duties had been adopted, it would have been absurd to say that they were the result of protection. But after a protective system had been for some time in operation, and it had been forgotten that wages were high before its adoption, the pauper labor argument became plausible. Since 1850, it has been by far the most widely-used and most effective popular argument for protection. None the less, it is unsound. The general rate of wages in the United States is not made higher or kept higher by tariff duties. Wages are high because the general productiveness of industry is great; or, to put it in other words, because there is great general effectiveness of labor. This is the explanation of the variations in wages which appear among different countries, irrespective of their tariff policy. Wages are higher (not much higher, but clearly somewhat higher) in England, a free trade country, than in Germany, a protectionist country; they are about the same in Germany as in adjoining Holland-the one free-trade, the other protectionist; they are higher in Germany than in Russia, both protectionist. The fundamental cause of these differences, to repeat, is in the varying productiveness of labor. So far as protection turns labor into less advantageous directions and the presumption is that it does so it lessens productiveness. But other causes, such as natural resources, intelligence and education, effective industrial leadership, have a much larger effect on general productiveness and so on general wages. Protection is far from being the dominant factor; and so far as its operation goes, it tends by FREE TRADE AND PROTECTION lowering productiveness to lower general wag- | stimulus. The patent system rests on analoes, not to raise them. gous reasoning; men are stimulated to find But in a limited set of American occupa- new ways of production by being granted a tions in those called into existence by a pro- temporary privilege, restricting their compettective tariff—it is true that high wages cannot itors. Lack of experience, the risks of expericontinue to be paid unless protection is main- ment, uncertainty as to the extent of natural tained. This obvious though limited phenome- resources, the inevitable weakness of beginners non gives color to the widespread fear of pau- as compared with those long engaged in an per labor competition. The protected indus- industry-circumstances of this kind may pretries, so far as they really need tariff support, vent an industry from being carried on in a are ipso facto industries in which the country country, even though the permanent conditions has not a comparative advantage. In indus- be favorable and even though in the end it tries where the country does possess a com- may prove able to maintain itself unaided. parative advantage, high wages will be paid The following conditions for success in the in any case, protection or no protection; be- application of protection to young industries cause there productiveness is great. If it is have been suggested: (1) The duties should thought good for the country to possess the not be too high. List, one of the most conother industries, not so advantageously car-spicuous of the advocates for such protection, ried on, laborers in them must be paid the suggested they should not exceed 30 per cent; going higher rates of wages fixed by the gen- | if higher rates are needed even at the start, the erally advantageous conditions; employers can- presumption is strong against eventual success. not afford to pay such higher wages unless they can get higher prices; and they cannot get higher prices, unless protected against the competition of cheaper foreign goods. The whole subject of wages, protection, domestic industry, productiveness of labor, is closely connected with the principle of comparative costs. The Tariff and Equalization of Cost of Production. Closely connected, again, with the arguments that protection promotes domestic industry and keeps wages high, is the argument that the tariff should equalize cost of production. This is a modern "principle" of protection; it has been urged only since the opening of the twentieth century. Carried to its logical outcome, it would lead to the entire prohibition of international trade, by the imposition of duties sufficient to equalize all costs and to prohibit all importation. "Cost of production" means what must be paid out by the employer or capitalist; his main outlay is for wages; wages being higher in the United States, his cost is said to be greater. But his cost obviously is greater in proportion to the quantity of labor he must employ at the higher wages. The more disadvantageous an industry is i. e., the less the productiveness of laborthe more labor must be employed per unit of output, and the higher the employer's outlay. If the principle of equalization is to be consistently applied, it means that for extremely disadvantageous industries, extremely high duties are to be imposed. The principle really assumes that it is always better to produce any article at home than to import it, and that sufficient obstacles should be placed in the way of importation to make sure of domestic production. Protection to Young Industries.-The strongest economic argument is that for protection to young or nascent industries. Its essence is that advantageous industries are not necessarily resorted to without some sort of public (3) (2) After a limited period, say twenty-five or thirty years, the duties should be removed; since the object is the eventual procurement of the articles as cheaply as by importation. The only sure test of such cheapness is ability to meet foreign competition without aid. Agriculture and extractive industries should not be protected; since in such industries it is generally clear enough in advance what are the possibilities at home, and since the advantages in competing countries from experience and habituation count for less. Probably it is true that agriculture offers little scope for protection to young industries. The best way of promoting good agriculture is by schools, experiment stations, and the like. But mining is not outside its scope, since it involves great risks and large investment in fixed capital. Manufacturing industries offer the most promising field of all. (4) A period of transition in industry is most favorable for this application of protection. It has been most often urged for a "young" country, i. e., a country emerging from a simple agricultural stage to one more complex. Such was the United States from the close of the War of 1812 to the middle of the nineteenth century. Then the argument was urged with effect and validity. So it was in Germany during the second third of the century-after the establishment of the Zollverein in 1834. But any transition period, even though not in a "young" country, supplies conditions under which nascent industries may be stimulated with eventual good results. In the United States the period after the Civil War was one of extraordinary change, partly induced by the tariff itself but largely the consequence of general causes of development. The high duties of this period probably had in some cases the effect of stimulating industries that proved able to sustain themselves. The protectionists have hesitated in applying the phrase "young industries" to the giant establishments of modern times. But they maintain FREE TRADE AND SAILORS' RIGHTS that protection has had the effect of eventually lowering domestic prices-and this is in effect the young-industries argument. Though protection has in many cases caused the diversion of industry into disadvantageous channels, it has also caused it to turn to some channels that proved eventually advantageous. The Home Market. The young-industries argument indicates to what extent the homemarket argument has validity. Strictly, the argument that protection creates a home market is as fallacious as the argument that it fosters domestic industry. No additional market is created when protection causes manufactures to arise in an agricultural country; there is simply substitution of a home market for a foreign market. The substitution is advantageous only if the substituted home market is better; and it is better only if the conditions exist for successful aid to young industries. In the United States during the period from 1815 to 1850 there seems to have been this interaction of young industries and home market. The foreign market then was shrinking or at least was failing to expand; manufactures were certain to develop sooner or later; protection probably served to facilitate the process of transition. Political and Social Considerations. Political and social arguments are urged in favor of protection. (1) To consolidate a distracted or divided country, it may be expedient to encourage exchange within its borders rather than exchange with foreign countries. Thus in the United States after 1815, when national feeling was still undeveloped, it may have been desirable on political grounds that North should trade with South and East with West, even though economically the country as a whole might have gained more by trade with Great Britain. Similarly Germany established free trade within her borders in 1834 (by the Zollverein) and imposed some restrictions on trade between Germany and foreign countries; a policy which undoubtedly fostered national feeling. (2) It is urged sometimes that agriculture is an industry to be encouraged on social grounds, sometimes that manufactures are socially advantageous. In the early stages of the United States, it was often said that manufactures were of evil effect by causing crowding, bad health, employment of women and children, inequality of wealth; a simple agricultural state was the best. This was the earlier attitude of Jefferson and the Republicans (see DEMOCRATIC-REPUBLICAN PARTY), and then that of the Federalists (see FEDERALIST PARTY), when these, being opposed to embargo and war, favored shipping and agriculture. At a later stage, there was advocacy of protection on the ground that a people engaged solely in agriculture was likely to be monotonous and unprogressive. Diversified industries, it was said, conduce to intelligence, invention, stimulus to every kind of talent. This view was set forth by Hamilton in his Report on Manufactures (1791) and underlay much of the advocacy of protection by Henry C. Carey in the middle of the nineteenth century. During very recent years there has been a swing again toward eulogy of agriculture. The German advocates of protection say that agricultural industry is the sound core of the social structure, and that a nation predominantly manufacturing is in an evil state; they hold up Great Britain as an object lesson of a tendency to be avoided. In the United States also there is fear by many persons of the social effects of great manufactures-urban concentration, large fortunes and accentuation of inequality, a working class proletariat. These are matters on which no judgment can be pronounced on merely economic grounds. Moreover, they are matters on which the verdict on social grounds seems to be uncertain. The truth probably is that the kind of industry is less important than the kind of people. A manufacturing population may be sound and healthy; an agricultural population may be demoralized. No doubt it is true that manufactures, being conducted to most advantage on a large scale, conduce to greater inequality in the distribution of wealth. But this does not necessarily involve a down-trodden working class or a pauper proletariat. Manufactures bring social problems, but need not cause social degradation. Under present conditions in the United States, it cannot be said that political or social considerations tell unmistakably either for protection or for free trade. The decision must rest chiefly on economic grounds. These grounds are almost conclusive against a system of very high protection; and strong against a system of even moderate protection. See BALANCE OF TRADE; COST, ECONOMIC; DUTIES, FOREIGN VALUATIONS FOR; EXCHANGE, PRINCIPLES OF; LAISSEZ FAIRE; PRODUCTION; TAXATION OF RAW MATERIAL; and under TARIFF. References: Books arguing in the main for free trade: H. Fawcett, Free Trade and Protection (3d ed., 1879); C. F. Bastable, Theory of International Trade (4th ed., 1903); A. C. Pigou, Protective and Preferential Duties (1906); H. George, Protection and Free Trade (1886); F. W. Taussig, Principles of Economics (1911), Bk. V. Books arguing in the main for protection: F. List, The National System of Political Economy (1st German ed., 1840, translation 1856); J. P. Young, Protection and Progress (1900); H. M. Hoyt, Protection vs. Free Trade (1886). F. W. TAUssig. FREE TRADE AND SAILORS' RIGHTS. A phrase used in the period preceding the War of 1812, to designate two combined claims of the United States. The first was the right of a neutral to trade with any belligerent without liability to capture by another belligerent, FREEDMEN'S BUREAU-FREEDOM OF SPEECH AND OF THE PRESS except for causes recognized in international | lege of purchase. After the surrender of the law; such as carrying contraband, and viola- southern forces the bureau became of great imtion of a real blockade. The words "free portance in the conquered territory. It was trade" therefore have no reference to freedom clearly a necessary and proper war measure. of import of goods from foreign countries. In 1866 it was changed in character by an act "Sailors' rights" refers to the right of a citizen of July 16, which gave it the duty of protectof the United States born within the bound- ing, by military authority, the civil rights of aries of the United States or naturalized pre- the freedmen in the southern states until their vious to 1783, to be free from any obligation constitutional relations to the Government to the British Government, particularly to be should be restored. The bureau now became impressed to serve on an British man of war. the agency by which the southern state governThe United States claimed the same privilege ments, reconstructed under Lincoln and Johnfor persons naturalized after 1783, but with son, were prevented from exercising any conless insistence. See CITIZENSHIP; EXPATRIA- trol over the negroes until the congressional TION; NEUTRAL TRADE; NEUTRALITY, PRINCI- plan of reconstruction was carried through. PLES OF. Reference: J. B. Moore, Digest of It was finally terminated January 1, 1869. In Int. Law (1906). A. B. H. spite of its active efforts at philanthropic assistance, the bureau is uniformly condemned FREEDMEN'S BUREAU. After the pass- by southern authorities as having prevented age of the Thirteenth Amendment (see) abol- a harmonious adjustment of the relations beishing slavery, Congress assumed temporary tween the races after the war. See RECONresponsibility for the negroes freed by the STRUCTION. References: P. S. Peirce, The war, who had hitherto been aided by voluntary Freedmen's Bureau (1904); W. L. Fleming, philanthropic organizations. By an act of Documentary Hist. of Reconstruction (1906), March 3, 1865, a Bureau of Refugees, Freed- | I. ch. v; O. O. Howard, Autobiography, II, ch. men and Abandoned Lands was established, to xlvi-lxi (1907). continue one year after the close of the war. It was empowered to issue supplies to destitute freedmen and to rent them forty acres of abandoned or confiscated land with the privi T. C. S. FREEDOM OF CONTRACT. See CONTRACT, OF; FREEDOM OF SPEECH AND OF THE PRESS Constitutional Provisions. In the various | erty, person and reputation, and by express bills of rights (see) in state constitutions are found provisions of the same general purport as that embodied in the Federal Constitution, in the First Amendment, that no law shall be made "abridging the freedom of speech or of the press." These guaranties do not establish any new right but simply preserve an essential feature of personal liberty long recognized in the constitution of England; although in fact liberty in speaking and publishing one's opinions is subject to fewer restrictions in the United States than even at the present time in England. The essential right guaranteed is the liberty of speaking and publishing the truth with good motives and for justifiable ends whether it respects the government or officers or individuals. In the United States it is understood to exclude censorship of the press, that is, a prior determination on public authority whether a proposed publication shall be permitted. legislation in the exercise of the police power for the general welfare. These regulations and restrictions consist in: (1) civil liability to damages for injuries caused by slander, that is, the speaking of false and malicious words concerning another resulting in injury to his business or reputation; (2) both civil and criminal liability for libel, which is the publication by writing or printing of matter calculated to injure the business of another or his character by bringing him into ridicule, hatred or contempt, under circumstances rendering such publication unjustifiable and without lawful excuse; (3) criminal punishment for the speaking or publishing of blasphemous, obscene, indecent or scandalous matter. Legal Restrictions. It is not intended by such constitutional provisions that freedom of speaking and publishing shall be free from responsibility and not subject to regulation. There may be both civil and criminal liability for improper speech and publication as determined by general law in the protection of prop Civil Liability for Slander and Libel.-Defamatory statements made maliciously or without proper occasion to the injury of another constitute the basis for recovery of damages in a civil suit. The truth of the statements may be pleaded by way of justification as a complete defence; but unless the truth is thus established, defamatory words spoken or written are presumed to be false, and they are also presumed to be malicious unless the occasion of their being spoken or published is such as to render them privileged. A privi |