tries of the country. Capital always seeks employment and goes to those industries that promise the largest returns. There are, however, cases in which a protective tariff actually adds to the industries of a country. The Canadian protective tariff resulted in several American manufacturers building factories in Canada to produce goods for the Canadian markets. English manufacturers have in a like manner established branch factories in the United States. Conclusion. It seems that the importance of the tariff has been greatly exaggerated because of its having been a political issue. The United States has prospered under high tariffs and under low tariffs. England has flourished under free trade and Germany under protection. Once the industries of the United States become accustomed to a certain tariff, the abundant resources of the country and the productive capacity of the people are sure to bring prosperity under normal conditions. "Tariff tinkering," as frequent changes in the tariff are called, slows up industry because it creates uncertainty and unrest. To have a policy and keep to it for a term of years is better than shifting from one plan to another. Summary.-Tariffs are of three kinds: (1) Tariffs for revenue only, (2) tariffs primarily for revenue but with incidental protection, (3) tariffs primarily for protection. The importance of the tariff has been exaggerated. The United States has been prosperous under various tariffs. Germany prospered with protection and England with free trade. The leading arguments for a protective tariff are: The infant-industries argument, the home-market argu ment, the war argument, and the wages argument. Of these the infant-industry argument has the most force. Protective tariffs invite retaliation by other countries. A protective tariff may promote monopoly. The duties collected at the port are, as a rule, shifted to the consumer in the form of higher prices. A protective tariff seldom increases the total industries of a country. TOPICS FOR DISCUSSION, DEBATE, AND SPECIAL REPORTS I. What are the effects of dumping upon the consumer? Upon the home manufacturer? 2. What do you consider the strongest argument in favor of protection? In favor of free trade? Why? 3. Some countries give bounties to encourage home producers. How do bounties differ from protective tariffs in their influence upon prices? Bounties on exports have been given by some countries. This would stimulate the export trade. Would it mean the taxing of the people of one country in order that the people of another country might enjoy cheap goods? 4. Show why "tariff tinkering" injures business. 5. Has the time come when the United States should abandon protection? References in favor of free trade: Taussig, Tariff History of the United States; Ashley, The Tariff Problem; Henry George, Protection or Free Trade; Ely, Problems of To-day, pp. 1-86. References in favor of protection: Gunton, Social Economics, pp. 320-361; Patten, Economic Basis of Protection; Stanwood, American Tariff Controversies. General references: Carver, Principles of Political Economy, chaps. XXVIII, XXIX; Ely, Outlines of Economics, pp. 368-382; Hadley, Economics, pp. 421-445; Taussig, Principles of Economics, chaps. XXXVI, XXXVII; Mill, Principles of Political Economy, book III, chaps. XVII-XXI. 6. During the Great War many plants for the manufacture of chemicals were established in the United States and millions of dollars invested in them. When the war was over the American producers claimed-and the claim was soundthat unless they were given protection the German manufacturers would undersell them in America and force them out of business. Was it a wise policy to grant their demands? CHAPTER XXIII MONOPOLIES Definition of Monopoly.-Monopoly is the absence of effective competition. It is characterized by ability to fix prices. Mere size does not constitute monopoly. The great department stores in our cities compete with one another fully as energetically as the small dealers. It is not necessary that a monopoly should have complete control of the supply. It may fix prices of an article if it controls a large proportion of the supply. The Standard Oil Company has never been the only company engaged in any part of the oil business, yet, because it has controlled from 80 to 90 per cent of the supply of petroleum products, it has been able to fix prices. Monopoly Prices.-Monopoly price is the price that yields the largest profits. This price will vary from time to time. The street railroads are monopolies in almost all American cities. A few years ago a five-cent fare was almost universal; even where such a rate was not fixed by law it was in force because such a fare was most profitable to the corporation. Since the war a five-cent fare no longer yields the largest net return and in some places results in a loss. Hence there has come a demand for a higher fare by the street-railroad corporations. Under the conditions given in the following table a fivecent fare would result in the largest profits, but conditions may change. Labor might become more expensive. Supplies ILLUSTRATION OF THE LAW OF MONOPOLY PRICE Street Railroad Number of Gross Fixed Operating Net of all kinds might rise in price and even the fixed charges might become greater through the necessity of paying more interest on new issues of bonds. Under these new conditions the average person would think no more of ten cents than he had previously thought of five. The following table illustrates the prices at which the largest profits could be obtained: If unrestricted by its charter as to fares and there were no limit to fares by law, the company would charge ten cents, but if the legal rate were five cents it would complain that such a rate was in the nature of confiscation and would demand the privilege of charging a higher rate. |