(c) crown copyright
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D O C U M E N T IS T H E P R O P E R T Y OF H I S B R I T A N N I C M A J E S T Y ' S G O V E R N M E N T .
Printed
for the Cabinet.
January 1932.
SECRET.
Copy No.
C.P. 31 (32).
TO BE K E P T UNDER
LOCK A N D
KEY.
I t is r e q u e s t e d t h a t special c a r e m a y be t a k e n
to e n s u r e the secrecy of this d o c u m e n t .
CABINET.
COMMITTEE
Memorandum
ON T H E
BALANCE OF
of Dissent from the Committee's
TRADE.
Report by the Lord Privy
Seal.
I M U C H r e g r e t to be in d i s a g r e e m e n t w i t h t h e R e c o m m e n d a t i o n s of t h e
C o m m i t t e e ( C P . 25 (32)). I d e s i r e t o s t a t e briefly sonie of t h e r e a s o n s for m y
dissent.
T h e C o m m i t t e e w a s a p p o i n t e d to consider t h e " a d v e r s e " B a l a n c e of T r a d e ,
to m a k e r e c o m m e n d a t i o n s for i t s a d j u s t m e n t if a n a d v e r s e b a l a n c e w e r e f o u n d to
exist, a n d if i t w e r e believed to be i n j u r i o u s l y affecting o u r e c o n o m i c ' a n d financial
position.
T h e C o m m i t t e e h a s proceeded on t h e a s s u m p t i o n t h a t t h e g e n e r a l l y a c c e p t e d
test of t h e b a l a n c e of t r a d e , namely, t a k i n g t h e visible i m p o r t s a n d visible e x p o r t s ,
a n d a d d i n g to t h e l a t t e r t h e invisible e x p o r t s , is t h e one a n d only t e s t of w h e t h e r
our f o r e i g n t r a d e is f a v o u r a b l e or a d v e r s e . I a m n o t convinced t h a t t h i s is t h e
whole s t o r y . I f t h e r e be, o n t h e accepted view, a n u n f a v o u r a b l e b a l a n c e — t h a t is,
a n excess of i m p o r t s over visible a n d invisible exportsW-it is assumed t h a t t h e
excess of i m p o r t s is b e i n g m e t i n one of twp, or b o t h of t w o ways, namely, by
g e t t i n g t h e excess of i m p o r t s on " t i c k , " or by t h e d r a i n of c a p i t a l f r o m t h i s
c o u n t r y . "We h a v e n o evidence, w h i c h is conclusive, t h a t e i t h e r or b o t h of t h e s e
things is t a k i n g place.
I m p o r t s r e p r e s e n t i n d i v i d u a l t r a n s a c t i o n s between
t r a d e r s i n t h i s c o u n t r y a n d abroad, a n d they a r e p a i d for i n t h e o r d i n a r y com­
m e r c i a l w a y . W e h a v e n o evidence t h a t commercial d e b t s a r e b e i n g p i l e d u p
i n f o r e i g n c o u n t r i e s on a c c o u n t of i m p o r t s . I t is i m p r o b a b l e on t h e face of i t for
t h r e e r e a s o n s . F i r s t , B r i t i s h i m p o r t e r s a r e n o t likely t o be given c r e d i t s for l o n g
p e r i o d s b y i m p o v e r i s h e d t r a d e r s a b r o a d ; second, i m p o r t s a r e sold by t h e i m p o r t e r
w i t h i n t h e u s u a l n i n e t y d a y s ' p e r i o d as a r u l e , a n d t h e p r o c e e d s a r e a v a i l a b l e t o
l i q u i d a t e t h e bills o n m a t u r i t y ; a n d in t h e t h i r d place, w h i l e i n d i v i d u a l t r a d e r s
i n t h i s c o u n t r y m a y b u y a h e a d in a f a v o u r a b l e m a r k e t , t h e y a r e n o t likely to d o
So on " t i c k , " o r o u t of c a p i t a l , b u t o u t of t h e i r l i q u i d r e s o u r c e s . A l l t h e
i n v e s t i g a t i o n s w e h a v e been able to m a k e do n o t s u p p o r t t h e a s s u m p t i o n t h a t
c a p i t a l is b e i n g d r a i n e d a w a y t o p a y for a n excess of i m p o r t s .
T h e C o m m i t t e e a b a n d o n e d t h e q u e s t i o n of h o w f a r t h e m o v e m e n t s of c a p i t a l
m a y affect t h e b a l a n c e , because of t h e difficulty of g e t t i n g a d e q u a t e s t a t i s t i c s .
It
is d e p l o r a b l e t h a t t h e r e s h o u l d be such a lack of i n f o r m a t i o n on t h i s v i t a l m a t t e r ,
a n d I s u g g e s t t h a t s t e p s should be t a k e n to t r y to r e m e d y o u r i g n o r a n c e .
The
C o m m i t t e e s t a t e t h a t violent movements of c a p i t a l m a y h a v e serious effects on o u r
e x c h a n g e , a n d , w i t h o u t b e i n g d o g m a t i c On a m a t t e r on w h i c h we h a v e so l i t t l e
k n o w l e d g e , I v e n t u r e to t h i n k t h a t if we h a d m o r e k n o w l e d g e of c a p i t a l
m o v e m e n t s i t m i g h t u p s e t o u r a s s u m p t i o n s a b o u t t h e B a l a n c e of T r a d e .
I do n o t t h i n k t h a t w h a t h a s been called " t h e a u t o m a t i c e q u i l i b r i u m t h e o r y "
h a s been d i s p o s e d of by t h e a r g u m e n t s w h i c h h a v e been p u t before t h e
C o m m i t t e e . I n d e e d i t is a d m i t t e d t h a t t h e t h e o r v i n g e n e r a l is sound, b u t t h a t
[6470]
'
B
i t w o u l d be f a t a l to allow i t to o p e r a t e t o t h e e x t e n t of d e p r e c i a t i n g the exchange
value of s t e r l i n g t o p r a c t i c a l l y n o t h i n g . N o d o u b t t h a t is t r u e ; b u t if t h a t
did h a p p e n i t w o u l d show t h a t t h e r e w a s s o m e t h i n g r a d i c a l l y w r o n g w i t h our
b a l a n c e of p a y m e n t s . B u t t h a t i t n o t t h e case. T h e p o u n d h a s k e p t f a i r l y steady
since t h e d e p a r t u r e f r o m t h e G o l d S t a n d a r d , a t a figure r o u n d w h a t we a r e
told is i t s r e a l e x t e r n a l value. I t s p r e s e n t v a l u e is a b o u t t h e figure before t h e
r e t u r n t o t h e G o l d S t a n d a r d i n 1925, a n d a t t h a t t i m e w e h a d a large
' ' f a v o u r a b l e ' ' t r a d e b a l a n c e on t h e a c c e p t e d a s s u m p t i o n s .
I n short, I t h i n k w e a r e e x a g g e r a t i n g t h e influence of t h e alleged adverse
b a l a n c e of t r a d e , a n d t h a t w e a r e i n d a n g e r of a p p l y i n g m e d i c i n e to cure a
s u s p e c t e d disease w h i c h h a s n o t been t h o r o u g h l y d i a g n o s e d , a n d a b o u t whose
e x i s t e n c e we a r e n o t q u i t e sure.
B u t l e a v i n g these m a t t e r s aside, I w i l l come to t h e r e c o m m e n d a t i o n s of the
C o m m i t t e e for d e a l i n g w i t h t h e a s s u m p t i o n t h a t t h e r e is a serious a d v e r s e balance
w h i c h m u s t be set r i g h t . T h e B o a r d of T r a d e , p r o c e e d i n g o n t h e a s s u m p t i o n t h a t
w e c a n g e t a t t h e b a l a n c e of t r a d e by t h e s i m p l e m e t h o d of t a k i n g t h e excess
of i m p o r t s over e x p o r t s a n d a d d i n g to t h e e x p o r t s t h e invisible items, conclude
t h a t in 1931 w e s h a l l h a v e a n a d v e r s e b a l a n c e of a b o u t £ 1 0 0 m i l l i o n s , p e r h a p s
a s h i g h a s £ 1 2 0 millions.
S i n c e t h e r a t i o between visible i m p o r t s a n d e x p o r t s r e m a i n s t h e same,
h o w e v e r m u c h t h e values m a y fall, t h e a d v e r s e b a l a n c e is a c c o u n t e d for by the
f a l l in t h e r e t u r n f r o m f o r e i g n i n v e s t m e n t s , f r e i g h t s , i n s u r a n c e a n d commissions.
T h e r e is n o c o n t r o v e r s y a b o u t t h e f a l l i n g off of t h i s source of income. B u t i t is
w e l l to b e a r in m i n d w h a t effect m a y be p r o d u c e d o n t h e s e i t e m s by a n y policy
w e m a y a d o p t for r e s t r i c t i n g i m p o r t s .
I will deal w i t h t h a t later.
The
C o m m i t t e e h a s a s s u m e d t h a t no G o v e r n m e n t a l a c t i o n c a n i n c r e a s e t h e ' ' invisible
e x p o r t s " e x c e p t ^ v e r y slowly a n d i n d i r e c t l y . I n r e g a r d t o f o r e i g n i n v e s t m e n t s
I a g r e e d t h a u p m r y be i n a c o n s i d e r a b l e m e a s u r e t r u e , b u t t h e o t h e r i t e m s —
s h i p p i n g , f r e i g h t s , & c , m a y be very m a t e r i a l l y affected for good or b a d by
fiscal policy.
H a v i n g satisfied themselves t h a t t h e p r o b l e m is one of t h e excess of t h e
i m p o r t s of m e r c h a n d i s e over e x p o r t s , t h e C o m m i t t e e proceed t o s u g g e s t m e a s u r e s
for r e c t i f y i n g t h i s excess. T h e y p r o p o s e t o d o it by r e s t r i c t i n g i m p o r t s a n d
encouraging exports.
T h i s is t h e policy of a l l P r o t e c t i o n i s t c o u n t r i e s .
Its
f a l l a c y s h o u l d be t r a n s p a r e n t .
I f every c o u n t r y in t h e w o r l d is r e s t r i c t i n g
i m p o r t s a n d t r y i n g t o i n c r e a s e i t s e x p o r t s , w h e r e i n t h e w o r l d is t h e m a r k e t g o i n g
t o be f o u n d for i n c r e a s e d e x p o r t s ? I w o u l d call a t t e n t i o n t o t h e f a c t s r e v e a l e d
i n t h e t r a d e r e t u r n s for l a s t y e a r . T h e figures a r e a lesson to t h o s e w h o t h i n k
t h a t by l e s s e n i n g i m p o r t s we a r e g o i n g t o r e d r e s s t h e b a l a n c e of t r a d e . T h e
C o m m i t t e e a i m a t r e d u c i n g i m p o r t s by £ 5 2 m . i n 1932, a n d t h i s , w i t h a m y t h i c a l
i n c r e a s e of e x p o r t s by £ 1 0 6 m . , is to r e d r e s s t h e balance. I n 1931 o u r imporrts
w-ere r e d u c e d by £ 1 8 1 m . , a n d i t w a s i n t h e y e a r t h i s h u g e r e d u c t i o n of i m p o r t s
t o o k p l a c e t h a t w e h a d for t h e first t i m e a n a d v e r s e b a l a n c e , e x c e p t in t h e
a b n o r m a l c o n d i t i o n s of 1926. B u t t h e r e is a n o t h e r i m p o r t a n t f a c t r e v e a l e d by
t h e 1931 figures. T h e r e d u c t i o n of i m p o r t s w a s a c c o m p a n i e d by e x a c t l y t h e same
r e d u c t i o n in t h e v a l u e of o u r e x p o r t s I T h i s i s n o new f e a t u r e . A s u r v e y of
t h e t r a d e r e t u r n s over fifty y e a r s w i l l s h o w t h i s c o r r e s p o n d e n c e b e t w e e n i m p o r t s
a n d exports.
T h e figures g i v e n i n t h e C o m m i t t e e ' s R e p o r t c o v e r i n g t h e l a s t t w o
y e a r s s u p p o r t t h i s conclusion. I n p a r a g r a p h 10 i t is s t a t e d t h a t t h e E x p o r t s
for t h e twelve m o n t h s e n d e d S e p t e m b e r l a s t w e r e v a l u e d a t £ 4 2 2 m . , as c o m p a r e d
w i t h £ 7 2 9 m . i n 1 9 2 9 — a fall of £ 3 0 7 m . T h e I m p o r t s for t h e s a m e p e r i o d s w e r e
r e s p e c t i v e l y £ 8 1 4 m . , a s c o m p a r e d w i t h £ 1 , 1 1 1 m . , a fall of £ 2 9 7 m . T w o t h i n g s
a r e clear from these figures. F i r s t , t h a t , a s i m p o r t s fall, e x p o r t s f a l l ; a n d
second, t h a t a r e d u c t i o n of £ 2 9 7 m . i n i m p o r t s i n t w o y e a r s h a s b r o u g h t a b o u t t h e
a s s u m e d a d v e r s e b a l a n c e of t r a d e . W e h a v e r e d u c e d i m p o r t s by t h a t h u g e figure
an t w o y e a r s , a n d y e t w e a r e a s k e d t o a s s u m e t h a t if w e c a n r e d u c e t h e m by
£ 5 2 m i l l i o n s i n 1932 w e a r e g o i n g f a r t o r e d u c e t h e a d v e r s e b a l a n c e !
B u t the
i m p o r t a n t fact w h i c h e m e r g e s from all t h e figures i s t h a t a n y a t t e m p t to r e d u c e
i m p o r t s w i l l r e s u l t i n a r e d u c t i o n of e x p o r t s , a n d I s u b m i t t h a t i t is a d e l u s i o n to
imagine t h a t we can increase exports a n d a t t h e same time reduce imports.
T h e r e d u c t i o n i n t h e r e t u r n of invisible e x p o r t s from s h i p p i n g , &c., would
n o t be r e m e d i e d by r e d u c i n g i m p o r t s . T h e s h i p p i n g i n d u s t r y d e p e n d s m o r e u p o n
i m p o r t s t h a n u p o n e x p o r t s , for, I u n d e r s t a n d , t h a t t h e g r e a t bulk of i m p o r t s
a r e b r o u g h t to t h i s c o u n t r y i n B r i t i s h s h i p s .
T h e C o m m i t t e e p r o p o s e to effect t h e r e d u c t i o n i n i m p o r t s by a g e n e r a l tariff,
a n d by specific tariffs u p o n goods of a l u x u r y n a t u r e , a n d u p o n goods w h i c h can
be p r o d u c e d in t h i s c o u n t r y . " Goods w h i c h can be p r o d u c e d in this c o u n t r y "
is a w i d e a n d indefinite t e r m . W e could p r o d u c e e v e r y t h i n g we need in t h i s
couutry a t a p r i c e , a n d for a t i m e - a very s h o r t t i m e .
T h e s e r e c o m m e n d a t i o n s of the C o m m i t t e e t r a v e l f a r beyond i t s t e r m s of
reference, w h i c h w e r e to find m e a n s of r e v e r s i n g t h e balance of t r a d e . T h e s e
r e c o m m e n d a t i o n s a r e for a complete a n d p e r m a n e n t r e v e r s a l of ^ I r s c a l policy.
They l a y t h e f o u n d a t i o n s of a P r o t e c t i o n i s t system u p o n w h i c h the complete
s t r u c t u r e can be g r a d u a l l y b u i l t . I do not wish to i n t r o d u c e t h e political aspects
of t h i s q u e s t i o n , b u t I m u s t p o i n t out t h a t t h i s is g o i n g f a r beyond t h e p r o g r a m m e
upon w h i c h t h e N a t i o n a l G o v e r n m e n t w e n t to t h e c o u n t r y . I t s m a n d a t e is c l e a r
a n d u n e q u i v o c a l , a n d w a s well s t a t e d by M r . B a l d w i n on t h e 2 4 t h October. H e
said :—
P e r h a p s I s h o u l d s a y a w o r d a b o u t those w h o have t r i e d t o confuse t h e
issue w i t h a t t e m p t s to revive t h e F r e e T r a d e - P r o t e c t i o n controversy of
twenty-five y e a r s a g o . N o w , t h i s is n o t t h e r e a l issue. H e r e t h e P r i m e
M i n i s t e r a n d M r . S n o w d e n h a v e both s t a t e d t h e p o s i t i o n f a i r l y a c c u r a t e l y —
t h a t t h e N a t i o n a l G o v e r n m e n t m u s t be free to consider a n y a n d every
e x p e d i e n t w h i c h m a y h e l p to e s t a b l i s h t h e b a l a n c e of t r a d e .
T h e 10 p e r cent, g e n e r a l tariff is p u t f o r w a r d as a " revenue " tariff. I t is
to be all b u t u n i v e r s a l i n i t s a p p l i c a t i o n . I t is t o be p e r m a n e n t . I t is to a p p l y
to n e a r l y a l l t h e c a t e g o r i e s of food-stuffs a n d to a l a r g e n u m b e r of r a w m a t e r i a l s ,
and to a l l s e m i - m a n u f a c t u r e d a n d m a n u f a c t u r e d a r t i c l e s . I w a n t to know
w h e t h e r t h i s 10 p e r cent, d u t y is to be r e g a r d e d a s a revenue d u t y o r a p r o t e c t i v e
duty. I t m a y be a n s w e r e d t h a t i t is both. I t m a y r a i s e revenue a n d it m a y
protect. B u t in so f a r a s i t p r o t e c t s by r e d u c i n g i m p o r t s i t d e f e a t s i t s p u r p o s e
as a r e v e n u e p r o d u c e r . W e cannot have it both w a y s . Such a w e a p o n in t h e
h a n d s of a n i m p e c u n i o u s Chancellor will a l w a y s be a t e m p t a t i o n to increase t h e
r a t e of t h e duty. A n d to p l a c e such a d u t y in t h e h a n d s of a n y P r o t e c t i o n i s t
Chancellor is t o g i v e h i m a l l he n e e d s t o t u r n t h e t a x into a full P r o t e c t i v e
duty. I f t h i s 10 p e r cent, d u t y is a d v o c a t e d a s a r e v e n u e duty, t h e n it is o u t s i d e
the r e f e r e n c e of t h e C o m m i t t e e , w h i c h w a s confined to finding " e x p e d i e n t s w h i c h
may h e l p t o establish t h e b a l a n c e of t r a d e . "
I t is p r o p o s e d to e x e m p t from t h e g e n e r a l tariff c e r t a i n a r t i c l e s of food a n d
a few r a w materials.
T h e r e is no logical defence of such e x e m p t i o n .
The
e x e m p t i o n of c e r t a i n food-stuffs is justified on t h e g r o u n d t h a t t h e m a i n item
in t h i s c a t e g o r y — w h e a t — i s b e i n g d e a l t w i t h by a q u o t a , a n d m e a t a n d bacon
form a p r o m i n e n t i t e m i n household b u d g e t s , a n d t h a t t o t a x these a r t i c l e s m i g h t
cause such a r i s e in t h e cost of l i v i n g a s t o i n c u r a d e m a n d for a n a d v a n c e
of w a g e s . T e a is a p p a r e n t l y t o be d e a l t w i t h in t h e B u d g e t . I find from a
s u m m a r y of t h e I m p o r t s of food-stuffs s u p p l i e d by t h e B o a r d of T r a d e t h a t t h e
value of these a r t i c l e s in 1931 ( i n c l u d i n g those a t p r e s e n t dutiable) w a s
£397m.
Of t h e s e i t is p r o p o s e d to e x e m p t f r o m t h e 10 p e r cent, d u t y a
total of £ 1 3 4 m . , l e a v i n g t a x e d a r t i c l e s of food for m e n a n d beasts to t h e
value of £ 2 6 3 m .
I n a d d i t i o n , r a w m a t e r i a l s t o t h e v a l u e of £ 9 5 m .
are t o be t a x e d , a n d m a t e r i a l s to t h e value of £ 5 2 m . a r e to be e x e m p t .
M a n u f a c t u r e d goods to t h e value of £ 2 9 2 m . w i l l be t a x e d ,
including
£ 4 8 m . a l r e a d y p a y i n g d u t y . A l l a r t i c l e s of domestic use a n d c o n s u m p t i o n ,
w i t h t h e c o m p a r a t i v e l y small e x e m p t i o n s m e n t i o n e d , a r e to be t a x e d . W h e n w e
a d d t h e profit on t h e d u t y in t h e i n t e r m e d i a t e stages, a n d t h e inevitable i n c r e a s e
of p r i c e s of t h e h o m e - p r o d u c e d articles, we m u s t c o n t e m p l a t e an increase o f
p r o b a b l y n o t less t h a n 15 p e r cent, i n t h e cost of living.
T a k e n in c o n j u n c t i o n w i t h t h e possible increase i n p r i c e s o w i n g to t h e fall
in t h e e x c h a n g e , w e g e t a n i n c r e a s e i n t h e cost of l i v i n g w h i c h will be i n t o l e r a b l e
to t h e w o r k i n g class. T h i s is b o u n d t o cause w a g e s troubles a t a time w h e n i t
is v i t a l n o t to a d d to t h e difficulties of t h e m a n u f a c t u r e r s by a d d i n g to t h e w a g e
item i n t h e cost of p r o d u c t i o n .
I f t h e 10 p e r cent, d u t y is a d v o c a t e d as a r e v e n u e p r o d u c e r t h e n o t h e r
objections c a n be u r g e d w h i c h I need n o t s t r e s s here. I f t h e revenue is t o be u s e d
[6470]
n P.
t o r e d u c e d i r e c t taxation-—to r e d u c e t h e income t a x , for i n s t a n c e , by sixpence
t h e c h a n g e will be a relief of t h e well-to-do a t t h e e x p e n s e of t h e w o r k i n g classes.
A r e d u c t i o n , or even t h e abolition of t h e I n c o m e T a x w o u l d give no relief to a
m a r r i e d m a n w i t h t h r e e c h i l d r e n a n d a n income u n d e r £ 4 0 0 a y e a r . B u t from
t h e a n a l y s i s of f a m i l y b u d g e t s t h e p r o p o s e d r e v e n u e t a x would involve the
t a x a t i o n of these people to t h e e x t e n t of from £ 7 t o £ 1 5 a y e a r .
I t is i n t e n d e d now, o r l a t e r , to give a r e d u c t i o n of t h e 10 p e r cent, d u t y on
i m p o r t s from t h e E m p i r e . I f d u t i e s a r e r e q u i r e d t o r e d u c e i m p o r t s t h e r e is no
j u s t i f i c a t i o n for t h i s p r e f e r e n c e .
Goods f r o m the E m p i r e affect t h e alleged
a d v e r s e b a l a n c e j u s t as m u c h as goods from f o r e i g n c o u n t r i e s . B u t if t h e p r i m a r y
p u r p o s e of t h e s e d u t i e s is to r e d u c e i m p o r t s t o r e d r e s s t h e balance of t r a d e , it
i s m o r e i m p o r t a n t t o r e d u c e E m p i r e i m p o r t s t h a n f o r e i g n , for t h e t r a d e w i t h the
E m p i r e is m o r e a d v e r s e to us t h a n our f o r e i g n t r a d e . T h e figures are
illuminating.
T a k i n g t h e first n i n e m o n t h s of i m p o r t s a n d e x p o r t s for 1929,
1930 a n d 1 9 3 1 , w e find t h a t t h e " a d v e r s e " b a l a n c e of m e r c h a n d i s e t r a d e w i t h
f o r e i g n c o u n t r i e s h a s been d e c l i n i n g , a n d t h a t w i t h t h e E m p i r e r a p i d l y r i s i n g .
T h e " a d v e r s e " ' v a l u e w i t h f o r e i g n c o u n t r i e s i n 1929 w a s 2 5 7 m . ; in 1930,
£254m.;
in 1 9 3 1 , £ 2 4 1 m .
The " a d v e r s e " balance with the Empire
c o u n t r i e s w a s in 1929, £ 1 2 m . ; 1930, £ 2 2 ^ m . ; 1931, £ 3 9 1 m . A n e n c o u r a g e m e n t
of i m p o r t s f r o m t h e E m p i r e will i n c r e a s e t h i s ' ' a d v e r s e ' ' b a l a n c e still more.
I n a d d i t i o n to t h e g e n e r a l d u t y of 10 p e r cent., t h e C o m m i t t e e recommend
specific d u t i e s of a h i g h e r r a t e u p o n a r t i c l e s of l u x u r y , a n d u p o n a r t i c l e s which
c a n be p r o d u c e d in t h i s c o u n t r y . T h e B o a r d of T r a d e a s s u m e s t h e possibility of
t h e i m p o r t s of a r t i c l e s " wholly or m a i n l y m a n u f a c t u r e d " b e i n g reduced in
1932 by o n e - q u a r t e r . H o w t h i s p o s s i b i l i t y is v i s u a l i s e d we a r e n o t told. I t is
a s s u m e d t h a t these excluded i m p o r t s w i l l be r e p l a c e d by h o m e - p r o d u c e d goods.
C a n a n y b o d y r e a l l y believe t h a t t h i s is possible ? I n t h e s p h e r e of food p r o d u c t i o n
I do n o t deny t h e p o s s i b i l i t y over m a n y yeaiy, by a t h o r o u g h r e o r g a n i s a t i o n of
a g r i c u l t u r a l p r o d u c t i o n a n d m a r k e t i n g , of p r o d u c i n g a m u c h l a r g e r p r o p o r t i o n
of our food c o n s u m p t i o n , b u t i t w i l l t a k e y e a r s . W e h a v e been told t h a t i n the
m a t t e r of bacon i t w ouid t a k e five y e a r s to e s t a b l i s h a system c o m p a r a b l e w i t h the
D a n i s h system.
I n t h e m e a n t i m e , we a r e n o t likely to e n c o u r a g e higher
p r o d u c t i o n of d a i r y p r o d u c e by t a x i n g i m p o r t e d o a t s a n d g r a i n a n d other
feeding-stuffs for c a t t l e , or p o u l t r y f a r m i n g by t a x i n g e q u i p m e n t a n d p r o d u c e .
H o w a n e n c o u r a g e m e n t is g o i n g to be given to e x p o r t s by i n c r e a s i n g the cost
of p r o d u c t i o n by "the t a x a t i o n of t h e m a t e r i a l s w h i c h e n t e r i n t o p r o d u c t i o n I
d o n ' t know.
T h e a s s u m p t i o n of a n i n c r e a s e of £ 1 0 0 m . in e x p o r t s t h i s year
is f a n t a s t i c ; a n d i t c e r t a i n l y w i l l n o t be h e l p e d by i n c r e a s i n g t h e costs of p r o ­
d u c t i o n . T a x e d i m p o r t s of r a w m a t e r i a l a n d s e m i - m a n u f a c t u r e d a r t i c l e s w h i c h
e n t e r i n t o t h e p r o d u c t i o n of e x p o r t s a r e n o t to be e n t i t l e d t o draw-backs; so it is
u n d e n i a b l e t h a t costs of p r o d u c t i o n will be increased.
T h e C o m m i t t e e clearly c o n t e m p l a t e t h a t t h e specific d u t i e s will be so h i g h
a s to be to a g r e a t e x t e n t p r o h i b i t i v e . T h e r e p e r c u s s i o n s of a n i n c r e a s e in the
p r i c e s of i r o n a n d steel, for i n s t a n c e , a r e b o u n d t o be i n j u r i o u s to h u n d r e d s of
i m p o r t a n t industries who are large buyers.
T h e case of t i m b e r is i m p o r t a n t .
T h i s , I a s s u m e , falls u n d e r t h e 10 p e r cent. d u t y . F o r e i g n t i m b e r is a n essential
i m p o r t , a n d to i n c r e a s e i t s p r i c e w h e n we a r e t r y i n g to r e d u c e t h e cost of building­
is i n d e f e n s i b l e .
I t is a s s e r t e d t h a t t h e p r o p o s e d d u t i e s wall g i v e u s a b a r g a i n i n g weapon
w i t h P r o t e c t i o n i s t c o u n t r i e s , a n d t h a t w e m a y by t h i s d e m o n s t r a t i o n of our
r e a d i n e s s to impose d u t i e s , i n d u c e t h e m to lower t h e i r s . T h i s is t h e oldest of the
c o n t r o v e r s i e s b e t w e e n F r e e T r a d e a n d P r o t e c t i o n . A l l experience h a s proved i t s
ineffectiveness. I f p r o t e c t i v e d u t i e s t e n d e d to g e t lower tariffs, we should have
h a d u n i v e r s a l free t r a d e long ago.
On the c o n t r a r y , tariffs beget tariffs, a n d
tariffs b e g e t h i g h e r tariffs. A t t h e E c o n o m i c C o n f e r e n c e , a few y e a r s ago, over
fifty c o u n t r i e s u n a n i m o u s l y a g r e e d t h a t tariffs w e r e a g r e a t h i n d r a n c e to the
e x c h a n g e of c o m m o d i t i e s , a n d called for a r e d u c t i o n . B u t most of these countries,
w i t h t h e b a r g a i n i n g w e a p o n of h i g h tariffs in t h e i r h a n d s , h a v e been i n c r e a s i n g
t h e i r tariffs ever since, a n d t h e b a r g a i n i n g w e a p o n h a s been useless to b r i n g
a reduction.
R e c e n t events a r e i n s t r u c t i v e . I n t h e l a s t few m o n t h s a considerable n u m b e r
of c o u n t r i e s , w i t h t h e w e a p o n for b a r g a i n i n g for lower tariffs in t h e i r h a n d s , have
l a r g e l y i n c r e a s e d t h e i r tariffs. I t a l y , I n d i a , A r g e n t i n e , F r a n c e , Colombia,
r
D e n m a r k , F i n l a n d , P o l a n d , U r u g u a y a n d N o r w a y ; a n d H o l l a n d is n o w c o n s i d e r ­
ing a n e w tariff schedule.
W h e r e every o t h e r c o u n t r y h a s f o u n d t h e tariff
ineffective to i n d u c e tariff r e d u c t i o n , w e a r e n o t likely to succeed. O n t h e c o n t r a r y ,
our e n t r y i n t o t h e tariff w a r i s f a r m o r e likely to l e a d to still f u r t h e r increases.
I t is f u r t h e r s u g g e s t e d t h a t t h e " specific tariff " m a y be u s e d to compel t h e
r e o r g a n i s a t i o n of o u r i n d u s t r i e s . I c a n n o t d e a l fully h e r e w i t h t h i s hope. O u r
experience of efforts to i n d u c e r e o r g a n i s a t i o n h a s shown us t h a t t h e i n d u s t r i e s
will n o t r e o r g a n i s e w i t h o u t a .tariff, a n d if t h e y g e t a tariff they w i l l fall asleep
under its protective charm.
T o s u m u p t h e g r o u n d s of m y d i s s e n t f r o m t h e P r o t e c t i o n i s t p r o p o s a l s of
the C o m m i t t e e , I m a y s a y t h a t I do n o t believe t h e y w i l l do a n y t h i n g t o r e d r e s s
the b a l a n c e of t r a d e ; t h e y w i l l m a k e t h e recovery of o u r e x p o r t t r a d e more­
difficult, t h e y will i n c r e a s e t h e cost of l i v i n g a n d t h e costs of p r o d u c t i o n ; t h e y
will d i s c o u r a g e e n t e r p r i s e a n d efficiency; t h e y will be useless to i n d u c e a l o w e r i n g
of f o r e i g n tariffs.
I m a y be a s k e d w h a t a r e my a l t e r n a t i v e s . T h e p u r p o s e of t h i s memo­
r a n d u m is to t r y to show t h a t t h e p r o p o s a l s of t h e C o m m i t t e e will do m o r e h a r m
t h a n good, a n d n o t to set f o r t h a l t e r n a t i v e p r o p o s a l s ; b u t I m a y briefly say t h a t
I t h i n k t h e causes of t h e w o r l d economic s i t u a t i o n a r e (1) r e p a r a t i o n s a n d w a r
debts; (2) t h e m a l d i s t r i b u t i o n of t h e w o r l d gold stocks, w h i c h is d u e i n a l a r g e
m e a s u r e to r e p a r a t i o n s a n d w a r d e b t s ; (3) tariffs, which i m p o v e r i s h t h e
consumers a n d r e d u c e t h e i r p u r c h a s i n g p o w e r ; (4) e x c h a n g e e m b a r g o e s ;
(5) b u r d e n of a r m a m e n t s ; (6) i n o u r o w n c o u n t r y , inefficient o r g a n i s a t i o n i n
industry and particularly in agriculture; and the high Bank Rate and the
r e s t r i c t i o n of c r e d i t .
I n t e r n a t i o n a l a c t i o n is n e e d e d t o d e a l w i t h t h e first five of t h e s e causes.
We
should p r e s s w i t h t h e u t m o s t v i g o u r for a p e r m a n e n t s e t t l e m e n t of (1); a second
Genoa Conference on g o l d a n d c u r r e n c y a n d g e n e r a l economic q u e s t i o n s s h o u l d
be a i m e d a t , a s I t h i n k m a n y c o u n t r i e s w o u l d n o w be r e a d y for it. T h e q u e s t i o n
of tariffs w o u l d be b o u n d t o a r i s e a t such a C o n f e r e n c e .
I t m a y be s a i d t h a t i t w i l l t a k e t i m e to d e a l w i t h these q u e s t i o n s .
That
is t r u e ; b u t i t is b e t t e r to b e deeding w i t h f u n d a m e n t a l causes t h a n t o a p p l y
so-called r e m e d i e s w h i c h w i l l n o t cure, b u t w i l l a g g r a v a t e the disease.
January
S.
18, 1932.
o