"The Prohibitory System"

by Don Boudreaux on January 27, 2007

in History, Trade

When I taught at Clemson University I had an office that was literally a stone’s throw from John C. Calhoun’s study at his estate of Fort Hill.  At Fort Hill, on July 26, 1831, Calhoun delivered (or was it, just wrote?; I can’t tell) a famous speech — his Fort Hill Address — aimed chiefly at justifying State nullification of national-government legislation and dictates that States believe to violate the U.S. Constitution.

These arguments are intriguing, but they’re not what ignites this post.  What I write about here is part of Calhoun’s justification for reducing tariffs on manufactured goods.  (The specific national-government measure that prompted Calhoun to write his Fort Hill Address was, indeed, the tariff — what Calhoun called "the prohibitory system.")

The basic facts are these.  The southern U.S. states (which include, of course, Calhoun’s home state of South Carolina) were at that time chiefly agricultural and dependent for large parts of their incomes on sales of staple agricultural goods to buyers on world markets.  The northern states were increasingly manufacturing.  Tariffs were on manufactured goods.

Now here’s Calhoun:

If we turn from the past and present to the future, we shall find
nothing to lessen, but much to aggravate the danger. The increasing
embarrassment and distress of the staple States, the growing
conviction, from experience, that they are caused by the prohibitory
system principally, and that, under its continued operation, their
present pursuits must become profitless, and with a conviction that
their great and peculiar agricultural capital cannot be diverted from
its ancient and hereditary channels without ruinous losses
—all concur
to increase, instead of dispelling, the gloom that hangs over the
future. In fact, to those who will duly reflect on the subject, the
hope that the disease will cure itself must appear perfectly illusory.
The question is, in reality, one between the exporting and
non-exporting interests of the country. Were there no exports, there would be no tariff.
It would be perfectly useless. On the contrary, so long as there are
States which raise the great agricultural staples, with the view of
obtaining their supplies, and which must depend on the general market
of the world for their sales, the conflict must remain, if the system
should continue, and the disease become more and more inveterate. Their
interest, and that of those who, by high duties, would confine the
purchase of their supplies to the home market, must, from the nature of
things, in reference to the Tariff, be in conflict. Till, then, we
cease to raise the great staples, cotton, rice, and tobacco, for the
general market, and till we can find some other profitable investment
for the immense amount of capital and labor now employed in their
production, the present unhappy and dangerous conflict cannot
terminate, unless with the prohibitory system itself.

I’ve highlighted the especially important passages.  Note that Calhoun, in arguing against tariffs on manufactured goods, uses as one of his arguments the fact that such tariffs will cause loss of profits to some domestic producers (namely, southern planters).

Now I have little sympathy for antebellum southern planters, but what’s interesting is that one of the principal arguments that modern protectionists use to justify protection — namely, that the cost and difficulty of transitioning from economic activity protected by tariffs to whatever economic activities would thrive under free trade are too high and onerous to justify lowering tariffs — was used by Calhoun to argue against tariffs.  Calhoun correctly noted that higher tariffs will reduce demand for U.S. exports (southern-state staple commodities) and, hence, require these producers to find other lines of employment for their efforts and capital.  And such efforts are, naturally, troubling.

The deep lesson here is that, just as moving to freer trade does indeed upset some economic apple carts, so, too, does protection upset some economic apple carts.  Given that both free trade and protection cause some specific job and business losses, protection cannot be justified — as so many try to justify it — by pointing to people whose economic expectations will be upset by freer trade.  Free-trade advocates can counter with similar accounts.

Of course, free trade’s justification cannot, then, be found in the fact that protection upsets some economic expectations.  Free trade’s proper economic justification is, in part, this: given that both free trade and the "prohibitory system" "destroy" some jobs and "create" others, it’s best to let commerce and industry be guided by market signals and consumer sovereignty so that each producer is more likely than under protection to specialize in that occupation for which he, she, or it has a genuine comparative advantage.  Thus will grow the wealth of nations.


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