Silvio Gesell: The Natural Economic Order
Part 1: Distribution


By the above reasoning we see that a land-tax levied for the benefit of freeland-farmers, say in the form of a premium on imported wheat, would hit rent doubly, first by the amount of the tax, and secondly by the increased wages of farm labourers. Many readers will now be inclined to suppose that a protective-duty, being the opposite to an import premium, must raise rents in a two-fold manner, in the first place directly, by the amount of the special rise, corresponding to the duty, of prices of farm produce, and in the second place through depression of wages resulting from reduction of the labour-proceeds of freeland-farmers of the first and second classes.

Let us see if that is true.

To begin with, let it be understood that a protective tariff differs fundamentally from other revenue duties and taxes in that the interest of the landowners in the tariff is much greater than that of the State which levies the duty. For every 100 millions which the State raises out of the import of wheat, the landowners will levy 1000 millions (* The exact amount for any country can be calculated from the ratio of imports to home production.) from the consumers of bread in the form of higher prices. That is why the thing is called a protective-duty: it is designed to protect and augment the rents of the landowners, and to give better security to their mortgages. When import-duties are purely fiscal, as in the case of tobacco, the tax is imposed not only on the imported goods but also on those produced in the country. Anyone having more than one tobacco plant in his garden in Germany must inform the revenue authorities, and in Spain the culture of tobacco is, or was, prohibited for fiscal reasons. But if the import-duty on wheat is of secondary importance as revenue, Frankfurth's query as to the use made of the tax is likewise of secondary importance for what we have set out to demonstrate. We shall therefore leave out of account the wheat duties themselves, and concentrate our attention on the farm rents placed under their protection.

There is nothing arbitrary in the distribution of the product between landowner and farm worker; everything proceeds according to inherent laws. Any artificial interference with this distribution must be in accordance with these laws, not in opposition to them, otherwise it will come to nothing. But even if the attempted interference does come to nothing, some time is usually required for the disturbed equilibrium to be restored, and meanwhile the play of forces may resemble the swing of a pendulum that has been set in motion by a push: distribution will oscillate for some time between rent and wages until the former state of matters is re-established.

So if protective-duties for the purpose of raising rents at the expense of wages are in conflict with the economic laws governing the distribution of the product between rent and wages, they must either fail entirely or succeed only temporarily, that is, until the equilibrium of forces disturbed by legislative interference has been restored.

It is not our purpose to investigate these matters further than to obtain a general picture of the economic processes resulting from import-duties. If we wished to arrive at conclusions applicable in all possible circumstances to individual cases, such as, for example the question as to how much an import-duty of 33% on wheat would raise the price of a certain estate, we should be obliged to carry the investigation far beyond the scope of this book.

Our first concern with regard to import-duties is their influence on the proceeds of labour of freeland-farmers of the first and second classes, on which farm wages on the tariff-protected land depend Of the proceeds of labour of the freeland-farmers of the third class, whose product of labour is also protected by the tariff, we shall speak afterwards.

Freeland-farmers of the first and second class rightly consider import-duties as a burden, like any other charge which renders the conversion of the product of their labour into proceeds of labour more expensive. Whether this increased expense results from higher freights, from higher prices of sacks, from piracy, from fraud, or from import-duties, makes no difference to them. What the consumer pays for the product of his labour (wheat) the freeland-farmer considers as the yield of his labour, and this yield is diminished by import-duties and freight. The proceeds of his labour are therefore correspondingly smaller. If the loss caused by freight hitherto amounted to 30% of the price of his product, this loss may be increased to 50 - 60% by the tariff.

The freight from the Argentine seaports to Hamburg is usually about $4 a ton. To this is added the cost of railway transport from the farm to the harbour, which is more than twice as much; in all, therefore, about $13. The duty in Germany is $14 a ton. The total is thus $27 in a price of about $60.

The immediate effect of the duties is, therefore, to reduce the proceeds of labour of the freeland-farmers of the first and second classes, and as these labour proceeds determine the wages of the workers on tariff-protected land, there is here, too, a reduction of wages, though at first perhaps only in the form of increased prices for foodstuffs, in connection with stationary money wages. The duty, then, allows the landowner to demand higher prices for his agricultural produce without having to pay out this surplus in the form of higher wages to his labourers, or in higher prices for industrial products for his own consumption. For a rise of industrial wages - which would mean a shifting of the burden of the import-duties from industrial workers - is impossible, since these wages are, as we have seen, also determined by the labour-proceeds of freeland-farmers of the first and second classes. Industrial workers are consequently no more able to shift the burden of the import duties than are farm-labourers and freeland-farmers of the first and second classes. So until the reactions to be described later begin to make themselves felt, the whole amount of the import-duty is a free gift to the landowner. And by import-duty we mean not only the sums received by the public treasury, but also the sums levied on the consumer in the form of higher prices paid for native products in the home markets in consequence of the tariff barrier. This means that every loaf of bread, every egg, every ham, every potato pays a tribute which goes into the pockets of the landlords. (If the land is let, the duty is immediately transferred to the rent; if it is sold, the duty is capitalised, that is, multiplied by 20 or 25, and added to the usual price.)

The duty, say the politicians, is paid by the foreigner. And that is perfectly true. For the relatively unimportant sum collected as State revenue at the frontier is, no doubt, paid by the freeland-farmer settled abroad, from the proceeds of his labour. But can anyone seriously attempt to make wheat-duties palatable to the German workman by telling him that it is the freeland-farmer who pays the amount collected by the State at the frontier ? This is cold comfort for the German worker whose wages are determined by the proceeds of labour of the freeland-farmer - cold comfort for the man who must pay out of his own pocket the higher price of food, increased by German landowners by the full amount of the tariffs.

The belief, the hope, the bold assertion, that capital-interest win bear part of the wheat-duties is, as we shall show presently, erroneous. Interest, especially in the case of new capital seeking investment, cannot be taxed. It is free and independent of tariffs.

The import-duty will, however, produce certain counter-effects that will slowly but surely make themselves felt, somewhat as follows: The freeland-farmer in Manitoba, Manchuria, or Argentina writes to his friend in Berlin: " I lose in freight and import-duties more than half of what you pay for my wheat in Berlin, and you also lose in freight and import-duties half or more of what I pay here for your goods (tools, books, medicines and so forth). If we were neighbours we should save these costs and both you and I would find the proceeds of our labour doubled. I cannot convey my fields to where you are, but you can transfer your workshop, your factory here. Come, then, and I will supply you with whatever food you may require at half the price you have now to pay, while you will supply me with your products at half the price I have to pay at present."

This calculation is correct, though the obstacles to the execution of the proposal are many. Industry can, as a rule, prosper only in centres where there are many other industries, since almost all branches of industry are to some extent inter-dependent. The emigration of industries must therefore proceed gradually; it begins with the trades that are naturally most independent: brickyards, saw-mills, flour-mills, printing houses, furniture and glass factories, etc., and at first, of course, it affects only commodities upon which freight-charges and import-duties are especially high. Nevertheless, the emigration of individual industries depends on a calculation, and it is import-duty which, added to freight-charges, very frequently calls for a decision in favour of emigration. The higher the duty on wheat, the more often will it pay to pack up tools and re-establish the workshop in the vicinity of the freeland-farmer. And with every new industry established in the neighbourhood of the freeland-farmer the proceeds of his labour increase, and this increase reacts, as we know, on wages in the protected country.

The advantages of the tariff to the landowner are therefore sooner or later absorbed in rising wages. Landowners who realise this will act accordingly: they will sell their land before the counter-effects make themselves felt, and leave their successors to go clamouring to Parliament for relief, when the inevitable reaction involves agriculture in difficulties. (* "Die Not der Landwirtschaft": "The plight of agriculture" was the political slogan of the Prussian protectionists. Here "agriculture" was a euphemism for rent. It would not be difficult to find an English or American parallel.) (The reduction of rent in consequence of the rise of wages is inevitable, although it may not always be expressed in figures. For it may happen that the development here described may synchronise with one of those frequently occurring currency inflations caused by gold discoveries or over-issues of paper-money. Currency inflation such as occurred in the period of 1890 to 1914 restores to the landowner what he loses in rent. But this applies only to mortgaged landed property, and the landowner has also to reckon with the reverse possibility, namely a gradual fall of prices, as in the years 1873-1890.)

But the reactions set up by a protective tariff are not confined to the behaviour of freeland-farmers of the first and second classes. We must also find out what happens to the freeland-farmer of the third class. The effect on him is the exact reverse of the effect on freeland-farmers of the first and second classes, who pay the duty out of their pockets, whereas he is under the protection of the tariff as regards the products he brings to market after satisfying his own personal needs. So he participates in the blessings of the protective tariff, that is, in the looting of consumers. Instead of six marks he now gets 8 marks for a rabbit, and he sells his honey for 1.35 marks instead of 1.10 marks: in short, he obtains higher prices for everything he sells, without having to pay higher prices for what he has to buy. That is to say, the labour-proceeds of the freeland-farmer of the third class increase, whereas the wage workers complain of a decrease in the proceeds of their labour. Thus the labour-proceeds of the freeland-farmer of the third class increase in a twofold manner, absolutely on account of the rise of prices, and relatively in comparison with the decrease of wages. Nevertheless the labour proceeds of the freeland-farmer of the third class determine the general rate of wages. Evidently, therefore, the disproportion cannot long continue. Word goes round that a rabbit can be sold for eight marks, honey for 1.35 marks, potatoes for 5 marks, and goat's milk for 20 pfennigs, so the wage-earners are up in arms with demands for increased wages. Pointing to the increased labour-proceeds of the freeland-farmer of the third class they, too, claim higher wages, threatening to move to the heath, to the marsh, to the waste, if their demands are not granted.

Hence the wage-increase proceeds from freeland of the third class, as well as from freeland of the first and second classes, and it continues until it has completely compensated the effect of the wheat duties.

It must be remembered, further, that the special rise of prices of all farm produce, brought about by the import-duties, and the consequent increase of rents, must call for new efforts in the direction of intensive cultivation, and that if the duty raises the labour-proceeds of intensive farmers, wages, and through them rent, must be still further affected.

The effect of the tariff is to raise the gross proceeds of intensive farmers and, as the tariff does not at first affect the prices of industrial products, to increase also the net proceeds of their labour.

But if the labour-proceeds of intensive farmers increase, wages must also rise, for the labour-proceeds of intensive farmers determine wages in general.

The general conclusion of our examination is consequently that a protective tariff, through its influence on the proceeds of labour of the freeland-farmer, is bound sooner or later to counteract itself; so that the protection obtained can never be other than temporary.

For those who have to pay the tariff charges "temporarily", it may be a consolation, and for those who enjoy the advantages of the tariff it may be disquieting, to become aware of their transitory nature. But it is a very serious matter if the transitory rise of the rent is accepted as permanent by the farmer when buying land or dividing an inheritance. For what does the farmer know of theories of rent and wages ? He is guided simply by experience. He sees the harvest, he knows the prices of farm produce and the wages paid farm-labourers - his calculation is finished and the bargain luck. The customary sum is paid in ready money, and the rest is covered by a mortgage. But this mortgage is not a temporary matter: it is sure to outlast the transient effect of the tariff upon wages, and it does not decrease when the labourers, regardless of the stationary selling prices of farm produce approach the farmer with demands for increased wages. The farmer then begins to complain, once more, about the plight of agriculture."


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