2110-2-11-12

8, MORAY PLACE, EDINBURGH

4th February 1914.

Dear Buchan,

Where Milner failed it is not likely that I will succeed. Still, I remember that with the exaltation of your eloquence at the Balfour Burns Club Dinner still upon me I promised to drop you a few remarks on the subject of Tariff Reform, - more particularly with re- gard to Imperial Preference and food-stuffs.

I take it that we have got beyond the stage of arguing about the effect on wages and purchasing power of a reasonable Tar- iff on manufactured imports, provided that supplies of food and raw material within the protected area are abundant.

The recent readjustment of the United States Tariff shows that the reformers there fully realise the advisability of a reasonable measure of Protection for home industry, coupled with the opening up of abundant supplies of food-stuffs and raw material, nor I think need we labour the point that in relation to Revenue such a Tariff is useful in three ways.

First of all, from the very outset it raises a certain amount of Revenue from imported manufactures, secondly, owing to the expansion of this class of imports this is an increasing Revenue, as is very well illustrated by the experience of the United States after their second high Tariff in 1897. The reasons is very simple; such a Tariff is a graded Tariff, the higher duties being put on the artic- les involving more manufacture, which means more employment and

better wages. The result - as shown in the case of the United States - is an immediate and considerable check on the importa- tion of such articles in proportion to the amount of manufacture it may involve.

The next step is greater confidence in the industrial and investing community at home, with the resultant expansion of industry and employment within the area protected. Whether pric- es rise at all or not, and if they rise to what extent, is largely determined by the amount of the duty and the facilities for manu- facture within that area. The Experience of the States goes to show that even with a high Tariff on imported manufactures the rise in employment and wages, and therefore in a widely diffused national purchasing power, is largely in excess of any rise in costs. Every fresh workman remuneratively employed means a fresh demand for manufactured articles, and as the tendency of the Tariff is to de- velop the supply of that demand in the first instance within the protected area, the spread of employment and purchasing power goes on indefinitely. All the national necessaries in manufacture can be bought more cheaply in the home market because of the Tariff, and this furnishes the solid basis of home prosperity. But the individual of all classes of the industrial life having much greater purchasing power is better able to afford the luxury, after his first needs are supplied, of purchasing anything that he fancies from foreign manufacturers in spite of the Tariff, be- cause of the duty being paid in cases of foreign manufactures com- peting with similar articles of home manufacture in large measure

by the foreign manufacturer, while in the cases of articles of which there is no adequate supply at home, the pur- chaser out of his greater purchasing power can afford to pay the duty on such luxuries without any feeling of oppression, and as far as the home consumers goes Tariff taxation in this respect carries out the admirable doctrine of taxing according to ability to pay.

But thirdly and lastly, as they used to say in the pulpits, we must remember that there is a third side to the effect of a judicious Tariff upon Revenue, – with the increase of widely dif- fused prosperity existing non-Tariff taxes bring a larger number of cases within their scope, and without any increase of rate the yield is consequently increased, while, even more important, this increase of widely diffused to prosperity curtails the necessity for the raising of taxation to meet the demands of what under many guises is really Poor Law Relief in a most wholesome and effective manner.

I think we will probably all agree on the fore-going, but I imagine that your two main difficulties lay elsewhere, – that they were concerned with the idea of Imperial Preference in itself, and also with the question with the question of food-stuffs and agriculture in this country. I felt that you objected to Imperial Preference because of the difficulties and unpleasantnesses which might arise between the different States of the Empire in adjusting such a system, and beyond that, because you felt that the idea was too suggestive of haggling for any high conception of the spirit of a

great Union of kindred peoples under one common loyalty to King and Flag. With regard to the difficulties, I would only say, that just as very knotty problems with regard to the expul- sion of inhabitants of different parts of our common Empire by the authorities in other parts are at present confronting us, owing to a lack of a comprehensive and co-ordinative scheme in that sphere of Government, so in the future the different industrial and commercial ambitions of the various States of the Empire will cause us much more trouble and be much more disruptive in their tendencies, if we allow matters to drift, than if, while good-will is still fresh and unstrained on all sides, we endeavour to grapple with the trouble and arrive - if not at a system of Free Trade within the Empire - at least at some reasoned scheme of adjustment fully thought out and mutually assented to with full reference to the needs of every part.

With regard to the idea that such an arrangment would conflict with the higher ideals of kinship and common loyalty, I merely say this, where the different members of a family are engaged in several commercial pursuits in which they threaten to become rivals, it is surely better for them from the point of view of family good feeling to face the facts and come to some working agreement which will make them an effective family combine, rather than to drift into alliances with outside firms which might result only in the success of one or more members of the same family at the cost of the ruin of the others.

There remains the serious problem of adequate food-supplies

and the position of agriculture in this country. Had Joseph Chamberlain retained his health and vigour he coudl I believe have carried his scheme for dealing with these difficulties, though as to its permanent efficacy I have some doubt and am inclined to think that he himself might have materially modified it on the lines which I will indicate. His scheme, practically speaking, involved moderate but appreciable duties upon all foodstuffs imported into this country, with a Preference to Colonial and Indian produce. The alternative scheme is to put a small duty upon all wheat and possibly other food-stuffs grown outside the British Empire, but to put no tax upon food-stuffs grown within the British Empire. Mr Chamberlain's scheme would afford some measure of Protection to the British farmer, but I do not think that it would hasten the development of Colonial food supplies to the same extent as the alternative. It would directly cause more of a revival in British agriculture and would thereby, as in the similar but exaggerated case in Germany, tend to the building up of a growing market at home for the output of British factories, and by automatically raising the rateable value of rural land would relieve urban rates and reduce agricultural competition in the urban labour market to some extent, and it may be fairly claimed that any increase in price in food-stuffs which it led to would thereby be fully compensated. I have felt for years however that without the personality and driving power of Mr Chamberlain to win the people to this view we must attempt simpler, and must make good the cause of British agriculture in another way. Indeed I doubt if Mr Chamberlain's original scheme put