Arthur Farquhar on Economic Delusions: An Examination of the Case for Protection

Abstract

Arthur Farquhar (1838-1929) was a successful manufacturer and exporter of mechanical steel farming implements who also took the time to participate in the day's free trade versus protectionism debate. His main contribution to the national tariff debate was the 1891 book Economic and Industrial Delusions.. A Discussion of the Case for Protection. The book was written as a direct response to the McKinley Tariff of 1890 and is very much a polemic against the tariff by a disappointed former Republican. This article summarizes his economic analysis of the incidence of the tariff, the relationship between trade competitiveness and relative wages, and the tariffs effect on overall economic development. I Introduction THE CAUSES OF national economic development in the United States between the Civil War and World War I have been analyzed in many ways. To an economist, one particularly important issue is the effect of changes in federal government economic policy and its influence on economic growth. One controversial policy decision that has commanded serious attention is the issue of the effect of the protective tariff on American economic growth. There were polemics on all sides, those for the tariff and those against the tariff, and those who believed that the tariff was a neutral factor in promoting the domestic economy. Three main themes have emerged as dominant ones. The first argument claims that U.S. economic development during the period was enhanced by high tariffs and trade protection, permitting U.S. industries to compete on more equitable terms with their European trade rivals. The second argument claims that the high tariffs of the period actually discouraged economic development by imposing a total cost on consumers and import businesses that was greater than the benefits received by the few favored industries. The third argument claims that any development impact of the tariff was minimal and dominated by other major changes and nongovernmental factors. This interpretation suggests that major technological advances in the areas of transportation, communications, and materials science dwarfed the minor economic effects of the tariff. Steam-powered steel ocean transportation, instantaneous communication via undersea cables, and large-scale construction of factories as well as the construction of steel skyscrapers all contributed to increased efficiency and reductions in the costs of production via economies of scale. There were also complications caused by variations in the monetary system. Monetary contractions and deflation led to confusion of the issue of a fall in the overall price level versus a fall in the relative price of chosen protected goods. The confluence of major developments, in other words, made attempts at evaluating the impact of the tariff difficult at best. But, of course, many economists and others offered their opinions on the subject. Arthur Farquhar (1838-1929) was one such contributor to the debate. He was a successful manufacturer and exporter of mechanical steel farming implements, headquartered in Pennsylvania, a traditionally protectionist state. (1) His practical experience was in business, but he also was an attorney who received his law degree from Kenyon College in Gambler, Ohio. Together with his brother Henry, Farquhar's main contribution to the discussion of the national tariff question was the 1891 book Economic and Industrial Delusions: A Discussion of the Case for Protection. (2) The book was written as a direct response to the McKinley Tariff of 1890. It was not intended to be a comprehensive history of the political economy of the tariff debate, as in Taussig or Irwin. The book is a polemic against the tariff, written by a disappointed former supporter of the Republican Party, which, Farquhar would say, was the party that had gone from being a supporter of liberty during the Civil War into one that promoted repression through trade protectionism. …