States is partially or wholly dependent upon foreign sources of raw materials: Raw Materials for Which the United Raw Materials for Which the United States is Wholly Dependent⚫ Silk Jute Sisal Rubber Tin Platinum Nickel States is Partially Dependent Tobacco, special grades Cigar wrapper Havana filler Turkish cigarette Wool Hides and skins Manganese For a similar itemization of raw materials for which Great Britain depends upon foreign sources, see Isaiah Bowman, New World Problems in Political Geography, p. 15; for a similar analysis of Germany, see H. G. Moulton and C. E. McGuire, Germany's Capacity to Pay, pp. 35-55, and Chapter IV. At one time during the World War, the President of the United States Steel Corporation warned that the entire steel industry of the country would be closed down within six months unless manganese ore could be procured from Brazil. Some form of manganese is indispensable in the manufacture of steel of almost every kind. If the United States were denied access to foreign resources the price of home production would not only be prohibitive but our supplies would be quickly exhausted altogether. Chromium and vanadium are indispensable alloys for the manufacture of high-speed tool steels, automobile and airplane steels, projectiles and armor plate, and steel castings subject to heavy strains. It is idle for the United States to boast of her supreme richness in iron ores when her iron and steel industry can be crippled by a failure to obtain essential ferro-alloys from foreign mineral beds. Germany has the main potash deposits of the world, and Chile the main sodium nitrate deposits. The necessities of the war forced nations to improvise chemical processes of meeting their temporary requirement, but did not eliminate the permanent reliance of other nations upon the natural deposits of potash and nitrates. The chemical industries depend upon sulphuric acid, and for the making of sulphuric acid platinum is in dispensable. Platinum is essential in many manufacturing processes, in laboratory equipment, in surgical and other instruments of great fineness. Russia and Colombia have a natural monopoly of the platinum supply of the world. The struggle in the Ruhr between France and Germany is a struggle for the mastery of the coal and iron resources of Western Europe. Japan has energy resources in coal, petroleum, and water power equal to less than one-five-hundredth part of those of the United States. China has, next to the United States, the greatest potential resources in the world. Consequently, Japan is vitally concerned in the disposition of mineral supplies in that country, upon which she is utterly dependent. for whatever industrial strength she may possess. German policy in Turkey, French policy in Morocco, British policy in India, Egypt, South Africa, and Mesopotamia are accounted for largely by the dependence of the great powers upon foreign sources of raw materials. Foodstuffs and minerals hold the power of life and death over the productive organizations of modern states. The aforementioned instances of this vital interdependence between nations are simply suggestive of countless bonds of solidarity and unity which run through every phase of the world's production system. Although this interdependence crosses all political boundaries, nevertheless the control of the essential raw materials is asserted on an exclusive, nationalistic basis. The resources of production are broadly international in their utilization, but their development and distribution are strictly under national authority. As a consequence, the method of control is largely determined by the forces of monopoly, discrimination, and commercial conflict. There are combinations of producers striving to exact high prices for raw materials and combinations of buyers striving to combat their endeavors. Export duties, government monopolies, preferential tariffs, and concessions for exploitation of natural resources are common forms of the strategy of control. The new conditions call for new policies. International coöperation in various forms would seem to be the essence of the new policies demanded. The basic principle for such coöperation is adequate access to essential raw materials for all nations. It is unlikely that the rationing of raw materials will be required in peace times to cope with the situation, but there is pressing need for conference and agreement between nations on many vital questions. There is need for moderation in export duties and preferential tariffs on raw materials, and for restraint of protectionism and trade wars in such products. The details of the technique of international control and coöperation remain to be worked out, but the distinct recognition of the imperative need for international action is a primary and paramount forward move. BIBLIOGRAPHY Annals of the American Academy of Political and Social Science, March, 1924. BISHOP, A. L., Outlines of American Foreign Commerce. FISK, G. M., and PEIRCE, P. S., International Commercial Policies. LIST, FRIEDRICH, National System of Political Economy. LEAGUE OF NATIONS, Report on Raw Materials Problems, 1921. MOULTON, H. G., and MCGUIRE, C. E., Germany's Capacity to Pay. PAGE, T. W., Making the Tariff in the United States. PATTEN, S. Ñ., The Economic Basis of Protection. SMITH, G. O., The Strategy of Minerals. TARBELL, I., The Tariff in Our Times. TAUSSIG, F. W., Selected Readings in International Trade and Tariff Problems, Chapters VIII-XXIV. Tariff History of the United States. UNITED STATES GEOLOGICAL SURVEY, World Atlas of Commercial Geology. VINER, J., Dumping. WRIGHT, P. G., Sugar in Relation to the Tariff. WYMAN, W. F., Export Merchandising. PART VII GOVERNMENT AND TAXATION CHAPTER XXXIV TAXATION AND THE PRODUCTIVE FUNCTIONS OF The Productive Character of Government Activities.-The Physiocrats taught that the merchant was an unproductive agent. Only such agents as the mine and the farm were considered truly productive. We know today that the Physiocrats were wrong. We accept the merchant as a necessary productive part of our economic organization. But when we approach the problems of government, we tend to fall into the old. Physiocrat fallacy in a new form. We commonly think of government as a burden on society. In reality, however, the expense of government is no more a burden than profit, interest, rent, or wages. They are alike expenditures for purposes of production.1 Any enumeration of the economic functions of government suffers from an imperfect classification of activities. The following enumeration, while not exhaustive, is suggestive of some of the primary government activities. 1. Private property, which is the bulwark of modern business, is primarily a product of the law. As Roscoe Pound has stated, "Ownership is a purely legal conception having its origin in and depending on the law."2 People too often think of property as merely the corporeal object, the piece of land, the factory structure. This corporeal or physical fact does, it is true, underlie the conception of property. But the essential idea of property goes far beyond the merely physical facts. Property is a bundle of rights. Most of these are legal rights, enforceable at law. One paramount right is protection against seizure of 1 The three basic factors in production are land, labor, and capital. Government chiefly belongs under the heading of labor. The supervision, direction, regulation, compulsion, and control by government are manifestations of labor. It is a higher form of labor, for the most part, than manual labor, and is comparable with managerial labor. Taxes are a form of wages of management. In a broader sense, government pervades all the factors in production. It determines the meaning of property rights and so determines the uses to be made both of land and of capital. Land and capital in modern business are largely legal creations. In this broader sense, government is an integral part of all factors in production, whether land, labor, or capital. 2 An Introduction to the Philosophy of Law, p. 224. The wealth. This right is so important that it is recognized in the federal constitution. The fifth amendment declares, "No person shall be deprived of life, liberty or property without due process of law." fourteenth amendment declares, "Nor shall any State deprive any person of life, liberty, or property, without due process of law." In addition to the right not to be deprived of wealth, a person has the right to expected income from the property, to have access to markets, to buy and sell property, to make and receive promises calculated to lead to gain, to be defended from attack by foreign or domestic foes. This mass of rights is the essence of private property. Take away the guarantee of such rights, and private property is inconceivable. The government, therefore, performs a productive function by defining and enforeing the rights of property which are indispensable to modern business relations. 2. Freedom of contract and security of contract are business rights closely interwoven with private property. Roscoe Pound declares, "Property and contract, security of acquisitions and security of transactions are the domain in which law is most effective and is chiefly invoked." 3 The Federal Constitution provides that "no State shall pass any law impairing the obligation of contracts." But more adequate than this restriction upon the States are the amendments guaranteeing that no person shall be deprived of liberty without due process of law. The courts have interpreted liberty to mean liberty of contract. Hence, the Constitution itself is a firm protection of business contracts. Business consists of a series of purchases and sales in the form of contracts. All credit instruments are contracts. Anything which would weaken confidence in the sanctity of contracts would destroy the foundations of business at a blow. Since the definition of freedom of contract, and the enforcement of that freedom, are the direct handiwork of the government and of the law, it must be obvious that the economic functions of government are in so far both indispensable and productive. The economic importance of the work of government is emphasized in the title of a study by John R. Commons, The Legal Foundations of Capitalism. The point which here requires particular emphasis is that the foundations of capitalistic business are legal foundations. This being true, we certainly cannot brush government aside as a mere nuisance or as a deadweight burden upon industry. 3. Free and all-sided competition is a cherished characteristic of modern business. The often repeated phrase is that competition is the life of trade. When we examine this life-giving competition, we discover at once that it is largely a product of the law. Not entirely so, because much of competition is the outgrowth of business custom. But even custom persists only when the law tolerates it. The law differentiates between fair competition and unfair competition. It restricts forms of monopoly which would constitute restraint of competition or which 3 An Introduction to the Philosophy of Law, p. 193. |