Brian Domitrovic, Contributor
I write about history, economics, and the supply-side revolution
Every nation has its “founding myth,” as we are apt to hear from post-modern quarters. But is this ever true when it comes to our economic history. In curricula from K-12 to history graduate school, it is staple fare that as a new nation in the early nineteenth century, the United States nurtured its “infant industry” into adulthood by having a protective tariff that kept out cheap mass-made European goods. After a century of trade protectionism, the story goes, U.S. industry was so strong that it was the most productive in the world.
You can find this argument everywhere in historical scholarship and commentary, from textbook to shining sea. There is no need to name names; if you’re someone in American historiography, you’ve made or otherwise acquiesced to this argument.
And yet it has never rung true in economics. Free trade is a major verity in that discipline, and for good reason. The case for it has been made nine ways to Sunday. In 1936, for example, the Adam Smith contention that tariffs make the domestic economy poorer got a powerful analytical lift in the elaboration of the “Lerner symmetry.” The point – proven geometrically by economist Abba Lerner – is that tariffs hurt exporters as much as they help home industries. When a tariff raises the price level, enabling marginal domestic producers to survive, it also raises the cost of inputs to exporters. The whole thing is a wash as goes trade, and things are more expensive.
So how did the tariff nurture infant industries back in the old days again? It didn’t, as has been the consensus in economics for decades. But given that economists can draw (as in graphs) and mark up equations better than they can write, the word never really got out. Historians, untutored in economics, and more interested in politics, society, and culture, followed the path of least resistance and associated the prodigious growth of the American economy in the 19th century with the fact that there was a tariff all the while.
Well, this holiday is about to come to an end. The dissertation recently completed by political scientist Phillip W. Magness (of the Institute for Humane Studies and American University) lays out the whole thing. Magness shows that it is nonsensical to hold that a reduction in aggregate real income – the necessary result of a tariff – could possibly cause an industrial boom. He essentially offers to introduce American history to American economic history, and bids that a new central narrative be written.