Prosperity and Depression.pdf

Nature and Causes of the CyclePart IItariff wall, in diverting demand from foreign to domestic sourcesof supply (though, be it noted, a part of the demand thus divertedfrom the purchase of foreign goods may be sterilised in the formof hoards). It is conceivable, therefore, that a country might useits power to vary its tariffs as a means of mitigating the violenceof its own industrial fluctuations, raising them when threatenedby deflation in other countries or by the appearance of deflationarytendencies at home, and lowering them in the opposite case of.danger of inflation whether originating at home or in othercountries.Although the trend of international commercial policy hasbeen steeply in the direction ofprotection ever since the beginningof the last quarter of the nineteeth century, a certain cyclicalmovement is unmistakable. Every major depression brought a.new outburst of protectioni~m, whilst prosperity periods haveusually been marked by short steps back in the direction of freertrade.Butwhile itis conceivable that a single nation might succeed, by apolicy of raising tariffs in bad times and lowering them in goodtimes, in damping the impact on itself of the great internationalbusiness cycles, the consequence of such a policy simultaneouslypursued by all nations would be precisely the reverse. Theraising of a tariff means a limitation of the investment opportunitiesof the potential importers. The n10ney which is preventedfrom leaving the country is in part hoarded. The demand forforeign products will fall by more than the amount by which thedemand for home products rises : and, if such a policy is pursuedall round by every country, the depression will be rendered stillmore severe in the world as a whole and very probably in eachindividual country as well. For similar reasons, a policy ofreducing tariffs in the upswing, simultaneously pursued by allnations, will not lead to stability in the total money demand,but will rather afford a further expansionary impetus to eachcountry.