RELATED TOPICS 257 



we cannot with equity deal with an individual item of 

 the tariff without a consideration of the whole fiscal 

 system. This difficulty is of special importance in this 

 case; for while the farmer is protected, he has to 

 purchase supplies of both production and consumption 

 goods from other protected industries. 



(&) General Effects of Protection. A priori reason- 

 ing proves conclusively that, other things being equal, 

 the imposition of duties on imports raises prices to the 

 consumer, but not necessarily by the amount of the 

 duty. Such conceptions as the inelasticity or elasticity 

 of demand, the conditions of production, whether 

 decreasing or increasing return, whether the country 

 is a monopoly buyer, etc., alter the degree to which 

 price will rise.* Thus, to take one example of particular 

 interest to our problem, let us consider what will happen 

 if an import duty is levied on a commodity "obeying" 

 the law of diminishing returns. With protection granted 

 to the industry, production, in the absence of counter- 

 acting causes, will be extended. In the case of the wheat 

 industry, the margin of cultivation will be extended, 

 that is, recourse will be had to poorer soils, a factor which 

 will aggravate the tendency for prices to rise, originated 

 by the protective tariff. An import duty on wheat there- 

 fore raises the price of wheat to the consumer by more 

 than the amount of the duty.t 



But the question is so important that a general 

 discussion of the relation of protection to the rural 

 industries generally is not irrelevant. The advocates 

 for protection who wish to examine the problem 

 thoroughly have evidently forgotten the valuable 

 Report on the Cost of Living in New Zealand in 1912. 



*For a full discussion of this, see Taussig, "Some Aspects 

 of the Tariff Problem." Pages 3-17. 



tin practice, however, this argument is modified by the 

 importance of the outside market in determining prices in New- 

 Zealand. 



I 



