What if the most expensive part of a tariff isn't the tax you pay to the government, but the wealth that is permanently destroyed?
In Chapter 6, “The Cost of Protection,” Henry George shifts his attack on protectionism from the philosophical (Chapter 5) to the practical and economic. He argues that protectionists fundamentally misrepresent how tariffs work, focusing on the visible government revenue while completely ignoring the invisible, but far greater, cost of wasted national labor and capital. Understanding this chapter reveals the true, hidden economic damage caused by trade restrictions.
The Hidden Cost: Two Functions of a Tariff
George begins by breaking down the two primary functions of a protective tariff, insisting that only one is acknowledged by the policy's proponents:
1. The Revenue Function (The Visible Cost)
This is the function everyone sees. A tariff (duty) is a tax collected on imported goods. This money goes into the national treasury.
Result: Government revenue.
Cost to Consumer: The tax amount is paid by the consumer and is visible on government ledgers.
2. The Protective Function (The Hidden Cost)
This is the true objective of the tariff: raising the price of foreign goods so that domestic producers can sell their similar goods at a higher, uncompetitive price.
Result: A shift in production from efficient foreign sources to inefficient domestic ones.
Cost to Consumer: The price increase is paid to the domestic producer, not the government. This transfer of wealth does not appear on any government balance sheet.
George focuses on the second function, arguing that the money transferred to domestic producers is only a small fraction of the true economic burden.
The Real Cost: Wasted Labor and Capital 🛠️
According to George, the greatest burden of protectionism is the loss of national wealth resulting from inefficiency.
Protectionism forces a nation to use its limited resources (labor and capital) to produce something it is poorly suited to produce. This violates the principle of comparative advantage, which dictates that nations should specialize in what they do best and trade for the rest.
The tariff compels manufacturers and laborers to work in industries that cannot survive without artificial support.
This wasted effort is the true "cost" of the policy—it's productive power that has been expended without yielding its maximum possible return.
For further reading on the alternative to protectionism, see this explanation of
Comparative Advantage
The Famous Analogy: The Well vs. The River 💧
To illustrate this concept of wasted effort, George uses one of his most powerful analogies:
Free Trade (The River): Free trade is like a man who can easily draw a full bucket of water from a deep, flowing river (the cheap, abundant foreign good).
Protection (The Well): Protection is like forcing that same man to stop using the river and instead dig a shallow, poor well on a nearby hillside (the expensive, inefficient domestic industry).
The True Cost: The cost is not the price of the bucket of water. The cost is the effort, time, and resources—the wasted labor and capital—spent digging and maintaining that inefficient well, when the abundant river was right there all along.
The nation is poorer not because money left the country, but because its productive power was diverted to a less efficient task.
Conclusion
Chapter 6 makes the uncompromising case that protectionism is an economic engine of destruction. It doesn't merely transfer wealth; it actively annihilates wealth by compelling the nation to produce goods at the highest cost rather than acquiring them at the lowest. For George, protection is fundamentally a system of artificial scarcity that impoverishes the nation as a whole for the benefit of a few protected industries.
When evaluating trade policies, which do you think politicians are more successful at hiding from the public: the visible tax burden or the invisible cost of lost economic efficiency?
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