Rocks in the Harbor: Beveridge and Robinson

For teachers of economics, the metaphor "rocks in the harbor" is a familiar one when discussing tariffs. Companies and countries invest significant resources in building docks and transportation infrastructure, and ensuring clear waterways for smooth passage. It would be illogical to then introduce rocks into the harbor, as this would raise trade costs and negate previous investments.

This metaphor was first used by William Beveridge in his 1931 book, "Tariffs: The Case Examined," as the Great Depression began and nations began to raise trade barriers in hopes of protecting their economies.

Beveridge noted that the benefits of lowering tariffs do not rely on other countries doing the same. For other nations to tax our exports is an injury, yet taxing their imports does not correct this injury; it merely imposes an additional obstacle to trade. By allowing free imports, competition determines which goods we can produce cheapest, both for domestic consumption and export.

If other countries tax our exports, our capital and labor distribution among industries won't be as efficient or profitable as if they also allowed free imports. However, this still results in greater profitability than forcing ourselves to engage in less suitable industries due to our own tariffs.

The origin of the "rocks in the harbor" analogy is often attributed to Joan Robinson in her 1937 book, "Essays in the Theory of Employment." However, this attribution is incorrect, as Robinson literally footnoted Beveridge's 1931 book as the source. More intriguing, Robinson actually has doubts about the analogy, particularly when other countries are imposing rocks in their own harbors.

Writing in 1937 during a wave of trade restrictionism worldwide during the Great Depression, Robinson explains that nations engage in a game of "beggar-my-neighbour," each trying to increase their trade balance at the expense of others. This leads to a continuous decrease in the total volume of international trade and global activity.

While tariffs against foreign nations are a reality for domestic authorities, the argument that responding with tariffs to sustain domestic employment is the only sensible course is challenged by Robinson.