Popular Science Monthly/Volume 32/January 1888/Governmental Interference with Production and Distribution
By Hon. DAVID A. WELLS, LL. D., D. C. L., Etc.
ECONOMIC DISTURBANCE SERIES, No. VII.
ANOTHER factor of the economic disturbance of recent years (i. e., since 1873), and one which, in the opinion of the members of the British Commission "On the Depression of Trade and Industry" (1886), and also of most European writers, has been largely instrumental in occasioning universal depression of business, has been the increasing tendency among nations to favor and practically carry out the policy, that the prosperity of their respective people can be best promoted by artificially stimulating domestic industries on the one hand, and imposing restrictions on international commerce or the free interchange of products with foreign nations on the other.
After the repeal of the "Corn Laws" by Great Britain in 1846, and the subsequent gradual abandonment by that nation of its former illiberal commercial policy—followed, as were these measures, by a remarkable development of British trade and industry—the tendency of popular sentiment and the policy of governments throughout the civilized world was unquestionably in the direction of emancipating international trade from all arbitrary restrictions; and between 1854 and 1870 the leading nations negotiated numerous treaties for international commercial reciprocity for the achievement of this object, and at the same time materially reduced their duties on imports. This movement (as is now almost forgotten), first found expression in the form of positive legislation in the United States, which in 1854 negotiated a treaty which provided for a free exchange of nearly all crude materials, and mutually free fishery privileges with the British provinces of North America; and, in 1857 (by a vote of 33 to 12 in the Senate, and 124 to 71 in the House) reduced its average duty on all imports to less than 15 per cent. In fact, had not civil war intervened in 1861, the United States, in a very few years more, would have undoubtedly rivaled Great Britain in freeing its foreign trade and commerce from all restrictions, save for revenue and sanitary purposes. In 1860, England, under the lead of Mr. Cobden, negotiated the celebrated commercial treaty with France, which, while providing for large reciprocal reductions or entire removal of many duties on exports as well as imports, also entirely abolished all absolute "prohibitions" on any branch of international commerce between the two nations; as, for example, in respect to coal, the exportation of which to France, England, under a fancied military necessity, had at one period prohibited.
Following the Anglo-French treaty, and as the result, doubtless, of its influence, twenty-seven other similar treaties were negotiated; in some one or more of which all the states of Europe, with the exception of Greece, participated; Russia even breaking through her customary reserve, and entering into more liberal commercial agreements with more than one of her neighbors. And, as many of these different treaties successively embodied new and special relaxations in respect to duties on imports—which, in virtue of the so-called "favored nation clause" existing in most previous treaties with other countries, became also and at once generally applicable—the area of commercial freedom and its accruing benefits extended very rapidly, and, as it were, without effort, over the greater part of Europe. So that, by the year 1870, "all the great trading nations of Europe—England, France, the states of the German Zollverein, Austria, Italy, Holland, and Belgium—had become one great international body, by all the members of which the principle of stipulating for exclusive advantages for their own commerce seemed to have been abandoned, and not one of whom could take off a duty without every other member at once enjoying increased commercial facilities; while within this body, the operation of the favored-nation clause was such as to make the arrival at almost unlimited freedom of exchange merely a question of time."
Furthermore, not only were these same governments busy during this period in breaking down the artificial barriers which they had previously erected against international trade, but they also sought, as never before, to overcome the natural impediments that had hitherto limited the extension of their trade relations—internal as well as external—by improving their highways, constructing and combining railways, and undertaking such stupendous engineering operations as the St. Gothard and Arlberg tunnels.
How wonderfully the trade of the states of Europe, that thus mainly co-operated for promoting the freedom of exchange, coincidently developed, with an undoubted corresponding increase in the wealth and prosperity of their people, is shown by the fact that the European trade of the six nations of Austria, Belgium, France, Holland, Italy, and Great Britain increased, during the years from 1860 to 1873, more than 100 per cent, while their aggregate population during the same period increased but 7·8 per cent. How much this remarkable increase of trade was due to the existence and influence of the commercial treaties noted, is demonstrated by the further fact that the increase of the trade of the above-named six nations during the same period with all other countries, in which the conditions of exchange had presumably not been liberalized, was at the rate of only 66 per cent. It is also interesting to note that the response made by the Chambers of Commerce and various industrial bodies throughout France to an inquiry addressed to them by the Government in 1875, not only testified to the great benefit which had accrued to French trade and industries by reason of her commercial treaties, but also expressed an almost universal wish that they might be renewed upon their expiration upon even a more liberal basis; and it is altogether probable that a similar response would have been made in most of the other countries in Europe bad like inquiries at the same time been instituted.
But, after the continuance for some years of the almost universal depression of trade and industry which commenced in 1873, or after the year 1876, the tendency of the governmental policy of the states of Continental Europe, and to a great extent also popular sentiment, turned in an opposite direction, or toward commercial illiberality. And now nearly all of the liberal commercial treaties above referred to have been terminated, or notice has been given of their non-renewal; and, with the exception of Great Britain, Holland, Sweden and Norway, Denmark, and possibly China, there is not a state in the world claiming civilization and maintaining commerce to any extent with
foreign countries which has not within recent years materially advanced its import or export duties.
Russia commenced raising her duties on imports in 1877, and has continued to do so until the Russian tariff at the present time is in a great degree prohibitory, and one of the highest ever enacted in modern times by any nation, the aggregate value of its importations for 1886 being returned at only $194,450,000, a reduction of about 25 per cent in three years, or since 1883. It is also to be noted that, whenever Russia extends its dominion, laws are at once promulgated with the undisguised purpose of greatly restricting or entirely destroying any commerce which people of the newly-acquired territory may have previously possessed with other nations. Italy and Austria-Hungary raised their tariffs in 1878; Germany in 1879; France in 1881; Austria-Hungary again in 1883 and 1887; Switzerland in 1885; the Dominion of Canada in 1883 and 1887; Roumania in 1886; Belgium and Brazil in 1887; while in the United States, owing to the decline in the prices of goods subject to specific duties, the average ad-valorem rate of duty on dutiable merchandise has advanced from 41·61 per cent in 1884 to 45·55 per cent in 1886. In Spain the restrictions on trade have become so excessive, that the only relief open to the consumer is by alliance with the contrabandist, whose profession is becoming almost as well established as in the middle ages, when but for him, according to Blanqui, commerce would have well-nigh perished. In Holland, which has hitherto resisted all demands for increased restrictions on her foreign commerce, an association of manufacturers petitioned the Government in May, 1887, in favor of speedy legislation on the tariff, for the purpose of protection to home industries, and set forth the following as reasons for their request:
The national industry lives in a most difficult time. It seems that the last period of the battle of life has appeared for many of its branches. Foreign competition, steeled by protection, equipped and encouraged to a decisive battle for the overpowering of a market for the world, even appears to drive aside the most natural protections of native industry. Now flour has its turn; next, cattle and meat. In other words, the aim of adjacent and more distant countries appears daily more openly. The industry of the Netherlands is menaced with a total ruin by their oppression.
And, as further illustrations of the degree to which a restrictive commercial policy is favored, and the extremes to which it is practically carried, it may be mentioned that some of the small British islands of the West Indies (Trinidad and St. Vincent, for example) maintain duties in a high degree restrictive of the interchange of their comparatively small products; while Venezuela, in 1886, when new and prospectively rich alluvial deposits of gold were discovered within her territory, at once imposed a duty of £5 ($25) on her exports of "raw gold."
To many, doubtless, these economic phenomena do not appear to admit of any ready and satisfactory explanation; while others will unhesitatingly ascribe them to the influence and acceptation of protectionist theories and teachings, inculcated under the advantageous but specious circumstance, that the almost universal depression of trade and industry that has prevailed since 1873 commenced at a time when the general commerce of the world was absolutely more free from artificial restrictions than at any former period of its history.
The factors that have been concerned in effecting these economic changes and accompanying disturbances are not, however, simple, but somewhat numerous and complex. They, nevertheless, admit, it is believed, of clear recognition and statement. In the first place, the results of the Franco-German War—the radical changes in the character and construction of war-armaments since that period, and the continual augmentation of permanent military forces, have entailed upon all the states of Europe since 1873 continually increasing expenditures and indebtedness; and indirect taxation, by means of duties on imports, to meet these increasing financial burdens, has been found to be most in accord with the maxim attributed to Colbert, that the perfection of taxation consists in so plucking the goose—i. e., the people—as to procure the greatest amount of feathers with the least possible amount of squawking.
Again, with the introduction and use of new, more effective, and cheaper methods or instrumentalities of production, every nation of advanced civilization has experienced, in a greater or less degree, an increase in the product of nearly all its industries save those which are essentially handicraft in character, with not only no corresponding increase, but often an actual decrease in the number of laborers to whom regular and fairly remunerative employment constitutes the only means of obtaining an independent and comfortable livelihood. Every country with accumulating productions has accordingly felt the necessity of disposing of its surplus by exporting it to the markets most freely open to it; and, as a consequence, that has happened which might have been expected could the exact course of events have been anticipated, namely; increased competition in every home market, engendered by increasing domestic production and the efforts of foreign producers to export (introduce) their surplus; fiercer competition to effect sales of the excess of competitive products by the sellers of all nations in neutral markets; and an almost irresistible tendency toward a universal depression of prices and profits, and, to a greater or less extent, a displacement of labor. It is also to be noted that as the capacity for industrial production increases, and competition to effect sales becomes fiercer, the more feverish is the anxiety to meet competition—specially on the part of foreign rivals—by producing cheaper goods; and that this policy in the states of Continental Europe, and more particularly in Germany, is antagonizing efforts to shorten the hours of labor and restrict the factory employment of women and children; and is also tending in a marked degree to do away with the heretofore general practice of suspending labor on Sundays.
To meet this condition or tendency of affairs, two lines of policy have commended themselves to the governments of many countries—especially in Continental Europe—as remedial and easy of execution, namely; to seek to diversify and increase the home demand for the products of domestic industry on the one hand, and to obtain new and larger markets in foreign countries for their surplus productions on the other. And the first of these results it has been sought to accomplish by restricting or prohibiting, through import (tariff) duties, the importation and competitive sale in their respective markets of the surplus products of other nations; and the second, by offering bounties on exports, or on the construction and multiplied use of vessels for employment in foreign commerce. In the pressing necessity for finding new and (if possible) exclusive markets for increasing machinery products, and for commodities whose production has been artificially stimulated, is undoubtedly also to be found the clue to the policy which within recent years has mainly prompted Germany, France, Belgium, Italy, and Spain to seek to obtain new territorial possessions in Eastern and Central Africa, Southeastern Asia, and in New Guinea and other islands of Polynesia.
The commercial policy of Russia under such circumstances must, however, be regarded as wholly exceptional, and that of the United States as partially so. In the case of the former, her recent increased restrictions on foreign commerce, through greatly increased duties on imports, have not, apparently, been due to the acceptance of any economic theory in respect to trade, or with any reasonable expectations that an extensive prohibition of imports could permanently add to her revenues from customs; but rather because such action is an essential part of what seems to be a larger and fully accepted national policy, which aims to banish and exclude from the empire everything foreign in its nature and origin—merchandise, language, literature, immigration, and religion. While in the case of the latter the fiscal policy of the country for now more than a quarter of a century has been based upon the idea that foreign trade is injurious, and therefore importations, without which there can be no exportations, should be prevented.
Leaving Russia out of account, the nation that took the initiative in breaking in upon the system of comparatively free international exchanges that had gradually come to prevail among the commercial nations of Europe since 1860 was Austria-Hungary, which, feeling the necessity of securing larger markets for her manufactured products, increased her tariff in 1878, with the avowed expectation of obtaining, through new negotiations, greater commercial advantages or concessions, more especially from Germany, than were enjoyed under existing treaties. A similar policy also found favor at about the same time in France, and under its influence the "Anglo-French" and other commercial treaties were either allowed to lapse or were "denounced," and a new general tariff was constructed. The result was not what was probably anticipated. Increased restrictions on imports on the part of Austria, in place of inviting concessions led at once to retaliatory tariffs by Italy and Germany, and the example thus set has been followed by one European Continental state after another, each raising barrier after barrier against the competition of other nations, until all stability of duties on the numerous frontiers has practically ended, baffling the calculations alike of exporters and importers, and making the development of almost every trade and industry dependent on bounties, subsidies, and restrictions on exchanges, rather than on their own inherent strength and enterprise.
The following examples are illustrative of recent procedures in continuation of this policy: In 1885 Germany deliberately excluded Belgian linen from her markets. This act has not as yet been followed by reprisals by Belgium; but the action of Germany, in twice augmenting in recent years her duties on breadstuffs (i. e., 1880 and 1885), has been promptly imitated by Austria-Hungary, whose export of cereals was seriously affected. But, notwithstanding these increased duties on the movements of grain between Germany and Austria, the prices of cereals in both of these countries have since continually receded. In July, 1887, Russia increased her duties—which were before very high—on the imports of all foreign iron and steel, to a point that is regarded as nearly or quite prohibitory of all imports; and Germany, which has heretofore had an important market for her iron and steel wares in Russia, and has also been a large purchaser of Russian grain, has now determined to further advance her duties upon the import of all foreign cereals, her object being avowedly to shut out American as well as Russian competition. Belgium, which for many years has been the typical free-trade state of the world, and which, in 1885, by her Chamber of Deputies, refused to entertain a proposition to restrict the importation of cattle into the country, has since then, and mainly by a recognition of an inability to compete with the prices established for meats and grain by the United States and other foreign countries, felt compelled to impose high duties on the importation of all live-stock and dead meats—fresh, smoked, or salted.
In Sweden and Norway, on the other hand, where, during the past year, an effort was made under similar circumstances to restrict by increased duties the entry of foreign flour and other breadstuffs, the proposition was signally defeated by the return of a large adverse majority to the lower house of the Swedish Riksdag. A new tariff, embodying the extreme protective principle recently adopted by Brazil, imposes high and almost prohibitory duties on the importations of rice and all other cereals produced in the country, and, as Brazil has heretofore imported annually some two hundred thousand sacks of rice from foreign countries, the disturbance of trade in this particular is likely to be serious.
The United States having imposed heavy duties on the importations of French wines and silks, France improves on the precedent thus established, and excludes by relatively higher duties the importation into her territories of American pork. The Helvetic Confederation, in negotiating with Germany for a renewal of a treaty of commerce, broadly intimates that unless the result of negotiations is satisfactory it will take measures to check the importation of German merchandise in the future into Switzerland; while the termination by original stipulation of a treaty of commercial reciprocity between France and Italy in 1887, has been regarded with feelings of unmixed satisfaction by many persons in both countries, by reason of the opportunity that is to be afforded for mutually increasing the duties on their respective importations. A somewhat striking illustration of the present drift of popular sentiment in France on this subject is also to be found in the fact, that in July, 1887, the French Government, by a formal decree, absolutely prohibited the future importation of "plants, flowers, cut or in pots, of fruits, fresh vegetables, and, in general, of all horticultural and market-garden produce of Italian origin"; chestnuts without their shells excepted.
It is further most interesting to note how, as the idea of the desirability of restricting trade and commerce is accepted and carried out, the larger idea of the middle ages, that restrictions should be imposed, not merely on the freedom of commercial intercourse between country and country, but also between districts of the same country, and even between man and man, tends to reassert itself and demand recognition and acceptance; as is demonstrated by a variety of incidents on both sides of the Atlantic. In this movement in Europe, France at present takes the lead. Thus, for example, French workmen and employers are apparently now in unison of opinion, that all foreigners shall be rigidly excluded from any kind of work done by or for the Government, and from furnishing any kind of supplies for the public service. Among the bills recently brought forward in the French Chamber of Deputies, and which have received the serious attention of the Government, one provides that only French coal shall be used in the navy, and only French oats in the army; and, in general, that nothing of foreign growth or production shall be bought for public use, except such articles as are not produced in France. Clauses in existing treaties with foreign nations and apprehensions of reprisals have, it is believed, alone prevented the project of imposing special and differential taxes on all foreign workmen. The committee in charge of the French International Exhibition of 1889, while invoking the co-operation and good feeling of other countries, have restricted all bids for buildings to French firms exclusively, ruling out all foreign firms from participation in the work, even though established in France, and employing only French workmen. The ancient guild system of the middle ages, restricting craft-membership and the employment of apprentices, and claiming the right to exclusively regulate prices, hours of labor, and other conditions of service, is also everywhere reestablishing itself; the glaziers of Paris leading the advance in this direction, by formally petitioning the authorities for incorporation as a guild, to which no foreigner shall be admitted, and no one not a member, even if he be a Frenchman, shall be allowed to set glass or make repairs upon windows in French territory. In a discussion of the labor-problem at a recent Catholic Congress in Belgium, the Bishop of Liege is reported as saying that the old trade-guilds must be revived and placed under the guardianship of Christian lay employers and of the clergy. Then each trade or calling must be placed under the special protection of a saint; and brotherhoods of those engaged in it, composed both of employers and workmen, must be formed for the celebration of the saint's fête and for participation in religious processions and funerals, and the rendering of mutual assistance in times of need. But it was also remarked, that while labor was pretty sure to indorse the recommendation of the revival of the guild, it would be equally sure to wholly disregard the ideas of the bishop as to the uses that should be made of it. It should also not be overlooked in this connection, how closely, and yet perhaps unintentionally, the modern labor organizations—"Trades Unions," "Knights of Labor," and the like—have come to resemble and be assimilated to the ancient "guilds;" with this marked difference, that in the old craft-guilds, the masters or employers of labor remained in and participated in the organization; but in the modern organizations of labor, the masters or employers are especially excluded.
In Germany the extensive intervention of the state in industrial and social matters has come to be, in recent years, a fundamental policy of the Government; and is resulting in a series of experiments for controlling or even entirely absorbing great industries—as sugar and distilled spirits—and for promoting the economical and moral prosperity of the people—as schemes for compulsory insurance of life and against accidents—which have hitherto had no precedents in the legislation of any country. At the same time, in all these movements the Government makes no secret of its desire in fostering the interests of the people to at the same time augment their ability to pay taxes.
In the United States, the recent action of the French Government, in providing that nothing shall be bought for public use which is not of domestic production, and which the outside world has regarded as a policy unworthy of an enlightened nation, has had its counterpart and precedent in the previous legislation of quite a number of the States; with this exception, that in France the discrimination is made against foreigners only, while in the United States the discrimination is made against their own countrymen living in different political divisions of the country. Nothing, moreover, can probably be found in Europe to parallel the recent legislation of one of the leading States of the Northwest (Minnesota), and a large part of which was the work of a single legislative session (limited to sixty days) in 1885, and which has thus been described by a recent writer: Prominent in importance were statutes providing for the weighing, handling, and inspection of grain; the construction and location of grain-warehouses, the providing of cars and side-tracks by railroads, and the regulation of rates of transportation. Next, was legislation respecting State loans of "seed grain" to farmers whose crops had been ruined by grasshoppers; for the subsidizing of State fairs from the State treasury; for enabling farmers to avoid the payment of a portion of their debts; for protecting butter-makers from the competition of artificial products, such as "butterine"; for regulating the details of the cattle-industry, to the extent of registering and giving State protection to brands and other modes of identification, and of stamping out contagious diseases with small courtesy to the rights and wishes of individual owners; and for regulating the lumber business to such an extent, that not a log can float down a stream to the saw-mill for which it is destined without official cognizance. One State board regulates the practice of medicine and the admission of new practitioners; a second, the examination of druggists and compounding clerks, as precedent to entering into business; while a third regulates the practice of dentistry. Various enactments prescribe the toll to be exacted for grinding wheat; when one man may slay his neighbor's dog with impunity; how railway companies must maintain their waiting-rooms at their stopping-places for passengers; the hours of labor, and the employment of women and children; the maximum time for which locomotive engineers and firemen may be continuously employed; what books shall be used in the public schools; forbidding "raffles" at church fairs under "frightful penalties," and making it a crime to give away a lottery-ticket, and a misdemeanor "to even publish an account of a lottery, no matter when or where it has been conducted." Among bills introduced, and which found considerable support, but were not enacted, was one forbidding persons of different sexes to skate together, or even be present at the same hour on the rink floor; and another to license drinkers, which provided that no person should be permitted to use intoxicants or purchase liquors of any kind without having first obtained a public license.
The result of such a conflict of tariffs as has prevailed in Europe since 1877-'78 has entailed so much of commercial friction, such a series of retaliatory measures, and such an arrest of material development, that there are now many signs that the continuation of this state of affairs will not be much longer endurable. In this conflict, Austria, which was the first country that broke in upon the International Commercial Union that prevailed among the Continental states prior to 1878, has suffered most severely; her exports and imports having notably decreased, while her customs taxes have risen in recent years from 1s. 8d. to 3s. 7d. per head of her population, and her internal taxes on consumption from 3s. 7d. to 6s. 8d. There has been a marked decline in banking profits, an increase in the mortgages on real property, and a decline in the consumption both of meat and of farinaceous articles of food. To such an extent has her fiscal policy invited reprisals that she is described as "standing alone commercially," and reduced to the position of consuming her own products through necessity. Russia having sought to close her doors against the produce of other countries, they in their turn have curtailed their purchases of Russian products, the falling off of Russian imports—comparing 1886 with 1883—having been nearly 25 per cent, and of exports 28 per cent. Of flax, which is one of the principal exports of Russia, the decline in the value of shipments has been from 829,350,000 in 1884 to $19,250,000 in 1886. The German Chambers of Commerce, in their recent reports, have, with very few exceptions, declared against the present tariff policy as most injurious to the industry and commerce of the empire. The recent prohibitory duties decreed by Russia on the importation of iron and steel have closed numerous iron-furnaces in Silesia, and the steam corn-mills of Northern Germany are complaining of a great check to their business by reason of the duties on the import of cereals. The recent report of the Stuttgart Chamber of Commerce earnestly urges the Government to improve trade by a return to its former reciprocal conditions.
The idea that a few years ago found great acceptance in Europe, and undoubtedly influenced the commercial policy of the different states—namely, that increased restrictions on the importation and competitive sales of foreign products and the resort to bounties on exports would conjointly stimulate industries, relieve their markets from anything like overproduction, and inaugurate a period of general prosperity—has utterly failed of realization, and been entirely different from what was anticipated. And for the following reasons: The stimulus being artificial, was unnatural. Production rapidly increased, and soon created an additional supply of articles, which were already produced in the localities best fitted for their production, in quantities sufficient, or more than sufficient, to meet any existing market demand at remunerative prices, thus occasioning an augmentation of the very evils which it was expected the restrictive commercial policy would prevent, and which may be enumerated in their sequential order somewhat as follows: 1. Overproduction in the natural seats of production. 2. Domestic competition to effect sales destructive of all profits. 3. Special concessions of prices to effect sales in foreign countries which have been disturbing to the legitimate industries of such countries. 4. A general depression of prices, and the reduction of business profits to a minimum; all resulting in a condition of affairs which two years ago is said to have drawn out from Count Karolyi, the Prime Minister of Austria, the assertion, that "the European states, by their present retaliatory tariffs, are doing themselves more injury than the most unrestricted international competition could possibly inflict."
It seems to be also now generally conceded in Germany and other states of Europe that the depression of business and the disturbances occasioned by the fall of prices, which were most influential in inducing the general reaction in favor of protective duties in 1878, were due to causes that were not to be reached by such remedies, and that the same continue operative to-day in spite of all the customs barriers against international trade that have been erected. All the indications, furthermore, are at present in favor of a renewal of commercial treaties or alliances between the Continental states, with a view through mutual concessions, of establishing better trade-relations between the participating powers than now exist; and the announcement has been made that preliminary negotiations for this purpose have begun between Germany and Austria and Germany and Italy. One project proposed, by Professor Kaufmann, of the University of Tübingen, which has been much discussed, and the adoption of which, in the opinion of not a few, is not improbable, is the formation of a Zollverein, or commercial union, among the nations of Central Europe, with a view, as the "Kölnische Zeitung" (which is regarded to some extent as an official organ of the German Government) has expressed it, "of expanding their markets by means of treaties, so that the surpluses at any one place within their dominions may serve to make up for the deficiencies in another," and which, more especially, would "find its account in collectively fighting against economical commonwealths, like the United States, Russia, China, and Great Britain, which embrace whole continents."
The attempt to artificially stimulate the manufacture of beet-sugar in the states of Continental Europe, and at the same time to obviate the evils from the production of this commodity in excess of local or domestic demand by the payment of bounties on its exportation, has constituted such an extraordinary factor of disturbances in the world's recent economic history as to be worthy of special narration and attention.
Although the practice of stimulating through high protective duties and export bounties the production of beet-root sugar in Europe in competition with the cane-sugar product of the tropics dates back to the first quarter of the century, the present complicated and curious state of affairs is really due to an unexpected result of the German method of taxing beet-sugar, which was adopted in 1869. The idea involved in this method was, in brief, to collect an excise or internal revenue tax on all sugar produced; in the first instance by taxing the raw beets, and subsequently to give a drawback on whatever sugar was exported equivalent to the tax paid on the beets from which the sugar was made. At the outset about twelve pounds of beets were required to make a pound of sugar, and on this basis the drawback was calculated; or for every hundred-weight of sugar exported, there was granted a drawback of nearly twelve times the tax paid on each hundred-weight of beets. For a number of years after 1869 this arrangement worked well, the drawback being about equivalent and no more than the tax. But nothing stimulates human ingenuity in a greater degree than the prospect of gain through the avoidance of a tax; and gradually a change in the condition of affairs took place. By careful and scientific cultivation the saccharine element in the beet was so much increased and the mechanical and chemical methods of extracting it so greatly perfected, that while in 1869 twelve pounds of beets were needed in the average German factories to make one pound of sugar, in 1878 the requisite quantity was 10·78 pounds; in 1882, 10·08 pounds; in 1884, 9·28 pounds; in 1886, 8·80 pounds. The effect of this was to make the drawback on the exports of sugar no longer equivalent to the tax, and convert it into a bounty; or the exporter received a drawback as if he had paid an excise-tax on twelve pounds of beets, when in reality he had paid on a much smaller quantity—less than nine pounds after 1885. The fact that this bounty was accruing was not unknown to the German Government; but as it became especially manifest during the years 1876-'79, when the great depression of industry had developed a strong protectionist feeling, nothing was done to stop it; but on the contrary it was popularly regarded with satisfaction. Under such favorable circumstances, the beet-root sugar product of Germany increased with great rapidity; and as the amount soon far exceeded any requirements for domestic consumption, and as a net profit of from 6 to 7 per cent was guaranteed to the manufactories by the export bounties, the exportations soon assumed gigantic proportions, rising from about 500,000 cwt. in 1876 to over 6,000,000 cwt. in 1885. The other states of Continental Europe, finding the markets for their own product of beet-root Sugar everywhere supplanted by the German sugars and their domestic manufacturers being even thereby brought to the verge of ruin, made haste to follow the example of Germany, and improve upon it, by offering larger bounties for the domestic production and export of sugars than were offered elsewhere; until the policy of Germany, France, Belgium, Holland, Austria, and Russia during recent years, seems to have been to stimulate their domestic product of sugar to the greatest extent, and then enter into competition with each other to see which of them could sell cheapest to foreigners at the expense of their own people; the home-grown sugars of France and Germany, for example, selling, it is reported, in England for about one half the prices paid for the same article by the French and German people.
The Russians determined nearly forty years ago to make their own sugar out of beet-root, and at first encouraged their manufacturers with a specific bounty. Subsequently they substituted for the bounty an almost prohibitory duty on imports, and under this system the production of beets and sugar increased rapidly for many years, with large resulting profits to producers. In 1881 the Russian manufacturers produced just enough to satisfy the demands of the home market. In 1882 there was an excess of production. Prices then began to fall and manufacturers to fail. They could not export their surplus at a profit, because they could not compete in foreign markets. More protection at home was not wanted, because the protection existing was complete. Under these circumstances application was made to the Government to pay them for exporting their surplus, and this the Government agreed to do, to the extent of giving a bounty of one rouble per pood on an exportation that was to be limited to two million poods, with a remission also of all internal taxes on tie same. This arrangement continued until January, 1886, when, the Russian market being overstocked with sugar, an extension of the bounty on an unlimited exportation was demanded, and granted by the Government for a period of about six months, or until July, 1886. The result was that the Russian exporters poured upon the English and Italian markets (the only ones readily available to them) during this brief time, and to the great disturbance of the world's markets, sugar to the amount of seven and a half million poods (227,000,000 pounds), leaving still three million poods surplus at home unsold and unsalable. The present French export bounty on sugars is estimated at from 5s. to 10s. ($1.20 to 82.40) per cwt., entailing an annual expense to the treasury of at least $15,000,000. As the French refiners, however, obtain a great quantity of untaxed raw sugars, the actual annual loss to the Government is believed to be much greater. The present export bounty in Germany is 2s. per cwt., and the present annual treasury expenditure, in order that foreigners may have cheap sugar, is believed to be about 37,733,796 marks, or 89,334,000. For the year 1885-'86, Austria is supposed to have paid 88,000,000; Belgium, 84,000,000; and Holland, 61,330,000, on account of sugar-export bounties. The United States, in this business of selling sugar cheap to foreigners at the expense of their own people, has also played a not undistinguished part, the exports of refined sugars having risen from 22,227,000 pounds in 1881 to 252,579,000 pounds in 1885, or 26,000,000 pounds in excess of the entire cane-sugar product of the country for the latter year. The secret of this probably was, that a bounty was paid under the guise
of a drawback, which the English sugar-refiners estimated at 39 cents per 100 pounds. This drawback having been reduced by the Treasury Department to 17 cents, the exports for the succeeding year, 1885-'86, at once fell off to 164,339,000 pounds.
The experiences that have followed this attempt, on the part of practical statesmen, to interfere with the natural progress and development of a great industry, constitutes one of the most instructive chapters in all economic history. Judged from certain standpoints, the bounty system, as applied to beet-root sugar, has been unquestionably most successful. It has increased the aggregate product of this variety of sugar so rapidly that, in place of constituting 20 per cent of the whole sugar-product of the world, as it did in 1860, it now represents at least 56 per cent of such aggregate. This artificially increased product of sugar has so far exceeded the current demands of the world for the consumption of this commodity, that sugar now ranks, in point of retail value, with such articles as oatmeal, barley, and flour; and it has even been proposed that it should be utilized as food for cattle, or as a fertilizer in competition with artificial manures. Comparing wholesale prices, sugar was 114 per cent higher in 1880 than the first half of 1887. Such a reduction in the price of a prime necessity of life has been of immense advantage to consumers. In Great Britain, whose policy since 1874 has been to give her people sugar free of taxation, the per capita consumption has risen from 56 pounds in that year to 75 pounds in 1886 (as compared with a per capita of about 54 pounds in the United States in 1885); while the saving to the British people, from the reduction of the cost of this one item of their living, in the single year of 1886, has been estimated by a good authority (Mr. Samuel Montague, M. P.) as high as £11,000,000 (855,000,000). Again, the bounty policy developed a large local industry in many of the states of Continental Europe, and for a time paid enormous profits to manufacturers and refiners producing for export, as is believed to be yet the case in France, and which has recently increased its duties on the imports, and its bounties on the exports, of sugar, and which latter are now three times greater than those paid by Germany. During the year 1886 the profits of the two leading sugar-refiners of France from export bounties, exclusive of their domestic trade, were reported as about £450,000 (§2,225,000) each; but how much of this they were required to part with in order to force, through reduced prices, the sales of their product in other countries, is, of course, not known. It is claimed to have greatly injured the sugar-refining industry of Great Britain; but, on the other hand, it is declared to have given a great impetus to the business of manufacturing confectionery, preserved fruits, jams, etc., in that country; industries which have given employment to many more persons than were ever occupied in refining sugar.
But there is another side to this picture. Under the influence of an extraordinary and artificial stimulus more sugar has been produced than the world was ready to absorb, even at the reduced prices which the bounties made possible. The price of beet-root, and therefore of all sugar, has continued to decline, until the sugar-industry of Continental Europe (with the possible exception of France), is suffering under the severest depression. Many establishments have closed or passed into bankruptcy, and it is now well understood that the only profit available to the manufactories is that derivable from so much of their product as is exported, which, in the case of Germany, represents more than half of the annual production. In a recent discussion in the German Reichstag, Deputy Heine opposed the continuance of the present bounty system in that country, upon the ground that it was disastrous to the agricultural laborer, who had been compelled to sacrifice all his land to the beet-cultivators. These cultivators, who farmed upon a large scale, had effected many improvements in laborsaving machinery, and thus reduced the laborer's wages to a minimum; so that in some districts the laborers were little better off than serfs. At the same time the people of the sugar-producing states of Europe uniformly pay more for what proportion of their own sugars they consume than is paid by foreigners on the proportion exported. In Russia, where the depression is extreme, the manufacturers have petitioned the Government, but thus far unsuccessfully, to restrict production by law to whatever extent would be necessary to keep the price up to the point at which it stood when the domestic product was just sufficient to supply the home market; or, in other words, to permit production to continue at the producer's discretion, but not to allow him to sell anything over the regulation amount in the home market. The disaster which the extreme artificial reduction in recent years in the price of sugars has brought to other great business interests and to the material prosperity and even civilization of large areas of the earth's surface, can not well be overstated. In Barbadoes (British West Indies), in February, 1887, it was estimated that the loss at that time on every ton of sugar produced and exported to London was £1 15s., and in the absence of all profit on what is almost the sole industry of the West Indies, it would seem as if civilization would disappear from many of the islands, as indeed it already has in a great degree from some of them—the island of Tortola, for example, which was, comparatively a few years ago, the seat of a profitable sugar-industry. In the Spanish islands of Cuba and Porto Rico, the taxation of sugar, mainly export duties, have hitherto constituted an important source of revenue, but within a recent time Spain, as a condition for saving the planters from ruin, has felt obliged to relinquish most of them. In Java, the situation of the sugar-industry is so deplorable that, in order to save it from destruction, with the consequent throwing of half a million of Javanese laborers out of employment, and thereby increasing the already large number of Malay pirates, the Dutch ministry, in 1886, decided, besides making advances to planters on their crops, to purchase from their colonial planters five eighths of their production at a price that would entail a sacrifice on the Dutch treasury of about 40,000,000 francs, or 68,000,000. And since then it seems to have been well established, that German beet-root sugar has been and is now exported half round the globe, and largely sold in Singapore, the center of the great sugar-producing countries of Asia, at a price which makes its use to the manufactories of preserved fruits more advantageous than the sugars of Java and the other islands of the Indian Archipelago. A like exportation of Continental sugars, artificially reduced in price, to Australia, also threatens with ruin the developing cane-sugar industry of these countries.
Finally, the states of Continental Europe, in which the burden of taxation is already most grievous, and in most of which there is a regular and increasing annual deficit, are beginning to feel that they can no longer endure the strain upon their finances which the bounty paying system to their sugar-industries entails, and which has not brought prosperity to them or the state. In this reaction, Russia has taken the lead, and is stopping her bounties as rapidly as possible; and all the other states exhibit unmistakable evidences of a desire to follow her example. The difficulty, however, is that so ranch of their respective sugar-industries as has been called into existence artificially would be immediately ruined, with great loss and suffering to a large number of people, if the bounties were at once discontinued; and the same result would follow by the putting an end to any possibility of exporting, if one, or all but one, of the states should cease paying bounties, and one, like France, should continue to do so. Earnest efforts are accordingly being made for the holding of an international congress, with the object of agreeing upon a mutual abandonment of the bounty system; and the official announcement has been made by the British Government that Austria-Hungary, Germany, Holland, Italy, Spain, Belgium, and Denmark have agreed to participate; Russia and France having not as yet declared themselves on the subject of attendance.
In face of this experience, the Government of the Argentine Republic has determined to appropriate an annual sum of $550,000 for three years, in order to stimulate the export trade of that country in beef and mutton for the European market.
The recent experience of France in attempting to stimulate shipbuilding and ship-using, through a carefully-devised system of subsidies and bounties, furnishes another illustration of the effect of governmental interference with the natural course of industries, second in importance only to that afforded by the experience of sugar.
Thus, to accomplish the purpose above noted, the French Government offered in 1881 to give a bounty of $12 a ton on all ships built in French yards of iron and steel; and a subsidy of $3 per 10 tons for every 1,000 miles sailed by French vessels; and as they did not desire to put any inhibition on the citizens of France buying vessels in foreign countries and making them French property, in case they desired to do so, they proposed to give one half the latter subsidy to vessels of foreign construction bought by citizens of France and transferred to the French flag.
At the outset, as was the case with the sugar bounties, the scheme worked admirably. New and extensive steamship lines were organized with almost feverish haste, and the construction of many new and large steamers was promptly commenced and rapidly pushed forward in various French ports, and also in the ship-yards of Great Britain and other countries. The Government paid out a large amount of money, and it got the ships. In two years their tonnage increased from a little over 300,000 to nearly 700,000 tons for steamers alone; while the tonnage engaged on long voyages increased in a single year from 3,000,000 to over 4,700,000 tons.
It was probably a little galling to the French to find out after two years' experience that most of the subsidies paid by the Government were earned by some 200 iron steamers and sailers, and that over six tenths of these were built and probably owned in large part in Great Britain; so that the ship-yards on the Clyde got the lion's share of the money. But as all the vessels were transferred to and sailed under the French flag, and were regarded as belonging to the French mercantile marine, everything seemed to indicate that the new scheme was working very well, and that the Government had really succeeded in building up the shipping of France. But the trouble was that the scheme did not continue to work. The French soon learned by experience the truth of the economic maxim, that ships are the children and not the parents of commerce; and that while it was easy to buy ships out of money raised by taxation, the mere fact of the ownership of two or three hundred more ships did no more to increase trade, than the purchase and ownership of two or three hundred more plows necessarily increased to a farmer the amount of arable land to plow; or, in other words, the French found that they had gone to large expense to buy a new and costly set of tools, and then had no use for them.
And, what was worse, they found, furthermore, that while they had not increased trade to any material extent, they had increased the competition for transacting what trade they already possessed. The result has been that many French shipping-companies that before the subsidy system were able to pay dividends are now no longer able; fortunes that had been derived from the previous artificial prosperity have melted away; the French mercantile marine has ceased to grow; and the whole scheme has proved so disastrous a failure that the late Paul Bert, the eminent French legislator and orator, in a speech in the French Assembly, seriously undertook to defend the French war of invasion in Tonquin, on the ground that its continuance would afford employment for the new French mercantile marine, which otherwise, we have a right to infer, in his opinion would have remained idle.
The experience of the mercantile marines of Europe during recent years affords the following curious results: It shows, first, that the payment of bounties has practically availed nothing in arresting the continued decrease in sailing-tonnage; second, that in the eight years prior to 1880, French shipping, in its most valuable branch—steam—increased faster than the shipping of any of its Continental competitors; but after 1880, the increase in the steam-marine of Germany, where no bounties were paid, was relatively greater both in number and tonnage of vessels than in France where large bounties were given after 1881; and was also greater as respects the aggregate tonnage of all vessels—sail and steam. The obvious expectation of the French Government in resorting to the bounty system for shipping was that ships built and navigated with the aid of the bounties, would carry French manufactures into foreign countries, and thus open new markets for domestic products. But experience, thus far, has shown that all that has been effected is a transfer, to some extent, of the carriage of goods formerly brought in foreign vessels, to French vessels. But, on the other hand, the increase of tonnage, under the stimulus of the bounties, beyond the requirements of traffic, and the consequent reduction of freights, has entailed "a loss, and not a gain to the French nation; by throwing upon it the burden of a shipping interest that, but for the Government aid, would have been unprofitable, and which, because of such aid, can not conform itself to the demands of trade."
The experience of Great Britain, occupying as she has, the position of being the only country in the world of large production and commerce which has not within recent years imposed restrictions on the competitive sale of foreign products in her markets, is also exceedingly interesting and instructive. That British trade and production has been injured by attempts in the nature of forced sales on the part of competitors in protected countries to dispose of their surplus products in the English duty-free markets—while the tariffs of their own countries have shielded them from reprisals—and that from like causes Great Britain has experienced severe foreign competition in neutral markets where British trade had formerly almost exclusive possession, can not be doubted. Thus, the report of the British Commission "On the Depression of Trade and Industry" (1886) shows that the importation of foreign manufactured or partially manufactured goods into Great Britain has increased since 1870, at "a slightly more rapid rate" than the increase of its population, having been £1·97 per head in the period 1870-'74, and £2·35 per head in the period 1880-'84. The extent of the injury to British interests from these changes in the conditions of the world's trade, does not, however, appear to have been as great as might have been anticipated, or as is popularly supposed; and very curiously has manifested itself in a reduction of profits, rather than in any reduction of the volume of British trade; the value of British exports to the six protectionist countries of the world—the United States, France, Germany, Russia, Spain, and Italy—having been larger during the years 1880-'84 than in any quinquennial period of British history, with the exception of the period from 1870'74, when British trade is known to have been abnormally inflated. It is also not a little interesting to note that the countries of the world in which, according to the most recent and accepted statistics, the ratio of wealth and the ratio of foreign commerce to the population are the greatest, are Holland and Great Britain, the two states that have emancipated themselves in the greatest degree from all restrictions on the interchange of products with foreign nations—the customs revenue of the former amounting to about one per cent on her imports, and that of the latter to about five and a half per cent. In India, also, where there are few artificial restrictions on the freedom of exchange, internal trade, manufactures, and foreign commerce have increased in an extraordinary degree within recent years, and the wages of skilled labor have also, at the same time, notably advanced.
An analysis of the comparative values of the export trade of the nations of Europe during the five years from 1880 to 1885—a period of intense struggle for the domination of the world's markets—affords the following interesting results: In cotton and woolen yarns and dry goods, England has strengthened her position; in iron and steel goods, her share of the world's trade has increased from 64·2 to 66·5 per cent; while in machinery her exports have been pushed up from 66·7 to 69·1 per cent. In glass and glass goods England's percentage remained constant, while that of France and Belgium declined. Germany increased her exports of glass and glassware, and also very largely of paper, and slightly of machinery, losing ground in respect to the exportation of iron and steel goods, in common with France and Austria. In leather and leather goods, Germany leads, while France appears to be rapidly losing her former supremacy.
Apart, however, from their bearing on any particular country, a review of all the circumstances connected with the multiplication of restrictions on international commerce, which the majority of civilized nations have united in creating in recent years, fully justifies the British Commission and other European authorities in regarding it as a most influential agency in occasioning almost universal economic disturbance. It has been progress backward—progress in the direction of that sentiment of the middle ages, which held that, as commerce benefited one country only as it injured some other, it was the duty of every country to impose the most harassing restrictions on its commercial intercourse. Or, in other words, increased knowledge respecting the forces of Nature, and a wonderful subordination and use of the same having greatly increased and cheapened the abundance of all useful and desirable things, the majority of the world's legislators and statesmen have seemed to have considered it incumbent upon them to neutralize and defeat the beneficent results of such abundance. And the most comforting assurance that progress will not indefinitely continue to be made in this same direction, is to be found not so much in the intelligence of the masses or their rulers, as in the circumstance that existing restrictions on commerce can not be much further augmented without such an impairment of international trade as would be destructive of civilization.
As the restrictions on trade within the last eight or nine years have not been all imposed at one time, but progressively, and as their influence has accordingly been gradual, the world does not seem to have as yet fully appreciated the extent to which the exchange of products between nations has been thereby interrupted or destroyed. But as the case now stands, Russia practically prohibits her people from any foreign purchases of any iron or steel; Germany and Austria, of cereals; Belgium, of cattle and meats; Russia, Austria, Germany, France, Belgium, and Holland, of sugar; France, of pork; and Brazil, of rice. The imports of Russia, as before pointed out, decreased twenty-five per cent in the three years from 1883 to 1886; those of France from $160,981,000 in 1881 'to 6127,457,000 in 188.5; and those of Austria during the same period from §251,230,000 to $219,273,000. Between France and Italy trade has been interrupted to almost as great a degree as mutual governmental action will admit; while the value of the exports of the United States to France which amounted in round numbers to $100,000,000 in 1880, had become reduced in 1886 to $40,096,000. The one objective of the restrictive commercial legislation of all countries in recent years has been mainly the United States; and it has already affected the former agricultural supremacy of the country in the markets of the world; the exports of cattle from the United States, comparing 1886 with 1881, having declined 35·8 per cent in quantity; of beef products 17·7 per cent, and of pork products 35 per cent. The exports of butter and cheese have also participated in the general decrease of exports.
The Economic Disturbances since 1873 contingent on War Expenditures are not different in kind from those of former periods, but much greater in degree. This subject has been so thoroughly investigated and is so well understood, that nothing more need be said in this discussion, than to point out that the men in actual service at the present time in the armies and navies of Europe is in excess of 4,000,000, and that it undoubtedly requires the product of one operative or peasant labor, to sustain one soldier. The present aggregate annual direct war expenditure of the world is probably in excess of a thousand million dollars. We express this expenditure in terms of money, but it really means work performed; not that abundance of useful and desirable things may be increased, but decreased; not that human toil and suffering may be lightened, but augmented.