Popular Science Monthly/Volume 37/August 1890/Common Sense Applied to the Tariff Question I
By EDWARD ATKINSON.
ACCORDING to the English, theory and practice of representative government, from which our own methods have been derived (subject, however, to some variations of doubtful expediency), it is the function of a Minister of Finance, named in this country Secretary of the Treasury, to prepare a budget or estimate of income and expenditures. At each session of the British Parliament specific expenditures are recommended, and specific sources of revenue are set off, which have been carefully computed, so that it may be hoped or expected that revenue and expenditure will balance.
Any one conversant with the financial history of Great Britain will long since have ceased to wonder at the accuracy of these estimates. If a probable surplus in revenue is expected from existing taxation, the Chancellor of the Exchequer frames such measures of relief from taxation as may be assumed to yield the greatest benefit to the tax-payers. If, on the other hand, any extraordinary expenses are to be provided for in the ensuing year, then specific additions to taxation are recommended in order to provide the necessary ways and means. Under these conditions the opening speech of the Chancellor of the Exchequer when he presents the budget, so called, becomes the subject of most careful public attention. The reputation of leaders in Parliament is established or is lost by their ability to deal with financial questions. Ministries stand or fall according to the ability of the leader of the party to satisfy the public of his sound judgment in dealing with the matter of public taxation. Thus, while the reputation of the leaders of the House of Commons on either side is made or marred by their power of dealing with revenue questions, yet, in order to enable them to do so with intelligence, permanent officials are kept in office in the civil service of Government through all party changes. These permanent secretaries are charged with the duty of keeping the public accounts in such a way that, in spite even of revolutionary changes in party politics, the continuity of the financial history and of the records of account may be maintained with absolute integrity of purpose, so that there may be no break in the established system, whoever may be in power.
The names of Robert Giffen, permanent Secretary of the Board of Trade; of Sir Thomas H. Farrar, who for more than fifty years occupied a most important position in the service of the Treasury of Great Britain; and the name of the late Sir Louis Mallet, for many years permanent Secretary of the India Board, are well known to every economic student both here and abroad.
When one fully comprehends these conditions under which the conduct of the finances of Great Britain has been carried on for many generations, it no longer remains a matter of surprise that the knowledge of these subjects among the people of Great Britain is far above that of the people in our own country. The financial debates in Parliament are also so far above those of our own Congress as to leave little room for comparison. With a few conspicuous exceptions among our Representatives and Senators, there is hardly a man capable of making a financial speech that is worth any attention on the part of a student. There are many speeches delivered which contain valuable information, but these are mostly compiled in the party bureaus either by the clerks of committees or by others who are conversant with affairs, generally men who are competent to meet the requisitions of members when they desire to address their constituents through the medium of the Congressional Record.
When any great financial debate comes up in the British Parliament there is hardly a speech made which is not worth close attention, or which does not stand for the convictions of the speaker, based on his own knowledge of the subject.
The proceedings in our Congress offer a severe contrast. Witness the customary course in the treatment of financial questions. The annual report of the Secretary of the Treasury is laid upon the table of the several committees, who immediately ignore all the recommendations of the Secretary. The Committee on Appropriations immediately proceed to recommend the expenditures without any regard to revenue; while the Finance Committee in the Senate and the Ways and Means Committee in the House at once proceed to consider revenue measures without any reference whatever to ways and means, and with scarcely any attention to the appropriations, except when the appropriations become so extravagant as to hazard the success of the party in power.
Such have been the conditions under which revenue measures have been treated by the present Congress, finally resulting in an act the avowed purpose of which is to diminish the revenue by increasing taxation, and to divert the increase of taxation from the Treasury of the United States to the support of private enterprises, either by direct bounty, as is proposed in the case of sugar, or by indirect contribution, as in the case of tin plates and other matters.
What other description can be given to a revenue measure framed upon the new theory of protecting—that is to say, of providing by public taxation the ways and means by which a specific branch of private industry may be supported, with the incidental purpose of yielding a lessening revenue to the public treasury?
It has therefore seemed to me expedient that one who has been studying the financial questions of this country for more than twenty-five years might rightly assume the functions with which the permanent civil officers of the British Parliament are charged, viz., that of preparing a budget by sorting national expenditures according to their kind, and by placing specific sources of revenue against the different elements of the public appropriations.
The writer may not presume to rival the Chancellor of the Exchequer or the Secretary of the Treasury. It is their function to deal as statesmen with the facts that are prepared for them by those who are conversant with all the existing financial conditions.
The time has come when it is the duty of every man who may be assumed to have some exact knowledge upon the subject of taxation, to present his views when called upon in a simple, plain way, without regard to his own private interests, whatever they may be.
Before coming to the main subject, I beg to say that I should myself find it somewhat difficult to characterize my essay by any distinctive title which would be theoretically correct. I observe that my work, my figures, and my views are quoted by one party as often as by the other; and I also find that exceptions are taken to my presentation of this subject in about even measure by the doctrinaires on the free trade and the intolerants on the protective side alike. I may perhaps characterize this essay as one "upon the protection of domestic industry, and the development of the home market by exemption from unnecessary taxation"; or, for short, I will call it "Common Sense applied to the Tariff Question."
The motive of this address may be given in the form of a simple account current, which might be entitled "Uncle Sam in Account Current with his People." We, his people, may rightly charge Uncle Sam with the contributions which we are called upon to make in order to meet the obligations of Government.
We may credit Uncle Sam with the expenditures that are required to meet the obligations of the war, and also for the conduct of the Government, equitably administered with the least interference with the freely chosen pursuits of the people:
This account is adjusted to the prospective revenue, predicated on receipts to date in the year 1890.
When we balance these war taxes against the war expenses, we find a surplus which may be carried forward to meet the ordinary expenses of the Government, $20,000,000, and this surplus will be subject to rapid increase with the growth-of population and the presently diminishing burden of debt and pensions.
In the analysis which I shall present in this essay, I shall endeavor to prove how readily the remainder of the necessary contributions of the people to the support of the civil government may be collected wholly from taxes on articles of luxury or of voluntary use, or on the finer textiles which are dependent on style and fancy for their sale, without putting any tax of any kind upon any commodity, either partly manufactured, crude or raw material, which is necessary in the processes of our domestic industry. I shall endeavor to show how the removal of $40,000,000 to $50,000,000 of obnoxious taxes now imposed upon this class of materials may open the way to products, sales, wages, and profits amounting to at least $500,000,000 a year, which such a policy would add to the resources of this nation, to be divided equitably among the people in the form of additional wages and profits; thus promoting domestic industry, enlarging the home market, raising both the rate and the purchasing power of wages, and increasing profits.
In the renewed discussion of the tariff question it has become unpleasantly manifest that men are taking positions which may soon lead to a very bitter conflict, in which contest mutual recrimination will cause distrust and may prevent any suitable reform of the tariff being carried into effect, as it ought to be, by the common consent and governed by the common sense of all men who are directly interested in the matter, and by the application of that sound business judgment which should be applied to this business question.
It is very true that there are moral as well as political considerations underlying the whole problem of the tariff. Such being the case, it is a matter of duty for the citizen who will not be directly affected either in property or in person in any considerable measure by any changes in our tariff legislation, yet to watch it and to give it a true direction. The effect of tariff measures, considered from the money point of view in their burden or their benefit, has, I believe, been very much overrated; but the evil of dependence upon legislation in the conduct of industry can not be exaggerated.
In the way in which this subject of tariff reform is now being treated, whatever is done will be badly done; therefore, great harm
will ensue before any true adjustment of duties can be made to present conditions, although, both political parties now agree that great changes are absolutely necessary. How can we separate this question from party politics?
It has always seemed to me very absurd, even grotesquely so, that men who are accustomed to put confidence in each other in the conduct of all their private affairs as well as in their town and city work; who trust each other in every walk of life; who serve together on boards of directors in savings banks, insurance companies, trust companies, and the like, and who adjust all differences of judgment in a reasonable manner, yet when this subject of tariff legislation comes up impute to each other, or else sustain newspapers that impute to each other, every form of insincerity, untruth, fraud, and malignant selfishness.
There is nothing so foolish as the imputations which are put upon the advocates of free trade by their opponents, except the corresponding imputations put by their opponents upon the mass of the advocates of protection, of lack of care or consideration for the public welfare. The masses are sincere on either side, however time serving and incapable their political representatives may be.
Conceive what the conditions of this country would be if the ideas which the Cobden Club represents had not prevailed, and if our wheat and dairy products were boycotted as our pork is in Germany; or if our cotton were taxed as it was before the markets of Great Britain were made free. In 1880 there were nearly eight million men occupied in agriculture; now there are ten million, more or less. In 1880 seventeen per cent of the product of agriculture found a home market only by sale for export; now about twelve per cent. If we did not exchange this product for other products, we could not sell it. If we could not sell it for export, over a million men would be driven from the field to the factory and to the workshop.
When I listen to the foolish talk of partisans on either side, and witness the ill-judged contention on the tariff question, I am sometimes inclined to exclaim, "A plague on both your houses!" Is it not time that this method of imputing wholly selfish or bad motives should cease, and that any one or every one who indulges in it should be held in contempt as an example of intellectual stupefaction?
It was well said by President Cleveland when he so bravely brought the subject to an issue, "What we have to deal with is a condition and not a theory."
Let us consider this condition, find out exactly what it is, and then see what we have to do in the matter, each man on his own account.
I have never known any intelligent advocate of a tariff for protection who did not consider free trade as the ultimate objective point in all tariff legislation. I do not know any man of any intellectual standing, in public or in private life, who does not now look upon free trade as the true objective point of all tariff legislation. All sensible men hold that there are existing conditions which make it inconsistent with the public welfare to adopt revolutionary free-trade measures at the present time; but they all accept the fundamental principle, provided certain conditions precedent can be established in a safe and proper way.
The difference among intelligent men at the present time is only as to the time when it may be suitable to begin tariff reform in this direction, and upon the method of such reform. So it has always been. It is only the first step that costs. Gladstone once said, doubtless recalling his own experience and change of views, "The road to free trade is like the way to virtue, the first step the most painful, the last the most profitable."
The conditions which now obtain in this. country correspond very closely to those which existed in Great Britain in 1842, at the time when Sir Robert Peel was compelled to modify and ultimately to change all his previous conceptions upon this subject, and to become the leader in the great reform of the British tariff which ended in the present system, sometimes called that of British free trade. This system is not free trade in an abstract or in an absolute sense, because Great Britain raises a large revenue from duties upon foreign imports, and will probably be compelled to do so for very many generations in order to sustain the burden of her great debt. We shall also be compelled to raise a large part of our revenue from duties upon imports, for one generation; but I will presently prove that our advantage in conditions is so great that it may enable us within even less than one generation to adopt absolute free trade if it shall become expedient to do so, except so far as it may continue to be necessary to tax the import of spirits in order to maintain the revenue derived from an excise measure. Whether or not absolute free trade may be desirable or expedient, it will be time enough to determine when the opportunity is offered. What we have to deal with now is our present condition and not this theory, as President Cleveland so well put it.
In one of Sir Robert Peel's great speeches which he made long after he had entered upon this course, he spoke as follows, in explanation of his course at the beginning of the reform of the tariff:
"I stated, and I am ready to repeat that statement, that if we had to deal with a new society in which those intricate and complicated interests which grow up under institutions like those in the midst of which we live, had found no existence, the true abstract principle would be to buy in the cheapest market and to sell in the clearest. And yet it is quite clear that it would be utterly impossible to apply that principle in a state of society such as that in which we live, without a due consideration of the interests which have grown up under the protection of former laws. While contending for the justice of the abstract principle, we may at the same time admit the necessity of applying it partially; and I think the proper object is first of all to lay the foundation of good laws, to provide the way for gradual improvements, which may thus be introduced without giving a shock to existing interests. If you do give a shock to these interests, you create prejudices against the principles themselves, and only aggravate the distress. This is the principle on which we attempted to proceed in the preparation of the tariff."
Our present conditions correspond almost exactly to this statement; and the logic of events is bringing almost all economic students, many legislators, and also nearly all the intelligent leaders in the manufacturing and mechanic arts to the same conclusion to which Sir Robert Peel was brought by the logic of events when he took office in 1840; especially by the very disastrous condition to which Great Britain had been brought under an obstructive tariff policy the effect of which culminated at that date.
One may also refer to one of the greatest speeches that Daniel Webster ever made—a speech which he delivered at Faneuil Hall in October, 1820, at a meeting which had been called to resist an increase of duties above the very moderate revenue tariff of 1816, which was then in force—a meeting such as ought to be held now to protest against a worse measure. This meeting was called by men whose names are familiar to every Boston man—by William Gray, James Perkins, Nathan Appleton, Abbott Lawrence, Joseph Sewell, George Bond, Thomas Wigglesworth, William Sturgis, and by many others whose names have been household words among the merchants and manufacturers of Massachusetts for generations. In dealing with the high tariff measure, which was then being forced upon Massachusetts against her will, Webster said:
"To individuals this policy is as injurious as it is to government. A system of artificial government protection leads the people to too much reliance upon government. If left to their own choice of pursuits, they depend on their own skill and their own industry; but if government essentially affects their occupations by its systems of bounties and preferences, it is natural that when in distress they should call on the government for relief. Hence, a perpetual contest follows, carried on between the different interests of society. Agriculturists taxed to-day to sustain manufactures—commerce taxed to-morrow to sustain agriculture—and then impositions perhaps on both manufactures and agriculture to support commerce. And when government has exhausted its invention in these modes of legislation, it finds the result less favorable than the original and natural state and course of things. I can hardly conceive of anything worse than a policy which should place the great interests of this country in hostility to one another, a policy which should keep them in constant conflict, and bring them every year to fight their battles in the committee-rooms of the House of Representatives at Washington.
"An appeal has been made to the patriotic feelings of the nation. It has been said we are not independent so long as we receive these commodities from other nations. He could not see the force of this appeal. He did not perceive how the exchange of commodities between nations, when mutually and equally advantageous, rendered one dependent on the other, in any manner derogatory to its interest or dignity. A dependence of this sort exists everywhere, among individuals as well as nations. Indeed, the whole fabric of civilization, all the improvements which distinguish cultivated society from savage life, rest on a dependence of this kind. He thought the argument drawn from the necessity of providing means of defense in war had been pressed quite too far. It was enough that we had a capacity to produce such means when occasion should call. The reasoning assumes that in war no means of defense or annoyance can be probably obtained, or not without great difficulty, except from our own materials or manufactures. He doubted whether there was much ground for that assumption. Nations had hitherto obtained military means in the midst of war, from commerce. But, at any rate, as it was acknowledged on all hands that the country possessed the capacity of supplying itself whenever it saw fit to make the sacrifice; and he did not see why the necessity of making it should be anticipated; why should we now change our daily habits and occupations, with great loss and inconvenience, merely because it is possible that some change may hereafter become necessary? We should act equally wise, he thought, if we were to decide that although we are now quite well, and with very good appetites, yet as it was possible we might one day be sick, we would therefore now sell all our food and lay up physic."
In another part of this great speech Webster, with prophetic insight, foretold how the whole face of New England industry and society would be changed for the worse if this high tariff policy were forced into effect by sectional votes. Two generations have passed since Webster's prophetic words in Faneuil Hall in 1820. This speech was given just seventy years ago. Do we not now witness the representatives of different industries fighting their battles in the committee-rooms of the House of Representatives at Washington? Do we not to-day witness agriculture taxed in order to sustain manufactures; commerce taxed to sustain agriculture; and impositions proposed upon both agriculture and manufactures to sustain commerce by subsidies and bounties?
Again quoting President Cleveland, "It is a condition and not a theory which we are called upon to meet." What is that condition? Here are two parties in Congress each attempting to deal with this great problem, each claiming to be equally in earnest to promote domestic industry, to develop the home market, and to protect the workmen of this country. The representatives of each of these two parties are elected by great bodies of voters who are equally honest and sincere in their efforts, or who have persuaded themselves that they are, and that the future prosperity of the country will depend upon their having their way. In this position we merely find conditions of the same kind that have been met before. In every great emergency each party claims to be the savior of the country; but the country saves itself in spite of parties, as it did in the civil war. Its material progress continues on its stupendous way in spite of the little petty obstructions which are interposed by those who believe they can manage all the affairs of the people better than they can manage them for themselves.
Between these two parties, if this is to be a party question, each one of us must make a choice when we vote or when we select the party with which we must act. Both these parties claim to protect domestic industry in the measures which they propose; but their proposed measures differ fundamentally. On the Republican side the policy is to tax every foreign product, crude, partly manufactured, or finished, of which a similar product has been or can be established in this country, without regard to the effect of such a tax on other branches of industry. Their avowed purpose is to impose taxes "for protection with incidental revenue," in order to render this country, as they term it, "independent of all others." It does not matter to them whether a branch of industry which might be set up exists at the present time or not. For instance, the Republican tariff bill will double the tax on tin plates without regard to the use to which these tin plates are to be put. No regard is paid to the nature of the work which must be done in order to ascertain whether it is desirable or not. The promoters of this measure simply say, Here is something which may be made in this country for which we now exchange our surplus products. The work ought to be done here, even if its establishment costs twice or thrice what it is worth!
Now, if the most superficial examination had been given to the kind of work which is to be done in dipping sheets of iron or steel into melted tin by hand, no machine having been invented for displacing this process, it would have been found that it is an art for which the people of Wales not only possess an inherited aptitude, but also that it is one which could not be established in this country without importing the Welshmen to do it, because we have so many opportunities for work, under more wholesome and profitable conditions, that we can no.t afford to do such work, no matter what the inducement may be.
In other words, the policy advocated by the Republican party is one of privation and not of protection, and it is avowedly sustained by many prominent Republicans against their avowed conviction of what would be beneficial, and merely because an assumed party necessity compels them to surrender their own convictions of right.
On the other side, the policy advocated by the Democratic party for protecting American industry is to exempt from taxation all articles of foreign origin which, either in a crude or in a partly manufactured state, are necessary or useful in the processes of domestic industry. They hold that our capacity to produce food which the world must have or suffer from hunger; cotton, without which the commerce of nations would be crippled; oil which we can not burn ourselves; goods, wares, tools, and implements of many varieties, the best of their kind; all our great crops made and all our goods being produced or manufactured at the highest rates of wages and yet at the lowest cost as compared with any other country in the world, enables us to exchange these products for the crude or partly manufactured materials, the raw wool, the tin plates, and for whatever we need which foreign laborers or workmen desire to sell in exchange. They hold that if we can get for one day's work at high wages in our own country the product of ten days' work even of foreign paupers, we can not afford to do that kind of work for ourselves; they hold that by such exchange we may gain yet higher wages and larger profits, the wider we can extend our commerce on such terms.
They hold that what we receive from other countries in exchange for the excess of our products which we can not consume, becomes as much a part of our own product as if these necessary commodities had been produced on our own soil or from our own mines and forests.
They hold that the home market is most fully established when all possible obstructions to the mutual service of nations are removed and the utmost facility given to the people of every land to send to our home market what we need and to buy in our home market what we do not want for our own use.
That is free trade, qualified by the necessity of obtaining a revenue from duties on selected imports. When we have attained it we may wonder why any one ever dreaded it; and if I may once more repeat my favorite quotation from Mr. Gladstone, "Then will the ships that pass between this land and that be like the shuttle of the loom, weaving the web of concord among the nations."
Between these two lines of policy every voter will soon be compelled to choose, and by making this choice a great change in the relative influence and importance of one party or the other will be brought about unless we can separate this question from party politics.
In order that this choice in each man's method of action may be rightly made, it now becomes expedient to treat the method of tariff reform simply as a business question and not as a party question. Parties which were thrown out of all true relation to the future by the issues of the past ought to be reorganized so as to carry into effect the conclusions to which voters have been brought by their convictions of right on the issues of the future. When they are renovated in this manner one may expect a great many men who are now holding prominent positions to be relegated to private life. Their places will be taken by men who are competent to apply reason, judgment, and common sense in their methods of fiscal legislation, a faculty or capacity which has been denied to many of those whom the circumstances of the past have thrown up into positions of considerable prominence which they have continued to hold up to the present time, but for which they are incapable.
When dealing with the tariff question in this way it is probable that every intelligent man who is conversant with affairs and who has given any attention to the reform of the tariff will agree wholly or very nearly with the following statement:
1. The present tariff is confused and inconsistent with itself in many of its provisions.
2. Some of its provisions which were especially intended to promote specific domestic manufactures have been either so erroneously framed or so construed in the Treasury Department as to discriminate against the very branches of. industry which they were intended to promote.
3. These badly framed or badly administered provisions of the tariff acts promote undervaluation, evasions of duty, and fraud; but their worst effect is to discourage honest manufacturers and merchants alike by the uncertainty which they cause as to the future course of trade, as well as by the opportunities which they give both to dishonest employers, importers, and unscrupulous manufacturers to evade the laws.
I may venture to relate a little story of how tariffs are made and unmade. It is one of many incidents which made me a free-trader in principle.
I found an apparent inequality in the tariff act many years since, adversely affecting a branch of industry in which I had invested a few thousand dollars. I framed an amendment and sent it to a prominent Congressman from Massachusetts, who was on the Committee of Ways and Means, explaining the reasons why it should be adopted. No hearings were given, and it seemed to be so fair, as I also thought it was, that it was adopted and went into the tariff with some other amendments. In it I used the technical word "hank." That Congress dissolved presently on the 4th of March. A few days later, the principal appraiser of the Boston Custom-House called upon me and put to me the question, "What is a hank?" I told him it was a skein of cotton yarn eight hundred and forty yards long; adding, "Why do you ask?" "Because," said he, "some damned fool has put a duty in the tariff by the hank, and, if we can't get around it, an established and important branch of domestic industry will be ruined." I asked for an explanation; and upon the development of the facts I said, "Well, you used the right term, and I am the man." Then said the appraiser, "You must see if there is no way to get around your amendment." I studied the matter carefully, and invented a way for avoiding or evading my own act. The threatened industry was saved, but I lost my little investment, as I deserved to, for putting my money into a business which I did not understand.
But this was not the end. Matters went on smoothly for two or three years, when there was a change of appraisers. The new man contested my construction of my own amendment, and undertook to enforce the law in accordance with the real intention. An appeal was taken to the Secretary of the Treasury. By good luck at that time I happened to call upon the collector; he, knowing my familiarity with the art but knowing nothing of my previous connection with the act, nominated me as merchant appraiser to decide the case on its merits. I of course sustained the practice of the first appraiser who had consulted me, and again the threatened industry was saved; by sustaining my own evasion of my own act, justice was done.
This is but one of many incidents which many men could relate; it is but an example of many great wrongs which have been done that have never been righted.
I have stated the conditions which render important changes in our tariff acts an absolute necessity. It is probable that all intelligent manufacturers and merchants, and all legislators except those who are bound by mere party ties in considering these changes, would agree upon the following propositions:
a. In the preparation of measures for collecting duties upon imports, such discrimination ought to be used as will most fully promote domestic industry and protect American labor from injury.
b. In framing such tariff measures, discrimination ought to be used so as to develop the home market for domestic products to the utmost; so far as this can be done by the exercise of judgment in framing tariff acts.
c. It is neither lawful nor expedient to impose duties upon imports without exercising such discrimination in the choice of subjects of taxation as will most fully promote the public interest, irrespective of private gain.
d. It is neither lawful nor expedient to frame measures for the collection of revenue from duties on imports for the purpose of raising or permanently maintaining the price of any given article above what it would otherwise be; except under the necessity of taxing such article for purposes of revenue only.
e. It is neither lawful nor expedient to put either a duty or a tax upon any crude or partly manufactured article which is necessary in the processes of domestic industry, by which large numbers of persons may be burdened, even if the interests of a lesser number might be for a time promoted.
If such are the conditions which we are now called upon to meet, and if such are the lines on which we are to work, then manifestly the first consideration must be given to sorting and classifying articles which are or may be imported, with a view to their use rather than with a view to the question whether or not they may be produced in this country. On the other hand, it must be admitted that there may have been some branches of industry which have been promoted by high duties and which may have been developed a little more rapidly than they would otherwise have been, under a high tariff, at the cost of the consumers for the time being. How shall they be treated?
It may be held that the position which has been assumed by most of the advocates of the protective system, I mean protectionists, according to the common acceptance of the meaning of that term, has been mainly due to the former misconception in regard to the source of wages, which was held even down to the time of Mill, and by him until a late period in his own life and work; to wit, a conception that wages are derived from a fund previously accumulated, and therefore from a "wage-fund" which might be to some extent under the control of capitalists by whom it should be administered, either in one direction or in another at their own choice. This mistaken conception of the source of wages leads to the further misconception that we must make work, or provide work, for a multitude, arbitrarily or willfully directing the force of capital in one way or another. What we really desire to do, what we really seek to attain, is that which is the purpose of all science and invention—not to make work, but to save work; to diminish the effort which is necessary to procure subsistence, shelter, and clothing, thereby increasing abundance. When we do that, it becomes necessary that there should be the widest possible and the freest possible exchange of services, or an exchange of product for product, of service for service, of product for service, or of service for product, in order that those who are displaced from one kind of work by the application of science and invention may be most ready, able, and competent to take up some other kind of work less arduous, less exhausting, and more conducive to human welfare.
What is the object of exchange? How few people ever ask themselves that question! If each one of us did not save himself by exchange from some part of the necessary work required to sustain life, there would be no exchange; each one of us, and every other man, would live and work for himself alone. All this is elementary. It becomes perfectly clear when considered as between man and man. Does not the same rule govern the commerce of nations? What is the commerce of nations, except the sum of the exchanges between man and man? Unless each nation gains by the exchange, does not the trade stop? If both gain by the exchange, does it not hurt both to stop it by legislation? By obstructing exchange, we may make work where we might save it; but that nation loses most from such obstructions in which the greatest abundance of product is attained at the least cost of labor and at the highest rates of wages. If there were such a thing in the world as pauper labor, that nation which exchanged the greatest amount of the product of skilled labor for the greatest amount of the product of pauper labor would save itself the most work. Daniel Webster once said, when in his prime, "The people of this country can not afford to do for themselves what they can hire foreign paupers to do as well for them." This is true not only in respect to the price of labor, but to the kind and quality of the work which is to be done.
There are many branches of industry from which science has not yet removed the noxious or bad conditions of the work. Dipping sheets of iron or steel which have been treated with acid into melted tin for conversion into tin plates is one of the arts which it would be most undesirable to introduce into this country until, by way of science and invention, its noxious conditions have been removed: then it will come here itself; the conditions will then be equalized; we can then afford to take up what it would now be injudicious for us to undertake.
When we consider the obstructive and injurious effect of many of our taxes, light although they may be in money, we find that they are a heavier burden than those of almost any other nation except Russia, Turkey, and Spain.
They have not increased the profits in the arts which were intended to be promoted by their imposition, except for short or variable periods; they have reduced wages in the protected branches of industry below those which are attained in occupations which can not be subjected to foreign competition, while they have kept the prices of most important materials, which are necessary in the processes of domestic industry, far above those of our competitors, promoting their prosperity and retarding our own progress.
Yet our enormous advantages in most of the conditions which are conducive to human welfare are such that we thrive. Our bad methods of taxation are like a pebble in the shoe of a runner, keeping him painfully in the second place, when, if relieved, he could lead the field without an effort.
It is due to these favorable conditions that the paradoxical form of statement represents an absolute truth—viz., that our high rates of wages are due to our very low cost of general production.
This leads us directly to the consideration of the conditions of production, especially in the manufacturing arts, from which our ample profits or high wages are or may be derived, if our moderate taxes are rightly adjusted to our conditions. We possess so great an advantage in our position and in our control of the production of metals, of fibers, and of food products, that there can, of course, be no equalization of wages in this country with those of others, because we could only equalize by reducing our own. The tendency of all the forces in action, when not artificially obstructed, is to raise the rate of wages, to diminish the margin of profits, and to equalize the conditions of working people to their great advantage. If we must wait for the equalization of wages to those of other countries, as is so often urged, before undertaking tariff reform, we may wait forever. It is our very advantage in high rates of wages and low cost of production which might enable us to proceed earnestly, safely, and surely to absolute free trade within less than a generation, and to adopt that policy for the very purpose, not of equalizing, but of maintaining our huge advantage over every other nation.
One may sometimes feel humiliated when one sees men of skill, capital, and ability trembling before the competition of what they call pauper labor. Every man of affairs, every manufacturer, every employer of labor, avoids low-priced or pauper labor in his own work as much as possible; he knows that it is costly; he knows that, when he can command skilled labor at the highest price which is warranted by the market for the product, he will do his work with that kind of labor at the least cost. When it becomes necessary to run works on short time and to discharge a part of the workmen, who are the ones discharged? Not the high-priced men; they can not be spared; it is the high-priced men whose work is not affected by hard times. Every man makes his own rate of wages by his skill, aptitude, and industry; and those who do the work in the best manner get constant employment. The incapable are sometimes subject to compulsory idleness. In the factories I have known cases where all the looms were watched, and every weaver who did not reach a certain standard in her earnings was discharged because the mill could not afford to have poor weavers employed in it.
Yet, although we possess so many advantages within the limits of our own domain, there are some parts of the world which hold an advantage over us, especially in the production of some of the crude materials which are necessary in the processes of domestic industry. There are also many arts from which science has not yet removed the noxious conditions or the excessive labor. These arts we had better not undertake so long as we can buy their product with the excess of our crops of grain and cotton.
Again, there are some sections of this country which could be more adequately supplied with crude materials from Canada than they can be from Pennsylvania; New England, for instance, in respect to iron and coal. Our members of Congress sustain the policy which deprives us of the vast deposits of iron, coal, and even of other materials, which are lying unused in the Maritime Provinces. They tax the wool of Australia and South America; they propose to double the tax on tin plates; and they endeavor to promote the manufacture of burlaps and other coarse fabrics made of jute within our own limits.
The question of crude materials I have treated. The noxious conditions under which tin plates are made, I have referred to. The making of burlaps as it is now conducted in Dundee is one of the least desirable occupations that human beings can be called upon to follow; until it has been improved, we had better buy our burlaps with cotton than try to make them ourselves.
Even the finest fabrics which are suitable for taxation for revenue, such as Brussels laces and the like, are made by hand at the lowest wages and under the most abject conditions of life. The finest silks must be woven by hand, because the silk-worm does not spin his thread so evenly as to make it possible to weave it on the positive power-loom. In fact, in respect to many of these finer articles, which are perfectly suitable subjects for a tariff for revenue rather than for protection, there are elements to which no attention has been given; they specialize themselves even according to heredity or to peculiar conditions. The finest cotton yarns are spun in England, sent to France to be woven, sometimes transferred to Germany to be dyed; and brought back to England to be sold. Some of the finest linens are made by growing the flax in one place, spinning it in another, and weaving it in another, all far apart. We can not force the manufacture of flax in this country until we have a great surplus of population which shall be compelled to do the work which the Irish, the Belgians, and the French are now forced to do for us even at the lowest wages. The preparation of the fine flax by rotting is noxious, and can only be worked at the lowest possible rates of wages paid for mere manual labor. We can better afford to raise flax for the seed and burn the stalks rather than to force American labor into un-American lines of work, in the preparation of the fiber by the existing noxious methods.
All these matters must be considered, and when considered they prove how futile, how impossible it is for a Congress composed of men who have little or no knowledge of the practical affairs of life, to attempt to regulate prices and wages, directly or indirectly, by the enactment of revenue acts.
I have named several articles which are necessary in the processes of our domestic industry, in which some other countries possess an advantage over us, such as tin plates, burlaps, and the treatment of flax. These advantages exist especially in respect to crude materials to which machinery has not yet been applied to any great extent; and of manufacturing processes in which the greater part of the work is done by hand. In hand-work the rate of wages may be, and often is, a fair standard of the cost of production. Hand-work here and elsewhere is that which earns least and can not be protected by any system of taxation of any kind.
We annually import, free of duty, $120,000,000 worth of articles of food, and $140,000,000 worth of crude or partly manufactured articles which are made use of in our domestic manufactures, because we can not yet afford to do the work which would be required in the production of these articles, since our own workmen can do so much better than to undertake the kind of work required.
But we also annually import, aside from sugar and molasses, $40,000,000 worth of the most necessary articles of food; and $130,000,000 worth of articles in a crude or partly manufactured condition which are absolutely necessary in the processes of our domestic industry, on which we impose duties or taxes amounting to about $50,000,000 a year. To that extent our workmen are placed at a disadvantage as compared with the workmen of other manufacturing countries in which most of these articles are admitted free.
The saving of this tax of about $50,000,000 a year would be but a very small matter were it not for the effect of this tax on foreign imports on the prices of many domestic products. Out of the $50,000,000 a year which has been collected on crude materials, about $4,000,000 has been gained to the Government from duties on iron ore and pig iron. An addition of twenty-five cents on each barrel of beer now produced would yield the same amount of revenue. If it were assessed upon the beer, the entire tax that the people pay would be secured by the Government, and the exact cost would be $4,000,000 revenue, with three per cent for the cost of collection by means of stamps.
Now, what has been the effect of the tax of $4,000,000 on the price of iron and steel in this country? Various computations have been made, the latest by Mr. A. B. Farquhar, of York, Pa., the largest exporter of agricultural.machinery in this country, and perhaps one of the largest manufacturers of agricultural machinery in the world. He computes the actual difference in cost of iron and steel to the consumers in this country during the last ten years at about $700,000,000 or $70,000,000 a year. David A. Wells, making very large corrections for contingencies, estimates the difference in the cost of these metals to the consumers of this country, as compared to the consumers of Great Britain, at $560,000,000 for ten years, giving a little different period of time. My own computations, which have been made with the utmost care and which are based wholly upon the figures given by the Iron and Steel Association of this country, and of the Iron and Steel Institute of Great Britain, make the excess of price paid for iron and steel in this country as compared to others, in the years 1880 to 1889 inclusive, not less than $500,000,000 and probably $800,000,000. I may add that the effect of the tariff upon iron and steel has been much greater than in respect to other articles. This country now consumes thirty-five to forty per cent of the entire product of iron made in the civilized world. Our consumption at the present time is greater than the largest product of Great Britain in any year. No other country could possibly supply us. No other country could have supplied us for many years. But by the partial obstruction to our demand upon Great Britain and Germany, due to our own tariff, the price of iron and steel in Europe has been very greatly depressed. The tendency throughout the world has been to a rapid reduction both in cost and in the price of these metals, due to the application of revolutionary inventions. But the reduction in price in gold has been much greater in Great Britain than it has been in this country: consequently, by our own act we have protected the ship-builders, the machinists, and the tool-makers of other countries, while preventing the extension of these arts in our own country; even failing to retain our home market.
We import a considerable proportion of the products of iron and steel that we consume, sometimes in the form of railway-bars, yet more in the form of hardware, tools, and machinery. A first-class textile factory can not be equipped in this country without resort to the machine-shops of Great Britain for a very considerable part of the most necessary machinery.
Again, the burden of a tax upon crude materials is to be gauged, not by its ratio to the value of the product into which it might enter and does enter as a component material, but in ratio both to wages and profits in the arts in which it is needed. If we artificially raise the cost of materials and are unable to control the price of the product into which these materials enter, then it often happens that we must keep the wages down in corresponding measure, or else give up the undertaking; and, again, a yet more subtle difficulty: if we can not make a profit over and above the cost of materials, the wages, and the general expenses, then no capital will be invested in that branch of industry, and no wages can be paid, for lack of profit.
Now, observe how subtle this matter is. Any conspicuous or important branch of industry which will pay ten per cent profit will attract capital and will be established; but if the tax on the crude material is even ten per cent upon the finished product, and this tax can not be paid without doing away with the profit, then that art stops, and the other ninety per cent which would be distributed among the workmen is lost to them, merely because there is a disadvantage of ten per cent in the cost of the material as compared to some other places.
Now, then, any one who is conversant with the complexity of all modern manufactures can not fail to be aware that the revenue which the Government derives of $50,000,000 on the crude or partly manufactured materials which we do import and which we do use in the processes of our domestic industry, may so much restrict that industry by increasing our own cost of production as to limit our home market both for domestic and foreign traffic, and may prevent the establishment of arts in which ten times as much, or $500,000,000, might be distributed among those who would do the work if these articles were free from taxation.
This is the consequence of the higher price of domestic products in this country or the lower price which prevails abroad for lack of competition.
The very worst effect of a duty on. crude materials ensues when, according to its advocates, it is most successful. They hold that if, by our tax, the price is put down in a foreign country, then the foreigner pays the tax. There are no words suitable to apply to such folly. By that very depression in the price of pig iron and wool we have built up the manufactures and machineshops of Europe, and have failed more and more to hold our home market even for the specific products of the loom and the forge.
Moreover, the price of some of the most necessary articles of our domestic products which enter into our domestic industry, notably iron and steel, are maintained far above what the price would be except for this system of taxation, although not, perhaps, to the full measure of the rate of duty which is assessed. Hence it follows that, owing to this higher price on the most necessary articles of consumption in the manufacturing and mechanic arts, we have been unable even to retain our home market for domestic manufactures, and have been cut off from any considerable share in the supply of other countries.
In a rough and ready way, it may be said that the cost of materials, in all the staple products of machinery or in manufactured goods, ranges from one half to three quarters the entire cost of the finished product. If the price of these materials is kept even ten per cent higher in this country than it is in others, then of course all profit may be cut off by that disparity, and, in spite of vain attempts to put on compensating duties, that art languishes, and we protect the foreigner rather than the American.
It will be remembered that no heavy stocks of food, fiber, or fabrics are now carried anywhere in the world, beyond the probable consumption of a single year or less. Hence it follows that, in respect to the import of materials which enter into the processes of our own work, whatever the price may be in any given year, whether high or low, if through our high tariff' the consumers are subjected to a higher price than our competitors abroad, our industry languishes and foreign industry is protected.
I have said that there are two parties, each earnestly claiming to promote domestic industry. On the one side we find the Republican party advocating privation of foreign imports, without regard to the uses for which such articles are required, in order to protect the few specific branches of industry in which we do not yet excel other nations. On the other side we find the Democratic party advocating the protection of the domestic industry of all alike, by exempting from taxation every article which is necessary in the processes of domestic industry that we can procure in any other country in exchange for the excess of our cotton, corn, wheat, and other commodities, which, even at the highest wages obtained anywhere in the world, are yet produced at the lowest cost.
Such is the position of the question on which every voter will be called to decide in exerting his influence and in choosing whom he will support.
Such were the exact conditions in Great Britain in 1840, only worse, because the natural resources of Great Britain, both in respect to agriculture and mining, are so much less than our own.
The first measures of relief from taxation in Great Britain were practically instituted by Huskisson in 1824, when wool and some other crude materials were in part or wholly relieved from duties. The effect of this change, especially upon the product of domestic wool in Great Britain, was very beneficial; relief from duty gave the manufacturers of Great Britain the opportunity to buy all the wool which they would require for any kind of work, and the consequence was, that the demand for British wool increased, and did not diminish, as the farmers feared. These measures of Huskisson, however, were purely tentative; and, subsequent to 1824, there was a great financial struggle in the process of restoring specie payment in the Bank of England, and in the bringing about conditions consistent with peace. The great Napoleonic wars in the early part of the century had thrown every art and industry out of its true relation. But the method of reform was not forced upon the attention of the people of Great Britain until the disastrous results of the attempt to regulate prices and wages by way of a high tariff, and the failure of this method of promoting domestic industry and of developing a home market had culminated in 1840.
In every history of this time, the picture of the condition of Great Britain is one of the most painful suffering on the part of most of the working people. The land was held in the hands of a very few great landholders who were protected by the corn laws, and who were thus enabled to charge high prices for necessary food. Great wealth had been accumulating during the period of war in the development of mines, works, and factories. Individual wealth existed in a measure never before witnessed; and this condition misled many legislators in this country; it deceived the very elect, and doubtless led Henry Clay and other champions of a high tariff to advocate the very policy which Great Britain was then being forced to give up by the disastrous results which had ensued. Underneath this outside show of prosperity, poverty, destitution, and want existed on every side; pauperism existed as never before or since among any English-speaking people.
At the time when Sir Robert Peel took office in 1840 it was clearly proved that the very measures which had been enacted for the purpose of establishing a home market and building up domestic manufactures "had destroyed that market by reducing the great mass of the population to beggary, destitution, and want." I quote the exact words of a contemporary observer.
Those who choose to discriminate between the leaders of the two parties of the present time may read the perversion of English history by James G. Blaine, in the North American Review; and the true picture which is given by General M. M. Trumbull.
It would be well worth while for any one who may have been misled by the common errors about the influences which brought Great Britain to reverse her policy in 1842, to read up the economic history of that period. It can be done in a very few days. All the facts are given by the radical Miss Martineau in her History of Fifty Years' Peace; by the Tory, Sir Stafford Northcote, in his Twenty Years' Financial Policy, explaining the changes which Peel brought about; by the economist John Noble's Fiscal Legislation in Great Britain; or in Carlyle's Past and Present. The best summary is to be found in the little book published in Chicago in 1884, by General M. M. Trumbull, entitled The American Lesson of the Free Trade Struggle in England. In this book will be found the whole record of the condition of England from 1838 to 1846, after the panic of 1836 which originated in this country and spread to Great Britain had spent its force, down to the culmination in 1846 of the measures which Peel instituted but which were substantially completed by Gladstone in 1853. This history ought to be read by every man who desires to make up his mind how to act in this country at the present time. The logic of events is the same. We are repeating history. We are suffering, so far as it is in the power of legislators to stop the progress of this country, from injudicious methods of obstruction; and we may make progress in agriculture and in manufactures by "great leaps and bounds," as Gladstone put it, whenever we choose to adopt the policy which will soon be brought into action, whether we will or no, by the logic-of necessity.
The basis of Peel's tariff reform in England was established by Joseph Hume, who, being appointed chairman of the committee in the House of Parliament, made a report on the tariff of Great Britain, which then covered about twelve hundred and fifty specific articles, at an average rate of about twenty-eight per cent on dutiable imports. In this report he first sorted imports, according to their use, under four heads:
It was a case of condition and not of theory which Sir Robert Peel was called upon to meet when he took office. He met that condition by discriminating in choosing the subjects of taxation in the tariff which he presented, placing in the free list all the little petty taxes or duties on which an agreement was readily made, and then either making free partly manufactured goods or greatly abating duties upon them, at the same time reducing the duties on finished products except those of the fourth class, viz., those of the nature of a luxury or voluntary use.
I had become so much impressed and influenced by the success of this method that, during the last few months of the administration of Secretary Hugh McCulloch, I suggested to him to class the imports of this country in a way corresponding to Hume's method. I gave him my reasons somewhat in this way, that in whatever manner, by whatever party, under whatever name the reform of our tariff should at a future day be taken up, it would of necessity be governed by the logic of the lines or classes on which these imports might then be sorted. The suggestion was adopted. I made five classes; and since that date the fiscal statement of each year has been tabulated in that way.
I venture to incorporate at this point the statement of the imports under each of the heads named with the duties thereon. I take these figures from the last report of the Bureau of Statistics of the Treasurer of the United States for the fiscal year ending June 30, 1889.
IMPORTS ENTERED FOR CONSUMPTION.
Imports of Merchandise subdivided into Groups or Classes according to Degree of Manufacture and Uses.
In the following tables the extended classification for imports entered for consumption, embracing over a thousand articles and classes of articles, which is mainly an alphabetical arrangement with two grand subdivisions of free and dutiable articles, has been subdivided into the five following general groups or classes, according to the degree of manufacture and uses of the articles imported. It is hoped that the condensation of imports into these groups will in some measure aid and simplify the labors of those engaged in investigating the operations of our tariff laws.
For more extended explanation of this classification, see report of this office on Imported Merchandise entered for Consumption, 1887, page xxiv, etc.
The value of imported merchandise entered for consumption in the United States, with the amount of duty collected thereon added, for the year ending June 30, 1889, has been as follows:
Imports entered for Consumption during the Year ending in June 30, 1889, with accompanying Diagram, showing the Relative Values of the Respective Classes of Free and Dutiable Imports, and the Relation of the Duty collected on each Class to its Value.
Summary of Values of Imported Merchandise entered for Consumption, by Groups, according to Degree of Manufactures and Uses, from 1880 to 1889.
Early in the administration of President Cleveland I ventured to suggest to Assistant Secretary Fairchild to carry back this classification from the year 1884, in which it was first established, to the year 1880, so that we now have the result of ten consecutive years, 1880 to 1889 inclusive, which I now submit for consideration. I think all will agree with me that no committee of any party or under any name can fail to be governed by the logic of these lines in preparing measures of tariff reform.