Popular Science Monthly/Volume 74/May 1909/Tariff Revision from the Manufacturer's Standpoint II

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I WRITE as a Protectionist and a Republican, I believe thoroughly in the old-fashioned principle of protection to American industries and labor, as first accepted by Hamilton and Washington.

I understand that under our constitution money can not be properly legislated out of the pocket of a private citizen by Congress except for value received. I believe that the citizen does get value received from a tariff which gives to any desirable, well-managed industry a protection tariff which measures, in the language of Mr. Taft, "substantially the permanent differential between the cost of production in foreign countries and that in the United States." If it costs 90 cents to produce an article in Germany and $1.00 in New York, the New York manufacturer must be protected by the difference in this cost or must go out of business, leaving the American market to be supplied from Germany. The other alternative, that he cut his wages and lower the standard of living to his operatives is impossible.

I believe it pays the American consumer to maintain American manufacturing industries by whatever addition to price protection so measured requires. Also that this difference should be figured with that enlightened selfishness which ordinary prudence justifies. The duty, in the above instance, might well be 20 per cent., thus giving the American producer an advantage equal to 8 per cent, and causing the foreigner to pay this much for the privilege of entering our market and enjoying the protection of our laws, for the support of the government, etc. Protection of this kind steadies the home market, stimulates manufacturing, diversifies pursuits and should bring only beneficent consequences.

During this generation, politicians, economists and others in considering this question have seemingly spent all their time and energy in the discussion of the abstract theory of protection versus free trade. They have not got down to earth. They failed adequately to consider, or at least to emphasize and apply the principle of measurement above indicated, and from this omission came the opportunity for evil, of which special interests have made full use.

With public opinions overwhelmingly for protection, and no rule of measurement, it is small wonder that infinite loss and harm have come to us as a people, economically and morally. If there is an honest rate in the present tariff I am unable to name it after two or three years of study, and if shown one I should be obliged to think it accidental. It could not have come upon careful consideration and exhaustive determination, for there has been no governmental process by which a rate could be made scientific and right. Our tariffs have been made by men almost wholly inexperienced in that work. Mr. McKinley, for instance, was the only man of previous experience among the majority members of the committee which framed the McKinley bill. The stories as to who wrote the schedules are scandalous, and, I judge, are true.

I know, for instance, that Mr. McKinley said to the head of an important industry: "Of course I do not know what rates you should have. You make them out "and be fair about it." The gentleman addressed consulted others in his industry, and recommended some of his principal products for the free list because they were made more cheaply here than abroad, and were sold abroad higher than the domestic price. Mr. McKinley so recommended to his committee, but greedy men intervened and a miscalled protection was given in the bill of 65 per cent. It still bears about that rate and is still exported in large quantities at better than domestic prices.

So of the Wilson bill. Only three members of the majority upon that Ways and Means Committee, possessed previous experience and that as minority members upon the McKinley committees, where they had too great consideration for the majority even to be present when the real work was done. These three men with others wholly inexperienced made the Wilson bill. It was this so-called free trade Wilson bill that, by a wretched hocus-pocus, put Standard Oil upon the free list and gave at the same time a protective duty of 100 per cent, at an annual cost to the American people of about $40,000,000 per year. That lying "protection" was continued in the Dingley bill. When H. H. Rogers, manager of the Standard Oil Company, was asked how he got this protection from the "free trade" Wilsonites, he put his head back and laughed. There could be no better comment from his standpoint.

And from that day to this the Honorable S. E. Payne and John Dalzell have been on the committee "standing pat"—poker-playing as it were—with the people's money, playing the "game" with intent to lose, and losing in twelve years to the Oil Trust alone $360,000,000 of the people's money and to other trusts ten times more.

The free-trade Wilson bill also gave a high protection to sugar, and the sugar people offered money in large amounts for votes. The protection given them caused sugar stocks to advance ten points in fortyeight hours. Said President Cleveland of the Wilson bill—" Bought, bought, bought."

The Dingley committee had among its majority members only four men, Messrs. Dingley, Payne, Dalzell and Hopkins, a newspaper editor and three attorneys, and Mr. McMillan of the minority, with previous experience. That men so inexperienced should have hastily made a tariff for this nation was worse than a blunder—it was a crime. They only made a great blind jab at the task. They began wrong by taking classifications more than a generation old, inapplicable to their time. The committee had neither knowledge nor time to consider this important phase of the subject adequately. Consequently, we have had 30,000 lawsuits on the classifications of the appraisers, nine tenths of which might have been avoided. They put in one classification, for instance, buttons, stoves, electric fans, revolvers, nails, dress trimmings, railway cars and enameled portraits, cannon for war and crosses for churches. They were as careless as to rates. Said a member of the Ways and Means Committee in conversing with me upon this subject, "Why, when any one down in my district wants anything I get it for him, I get all I can, and that is all there is to it."

When Congress passed the Dingley bill it went into the trust-making business up to its eyes. A list which I have compiled of all the principal industrial trusts in the United States shows an absolute and complete disregard of the principle of measurement, or any other principle in the making of the schedules in which trusts are interested. A table showing the more important of these trusts was exhibited.

The tariff is supposed to be a protection to wages. This table shows that most of the trusts have tariff rates that are from one to fifteen times their total pay-rolls and yet the tariff should measure but little more than the difference between the American wage cost, per unit produced, and the foreign cost. In this sense these trusts have from fifteen to one thousand times a just rate. When Congress gives more than a just rate to any industry it invites, as a practical matter, those in that industry to form a trust and add to their prices as against the home consumer the difference between a fair protection and the excessive protection given.

Prohibition is not protection. An excessive tariff is usually prohibitive. It makes foreign competition impossible. The home producers by consolidation eliminate home competition and then have their 80,000,000 compatriots at their mercy. When, for instance. Congress put a duty of 45 per cent, upon goods I make, 15 per cent, being enough, it gave Congressional permit, if not a Congressional invitation, that all in my industry consolidate and add to our present domestic prices the difference between the necessary 15 per cent, and the 45 per cent, given. This is what all our trusts have done. The question whether any industry does add much or all of the tariff to its domestic prices is answered by this other question, "Can they?" If they can they do. Trusts can and trusts do.

As Mr. Carnegie has said, it may be taken for granted that the chief purpose in forming any trust is to raise prices. Industries operating under the old-fashioned principle of competition do not add tariff excesses to their prices, because they can not. In competition, and in that alone, is protection to the American consumer.

Government reports show that the Standard Oil, for instance, charges its domestic consumers 35 per cent, to 60 per cent, more for oil than it charges its foreign consumers. Domestic users pay about 40 per cent, more for files than foreign buyers of the American-made article. The foreigner gets American-made screws for about one half the price to the American consumer. Bar iron and other steel products are sold abroad at 20 per cent, to 40 per cent, less than home prices. It is a question whether ignorance is to be accepted as a congressional excuse. Said Zach Chandler, once a great senator from Michigan, "You may call me a thief, you may call me a liar, but, —— you, don't you call me a fool."

It seems impossible that our congressmen can have failed to understand that the marvelous profits our trusts make comes, in great part, not from the operation of plants, but from their manipulation of Congress itself, comes by vote of your congressman and mine, compelling you and me to make unwilling and forced contributions to trusts over and above fair compensation for their products.

It is pleasant for some to look toward Pittsburg and see the great flood of money rolling into its coffers, but look the other way. Trace the river to its sources, and you find the mighty flood dividing into millions of rivulets and at last each of them falling from a slit in a man's pocket—a slit cut by a congressman.

This situation has been brought about by the carelessness with which the American people regard their political interests, and by reliance upon the principle of competition, until recently sufficiently operative really to protect the consumer and make unnecessary scientific and exact procedure upon the part of Congress, in tariff-making.

This carelessness upon the part of Congress has now come to be practically intolerable because of the frightful excess to which many rates have been lifted. The walling in of 80,000,000 of consumers and their deliverance under an excessive rate to any who will and can "trustify" has led to the greatest exploitation of the public that has ever occurred in the history of any people. This hurt has come not only to 80,000,000 consumers, but in no less degree to the thousands of "intermediate consumers," the non-trustified competitive manufacturers who get their supplies largely from the trusts and are so overcharged as to be almost driven out of business. Steel, for instance, costs almost twice what it did when the Dingley law was enacted and the industry trustified. Those who use steel have been obliged to force their prices up against the consumer until the latter all but rebels. Consumption is limited; margins are reduced. There are 216,000 manufacturing establishments in the United States. Of these about 175,000 are still upon the competitive basis. The trusts not only charge these competitive manufacturers excessive prices for their supplies, but they sell abroad at less price, so that such of these 175,000 independents as formerly competed to advantage upon highly finished products as against European manufacturers, in neutral markets like South Africa and the Argentine are now unable successfully to compete. They are losing out in foreign trade.

Also many trusts, those in steel and hides, for instance, own subsidiary corporations that compete with the independents. These trusts charge high prices for raw material and through their subsidiary companies make the finished product at so little above the price of the raw material as to leave no margin for the independents, who must either be given relief by tariff betterment or go out of business.

An excessive tariff like the Dingley is a blow at labor. This has not been sufficiently emphasized. A reduction in the tariff to the level required by Mr. Taft's principle of measurement will give the laborers of this country three chances for a raise in wages with no chances for a decline. This raise would come (1) through a lesser cost of living, (2) by increased employment, for with a lowering of prices must come an increased demand, (3) higher daily wages. A manufacturer can pay his employers only a part of what is left in the till after the bills for materials are paid. A return to moderate but ample protection will increase the profits of competitive manufacturers. In such increased prosperity labor always shares.

And so at the behest of trusts Congress made a tariff in the name of labor which has been a blow to labor.

None has been so befooled as the farmers. A glittering nickel, as it were, has been held before the farmer's eyes as it might before a babe's, and while he has looked at the nickel his pockets have been rifled of dollars. The farmer, for instance, has been given a tariff of 15 cents per bushel on corn, a product of which he has almost exclusive control, the crop of 1908 being valued at one quarter million of dollars. Last year the government raised tariff revenue the great sum of $2.78 on imports of corn from Cuba and about $1,400.00 from the rest of the world. Likewise as to eggs. Five cents per dozen protection, $27,000 imported and $300,000,000 produced at home. Against such trifling and almost insulting gift to the farmer, he is overcharged on his implements, on his clothing, on his shoes and almost everything he buys, overcharged in all about $250,000,000 per year.

The efficiency of the American mechanic has been wretchedly minimized. The character of our laboring population was splendidly evidenced in the last campaign. Mr. Taft said to labor, "I will give you what you deserve, neither more nor less," and that statement secured for him the biggest labor vote ever given a president. So always of American labor. Upon sober thought it wants what it deserves, neither more or less.

The statements made before the Ways and Means Committee within the last few days by those who wish to bolster wretched rates imply that it takes about two American mechanics to do the work of one European, as measured in wages. Except in tariff-making we hear that it takes two Europeans to equal one American. Let us not hastily declare that high wages and other splendid considerations given American labor are an economic loss. It pays to give men a good education; it pays to feed them well, to give them meat twice a day. Porterhouse steaks are good for a workingman, if he will only work hard enough to earn them. And ours do. Manufacturers usually say that their highly-paid men are the cheapest. This statement can be made internationally also. Said J. B. Sargent, a great New England manufacturer of hardware:

I ship abroad most successfully those of my products which carry the largest amount of the highest paid American labor. I have little success with those which carry either cheap labor or little labor.

I mention steel and other important products only as examples. The tariff is as bad generally in textiles. For instance, it lays extra heavy burdens upon the poor man's purchases and induces the sale of shoddy and cotton as good wool. It affects chemicals, even the medicines of the sick. It reaches in all directions.

As Mr. Taft has said, a doctor will not cut off a patient's head to cure a cold. We must not destroy in seeking to correct. The tariff must be taken out of politics and put into the hands of a semi-judicial, non-partisan commission composed of men especially of the highest integrity, who shall investigate schedule by schedule and report their findings in the form of recommendations to Congress and the executive. The right to make tariffs rests wholly in Congress; a commission can only recommend, as it did in Germany. We must believe that the Congress of the United States will legislate justly and wisely if only it is fully informed. The commission must be given authority and independence only that it may be efficient as the servant of Congress.

The commission idea is not new. There are hundreds, if not thousands, of commissions, national, state and municipal. Most of the great legislative reforms of this generation were based upon the findings of commissions. There is a tremendous movement now in favor of a tariff commission. We shall have one soon, it being only a question whether this next tariff will be based upon the findings of a commission or whether this tariff will be the last one to be made after the old fashion. If it is to be made in the old way there is evidence already at hand that it will be based upon misstatements and misunderstanding. It will harm the public infinitely. It may lessen, but it will not abolish, the graft now estimated conservatively at $500,000,000 per year.

The public is thoroughly aroused and the work of reform is progressing as fast as ever any national movement of equal consequence. One of the most fortunate consequences of a justly protective tariff will be the tremendous enlargement of foreign trade. We pride ourselves upon the exportation of $1,082,000,000 of manufactured products, but 63 per cent, of these exports are crude and semi-crude; meat, petroleum, rails, billets, bar iron, lumber, cement, skins, etc. They contain 20 per cent, or less of labor. These are the very products needed by our own more numerous manufacturers at moderate prices for the employment of American operatives and the development into more highly finished products. With tariff correction, these semi-finished products will go abroad in higher forms with from two to five times more of good American labor in them. We shall become in larger and larger measure an industrial bee-hive, with our foundation world-wide and not to be shaken as heretofore by domestic panic. With this broadening of trade will come an intellectual and moral broadening and easement that will make us more truly the world power we sometimes affect to be.