The tariff history of the United States; a series of essays

Front matter

CORNELL UNIVERSITY , LIBRARY

BOUGHT WITH THE INCOME OF THE SAGE ENDOWMENT FUND GIVEN IN 1891 BY

HENRY WILLIAMS SAGE

Contents

Protection to Young Industries as Applied in

THE United States 1-67

I^ — The Argument in General. — Conditions under Which it

Chapter I. — The War Tariff . . . . -155

The Tariff before the War.— The Morrill Tariff of 1861.— Tax and Tariff Act of 1862. — Internal Revenue Act of 1864. —Tariff Act of 1864.— Tariff Act of 1864 is the Basis of the Existing Tariff.

Chapter II. — The Failure to Reduce the Tariff after

the War 171

Abolition of the Internal Taxes, 1866-72. — Failure to Reduce

CONTENTS. IX

the Tariff. — Unsuccessful Tariff Bill of 1867. — ^Act of 1870. — Situation in 1872. — Reform Bill in the House. — Ten per Cent. Reduction Proposed. — Policy of Protectionists. — Act of 1873. — Repeal of Tea and Coffee Duties, 187a. — Ten per Cent. Reduction Repealed.

Chapter III. — How Duties were Reused above the War Rates 194

Woollens Act of 1867. — The Conopensating System. — ^Wool and Woollens Duties of 1864. — Act of 1867. — Duty on Wool ; on Woollen Cloths ; on Flannels, Carpets, Dress Goods. — Comment on the ad- Valorem Duty. — Comment on the Specific Duties. — The Woollens Act a Heavy Protective Measure in Disguise. — Doubtful Effect on the Manufacture. — Copper Act of 1869. — Steel Rails, 1870. — Marble, 1864-1870. — Other Cases Where Duties were Increased. — Character of These Measures.

Chapter IV. — The Tariff Act of 1883 , . .230 Tariff Commission of 1882. — Act of 1883 ; How Passed. — Duties Raised in 1883 : Woollen Dress Goods, Woollen Cloths, Cottons, Iron Ore, Steel ; Other Articles. — Duties Reduced in 1883 : Wool, Woollens, Cotton, Iron, Steel Rails, Copper, Other Articles. — Duties on Wheat, Com, Untouched, — General Character of the Act.

Chapter V. — The Tariff Act of tSgo . . .251 Unsuccessful Attempts at Legislation in 1884-86. — President Cleveland's Message in 1889. — The Mills' Bill and the Senate Bill in 1888.— The Election of 1888.— Passage of Tariff Act of l8go. — Changes in the Wool Duties : Clothing, Combing, and Carpet Wools. — Changes in the Duties on Woollens, Dress Goods, Cottons, Other Textiles. — Extension of the Minimum System. — Iron, Steel, Rails, Copper, Tin Plates, — The Sugar Duty Repealed, and a Bounty Given — The Reciprocity Provisions and their Probable Working. — The Question of Further Extending Protection Squarely Pi«- seated^

CONTENTS.

Cuktt^kYI.— The Tariff Act of 1S94 • ■ .284 Democratic Victories in the Elections of 1890 and 1892. — Difficulties of the Democrats. — Passage of the Act of 1894. — Removal of the Wool Duty. — Corresponding Changeson Woollens. — Other Textiles. — Duties on Coal and on Iron Ore Reduced, not Repealed. — Iron and Steel. — Ad-valorem Duties Favored by House, Specific by Senate. — The Sugar Question. — Reasons for and against a Duty on Raw Sugar. — Such a Duty Finally Imposed, with the Income Tax. — ^Duty on Refined Sugar. — The Sugar Trust. — Final Outcome. — Disappointment of Tariff Reformers. — General Character of the Act.

CnAVT^KYll.— The Tariff Ad of i8q7 . . .321

Political Overturn of 1896. — Peculiar Position of the Republicans. — Need of Revenue. — Passage of the Tariff Act at the Extra Session of 1897. — Re-imposition of Wool Duties. — Compound Duties Re-imposed on Woollens. — Cottons Little Changed. — Specific Duties on Silks and Linens — Iron and Steel Left Unchanged, except Some Special Articles — New Conditions in the Iron Industry. — Steel Rails and Tin Plate. — Higher Specific Duties on Sugar, with Additional Duty on Refined Sugar Similar to that of 1894. — Reciprocity Provisions. — Uncertain Financial Yield. — General Character of the Act. Future of the United States as a Manufacturing Country.

Difficulty of Tracing Inductively the Effects of Tariff Legislation on General Prosperity. — Some Aspects on which Historical Inquiry is more Helpful. — Character and History of Flax and Hemp Culture. — Beet Sugar Production. — General Peculiarities of American Agriculture. — The Manufacture of Silk Goods.— How Affected by the Qualities of Silk Fibre.— Present Stage of the Industry. — Similar Conditions with Linens and Dress Goods. — The Glass Manufacture : Pressed Glass, Window and Bottle Glass, Plate Glass. — Earthenware, Cutlery, Hardware. — The Doctrine of Comparative Costs Explains these Cases.

CONTENTS. xi

Appendix — Tables: 411

I. — Imports and Duties, 1860-1897.

II. — Duties of 1861, and those of 1864 which were retained,

without change, till 1883.

III. — Duties raised after the war above the rates of 1864. IV. — Revenue from internal taxes and from the tariff, 1860-

1897.

V. — Product, Imports, and Foreign and Domestic Prices of

Copper, 1875-1886.

VI. — Product, Imports, and Foreign and Domestic Prices of Steel Rails, 1871-1897.

Index 419

THE TARIFF HISTORY OF THE UNITED STATES.

PROTECTION TO YOUNG INDUSTRIES AS APPLIED IN THE UNITED STATES.

THE ARGUMENT FOR PROTECTION TO YOUNG INDUSTRIES.

Of the arguments in favor of protection, none has been more frequently or more sincerely urged than that which is expressed in the phrase " protection to young industries." None has received so generally the approval of economists, even of those little disposed to acknowledge the validity of any reasoning not in accordance with the theory of free exchange. Mill gave it the 'weight of his approval in a passage which has been frequently cited. Later English writers have followed him in granting its intrinsic soundness. The reasoning of List, the most prominent protectionist writer among the Germans, is based, so far as it is purely economic, on this argument, and since List's time the argument has taken an established place in German treatises on political economy, even though it be admitted that the conditions to which it fairly applies belong to the past.

The argument is, in brief, that it may be advantageous to encourage by legislation a branch of industry which might be profitably carried on, which is therefore sure to be carried on eventually, but whose rise is prevented for the time being by artificial or accidental causes. The essential point of the argument lies in the assumption that the causes which prevent the rise of the industry, and render protection necessary, are not natural and permanent causes, — not such as would permanently prevent, under a state of freedom, the growth of the industry. Let it be supposed, for instance, that the industry to be encouraged is the cotton manufacture. The natural advantages of a given country for making cotton cloths are good, we may suppose, in comparison with the advantages for producing other things. The raw material is cheap, power for machinery is abundant, the general intelligence and industry of the people — which, since they admit of but very slow change, must be considered natural advantages — are such as to fit them for complex industrial operations. There is no permanent cause why cotton goods should not be obtained at as low cost by making them at home as by importing them ; perhaps they can even be produced at lower cost at home. But the cotton manufacture, let it be further supposed, is new ; the machinery used is unknown and complicated, and requires skill and experience of a kind not attainable in other branches of production. The industry of the country runs by custom in other grooves, from which it

THE ARGUMENT FOR PROTECTION. 3

is not easily diverted. If, at tiie same time, the communication of knowledge be ^low, and enterprise be hesitating, we have a set of conditions under which the establishment of the cotton manufacture may be prevented, long after it might have been carried on with advantage. Under such circumstances it may be wise to encourage the manufacture by duties on imported goods, or by other analogous measures. Sooner or later the cotton manufacture will be introduced and carried on, even without assistance ; and the government's aid will only cause it to be established with less friction, and at an earlier date, than would otherwise have been the case. It may illustrate more clearly the conditions under which such assistance may be useful, to point out those under which it is superfluous. The mere fact that an industry is young in years — has been undertaken only within a short period of time — does not supply the conditions under which protection is justified by this argument. An industry recently established, but similar in kind to other branches of production already carried on in the country, would hardly come within its scope. But where the industry is not only new, but forms a departure from the usual track of production ; where, perhaps, machinery of an entirely strange character, or processes hitherto unknown, are necessary ; where the skill and experience required are such as could not be attained in the occupations already in vogue ; under these circumstances protection may be applied with good results, if no natural disadvantages, in addition to the artificial obstacles, stand in the way. The manufacture of linen goods in the United States, at the present time, probably supplies an example of an industry which, though comparatively new, can hardly be said to deserve protection as a young industry. The methods and machinery in use are not essentially different from those of other branches of textile manufactures. No great departure from the usual track of production is necessary in order to make linens. Manufacturers of the same general character are established on all sides. Work-people and managers with experience in similar work can be easily found. Moreover, the means of obtaining and communicating knowledge at the present time are such that information in regard to the methods and machinery of 'other countries can be easily obtained, while workmen can be brought from abroad without difificulty. Those artificial obstacles which might temporarily prevent the rise of the industry do not exist, and it may be inferred that, if there are no permanent causes which prevent linens from being made as cheaply in the United States as in other countries, the manufacture will be undertaken and carried on without needing any stimulus from protecting duties.

There are two sets of conditions under which it is supposable that advantages not natural or inherent may be found in one country as compared with another, under which causes merely temporary and accidental may prevent the rise of certain branches of industry in the second

THE ARGUMENT FOR PROTECTION. 5

country, and under which, therefore, there may be room for the application of protection. These are,/firsO:he state of things in a new country which is rapidly growing in population, and in which, as population becomes more dense, there is a natural change from exclusive devotion to the extractive industries toward greater attention to those branches of production classed as manufactures. The transition from a purely agricultural state to a more diversified system of industry may be retarded, in the complete absence of other occupations than agriculture, beyond the— tune when it might advantageously take place, ^econdu?, when great improvements take> place in some of the arts of production, it is possible that the new process may be retained in the country in which they originate, and may fail to be applied in another country, through ignorance, the inertia of habit, and perhaps in consequence of restrictive legislation at the seat of the new methods. Here, again, the obstacles to the introduction of the new industry may be of that artificial kind which can be overcome most easily by artificial means. Now, both these sets of conditions seem to have been fulfilled in the United States in the beginning of the present century. The country was normally emerging, to a considerable extent, from that state of almost exclusive devotion to agriculture which had characterized the colonies. At the same time great changes were taking place in the mechanical arts, and new processes, hardly known outside of England, and held under a practical monopoly there, were revolutionizing the methods of manufacturing production. Under these circumstances there would seem to have existed room for the legitimate application of protection for young industries.

The more detailed examination in the following pages of the industrial condition of the country during the earlier part of this century will bring out more clearly the reasons why protection may then have been useful. It may be well, however, to notice at this point one difference between those days and the present which must seriously affect the application of the argument we are considering. Even if we were to suppose the conditions of i8io to exist now ; if the country were now first beginning to attempt manufactures, and if a great revolution in manufacturing industry happened to make the attempt peculiarly difficult ; even then the obstacles arising from the force of custom, and from the want of familiarity with new processes, would be much more easy to overcome now than sixty years ago. The ties of custom in industry have become much loosened in the last half century; capital and labor turn more easily to new employments. The railroad, the telegraph, the printing-press, the immense increase in the facility of communication, the constant change in methods of production in all industries, have tended to make new discoveries and inventions common property, and to do away with advantages in production based on other than permanent causes. It is true that there are still appreciable differences in the arts of p*^o-

THE' ARCb3fENT FOR PROTECTION: J

duction in different countries, and that some may have a superiority over others based on the merely accidental or temporary possession of better processes or more effective machinery. But the United States hardly lag behind in the industrial advance of the present day, and where they do labor under artificial or factitious disadvantages, these cannot endure long or be of great consequence under a system of freedom.

Sixty years ago, however, the state of things was very different. The conditions were then in force under which protection might be needed to enable useful industries to be carried on. The argument for protection to young industries was accordingly the most effective of those urged in favor of the protective policy. During the twenty years which followed the war of 1812 the protective controversy was one of the most important features in the political life of the nation ; and the young industries argument was the great rallying-cry of the protectionists. It is of interest to examine how far protection of the kind advocated was actually applied, and how far it was the cause, or an essential condition, of that rise of manufactures which took place. The object of this paper is to make such an investigation.

II

THE INDUSTRIAL HISTORY OF THE UNITED STATES, AND THE COURSE OF PROTECTIVE LEGISLA- TION, FROM 1789 TO 1838.

The early economic history of the United States may be divided into two periods. The first,'which is in the main a continuation of the colonial period, lasted till about the year 1808.; the embargo marks the beginning of the series of events which closed it. The second began in 1808, and lasted through the generation following. It was during the second period that the most decided attempt was made to apply protection to young industries in the United States, and with this period we are chiefly concerned.

During the first period the country was, on the whole, in the same industrial condition in which the colonies had been. The colonies had been necessarily engaged aJ^st exclusively in agriculture, and in the occupations closBve connected with it. The agricultural community cou ^n not get on without blacksmiths, carpenters, masons, she 5n makers, and other artisans, and these existed side by sioat with the farmers. In those days, it must be remembered>-

INDUSTRIAL HISTORY OF THE UNITED STATES. 9

handicraft workmen of this kind occupied a more important place in industrial organizations than they do at the present time. They made many articles and performed many services which are now the objects of manufacturing production and of extensive trade, and come within the range of international dealings. Many tools were then made by individual blacksmiths, many wares by the carpenter, many homespun cloths fulled and finished at the small fulling-mill. Production of this kind necessarily, takes place at the locality where consumption goes on. In those days the division of labor between distant bodies of men had been carried out to a comparatively slight extent, and the scope of international trade was therefore much more limited. The existence of these handicraft workmen accounts for the numerous notices of " manufactures " which Mr. Bishop industriously collected in his " History of Manufactures," and is not inconsistent with the mainly extractive character of the industry of the colonies. What could be imported at that time was imported, and was paid for by the exportation of agricultural produce. The exportation took place, so far as the northern colonies were concerned, largely to the West Indies. From the West India trade the means for pay. ing indirectly for the imported goods were mainly obtained. There were some important exceptions to this general state of things. Ship-building was carried on to a considerable extent in New England, where abundance of material and the necessity of transportation by water lO PliOTECTIOr^ TO YOUNG INDUSTRIES.

made such an industry natural. The production of unmanufactured iron was carried on to a considerable extent ; for at that time the production of pig and bar iron tended to fix itself in those countries where wood, the fuel then used, was abundant, and was therefore an industry much more analogous to agriculture than it has been since the employment of coal as fuel. In the main, however, the colonies made only such manufactures as could not be imported. All manufactured goods that could be imported were not made at home, but obtained in exchange for agricultural exports.

This state of things was little changed after the end of the Revolutionary war and the adoption of the Constitution. The year 1789 marks no such epoch in economic as it does in political history. Agriculture, commerce, and the necessary mechanic arts, continued to form the main occupations of the people. Such goods as could be imported continued to be obtained from abroad in exchange for exports, mainly of agricultural produce. The range of importable articles was, it is true, gradually extending. Cloths, linens, and textile fabrics were still chiefly homespun, and fine goods of this kind were still in the main the only textile fabrics imported. But with the great growth of manufacturing industry in England during this time, the range of articles that could be imported was growing wider and wider. During the Napoleonic wars the American market was much the most important for the newly established English manufactures. Large quanti-

INDUSTRIAL BISTORY OF THE UNITED STATES. l\

ties of cotton and woollen goods were imported, and the importations of manufactures of iron, in regard to which a similar change in production was then taking place, also increased steadily. Sooner or later the change in the course of production which was going on in England must have had, and did have, a strong influence on the economic condition of the United States ; but for the time being this influence was little felt, and the country continued in the main to run in the grooves of the colonial period.

This absence of development was strongly promoted by the peculiar condition of the foreign trade of the country up to 1808. The wars of the French Revolution opened to this country profitable markets for its agricultural products in the West Indies and in Europe, and profitable employment for its shipping, both in carrying the increased exports and in a more or less authorized trade between the belligerent countries and their colonies. For many years the gains arising from these sources, though not regular or undisturbed, were great, and afforded every inducement to remain in the occupations that yielded them. The demand for agricultural products for exportation to the belligerent countries and their colonies was large, and the prices of wheat, corn, and meat were correspondingly high. The heavy exports and the profits on freights furnished abundant means for paying for imported goods. Importations were therefore large, and imported goods were so cheap as to afford little inducement for engaging in the production of similar goods at home.'

The tariff legislation of this period was naturally much influenced by the direction taken by the industries of the

' The following tables of imports and exports show the influence of these circumstances on the foreign trade of the country. The exports of foreign produce show the swelling of the carrying-trade. The price of flour shows the effect on the prices of agricultural produce. The influence of the temporary stoppage of the war in Europe during the time of the Peace of Amiens is clearly seen.

Year.

Gross Imports. 000 Omitted.

Gross Exports. 000 Omitted.

Exports of Fof' eign Produce.

Price of Flour

000 Omitted per Bbl.

1 791

29,200

19,000

31.500

20,700

1.750

$ 5-07

31,100

26,100

2,100

6.21

34.600

33,000

6,500

7.22

69,750

48,000

8,500

12.05

81,400

67,000

26,300

12.43

75,400

56,800

27,000

9.00

68,500

61,500

33.000

8.78

79,000

78,600

45.500

91,200

71,000

39,100

9-85

94,000

46,600

10.45

Reace of ( 02 Amiens. \ 03

76,300

72,000

35,700

6.75 1 6.73

64,700

55,800

13,600

85,000

77,700

36,200

8.22

120,600

95.500

53,200

10.28

• 06

129,400

101,500

60,300

• 7 30

138,500

108,300

59.600

7.00

57,000

22,400

13,000

59,400

52,200

20,800

6.90

85,400

66,700

24,400

9.66 ir

53,400

61,300

16,000

•0.00

77,000

38,500

8,500

?-75

22,000

27,900

2,800

13,000

6,900

7.70

The tables of imports and exports are from the Treasury Uepo^^ts. The last table, givingthe price of flour, is in " American State Papers, Fina"«'a,''

INDUSTRIAL HISTORY OF THE UNITED STATES. I3

country. The peculiarly favorable conditions under which agriculture and commerce were carried on prevented the l growth of any strong feeling in favor of assisting manufactures. Much has been said in the course of the protective controversy about the views of the fathers of the repub. lie. But for nearly twenty years after the formation of the Union other subjects so absorbed the attention of public men that no distinct opinion appears in their utterances for or against protective duties. Considering the state of economic knowledge in those days, the example set by European countries, and the application of the colonial system before the days of independence, we cannot be surprised that some disposition was shown to impose protective duties. It is curious that in the first session of Congress these were advocated most earnestly by the representatives from Pennsylvania, who took their stand from the first as unflinching advocates of a protective policy. On the other hand, the current toward more liberal views, which had set in so strongly after the writings of the French economists and the publication of the "Wealth of Nations," had made its way to the United States. One might expect to find its influence most strong among the followers of Jefferson, whose political philosophy led them in general to oppose government interference. But both Federalists and Republicans were influenced in their attitude to the question of protection most of all by its bearing on the other more prominent questions on which parties began to be divided.

Madison had maintained the principle of free intercourse in 1789,' and Jefferson in 1787 had extolled the virtues of a simple agricultural State.' But in 1793, when the Federalists and Republicans began to differ on questions of foreign policy, and especially on the attitude the country should take in the wars of the French Revolution, Jefferson advocated vigorous measures of protection, directed against England, and Madison brought forward a set of resolutions based on his recommendations.' On the other hand, Fisher Ames had said, in 1789, that the general government should nurture those industries in which the individual States had an intereist ; but in 1794, when his political views led him to oppose Madison's resolutions, he called the whole theory of protection an exploded dogma.* It has often been said that the first tariff act, that of 1789, was a protective measure, and that in the debate on it the protective controversy appeared fullgrown. But such considerations had little to do with the act ; and the discussions on protection by no means indicate what was the real centre of interest.' The act was modelled on the five per cent, import duty, which the

' "Annals of Congress," 1789, pp. 112-114.

' "Notes on Virginia, Works," VIII., 404.

' See Jefferson's " Report on Commerce, Works," VII., 637 ; and Madi - son's resolutions of 1794, based on Jefferson's Report, "Annals of Con. gress," 1794, pp. 155, 209.

* It is significant, for example, that Madison's letters to Jefferson, then in Paris, about the debates on the tariff act of 1789, make no reference whatever to the protective discussion. Madison'5 "WorHs," I,, 466, 480.

INDUSTRIAL HISTORY OF THE UNITED STATES. I J

Congress of the Confederation had tried in vain to impose, and its main object was to secure revenue for the new government, whose successful working was the one end which all the legislation of the first few years sought to bring about. The general level of duties was five per cent, on the value. On certain articles of luxury, higher ad valorem rates were fixed, the highest being fifteen per cent, on carriages. In certain specific duties, on articles like hemp, cordage, nails, iron manufactures, and glass, there was doubtless an intention of aiding the domestic producers.' Some of these articles were selected because it was supposed they would be needed in time of war. On others it is not unlikely that a concession to protective demands was made by those who had at heart the success of the new government, in order to insure the passage of the indispensable revenue act.'

The same general state of feeling and the same policy continued during the twenty years following. For a short time after 1 789, it may be possible to detect a drift in favor of protective duties," which doubtless was strength-

' It seems to have been understood that the duties on these articles were made specific with this intention. See a brief report by Hamilton in his "Works," II., 55.

' This suggestion is made in Professor H. C. Adams's essay on " Taxation in the United States," 1789-1816, in the "Johns Hopkins University Studies," vol. II., pp. 29, 30. The reader who wishes further information is referred to this excellent monograph.

^ A number of committee reports on petitions for higher duties are printed in "American State Papers, Finance," vols. I., II. After 1794 the reports are generally against the petitions.

l6 PROTECTION To YOUNG INDUSTRIES.

ened by the powerful advocacy of protection in Hamil- ' ton's " Report on Manufactures " {ijg^. But that famous document had little, if any, effect on legislation. The moderate policy of 1789 was maintained. The duties were increased from time to time as more revenue was needed, but they were in all cases moderate. Those which were most distinctly protective aimed to assist industries which already had a good foothold, and they had no appreciable influence in diverting the industry of the country into new channels. No action at all was taken for the encouragement of the production of textiles, of crude iron, and of the other articles which later became the great subjects of dispute in the protective controversy.

The industrial situation changed abruptly in 1808. The complications with England and France led to a series of measures which mark a turning-point in the industrial history of the country. The Berlin and Milan decrees of Napoleon, and the English orders in Council, led, in December, 1807, to the Embargo. The Non- Intercourse Act iollowed in 1809. War with England was declared in 1812. During the war, intercourse with J England was prohibited, and all import duties were doubled. The last-mentioned measure was adopted in the hope of increasing the revenue, but had little effect, for foreign trade practically ceased to exist. This series of restrictive measures blocked the accustomed channels of exchange and production, and gave an enormous stimulus to those branches of industry whose products

JNDUSTRJAL HISTORY OF THE UNITED STATES. 1 7

had before been imported. Establishments for the manufacture of cotton goods, woollen cloths, iron, glass, pottery, and other articles, sprang up with a mushroom growth. We shall have occasion to refer more in detail to this growth when the history of some of these manufactures comes to be considered separately. It is sufficient , here to note that the restrictive legislation of 1808-15, was, for the time being, equivalent to extreme protection.' The consequent rise of a considerable class of manufacturers, whose success depended largely on the continuance of protection, formed the basis of a strong movement for more decided limitation of foreign competition. ^

Some signs of the gradual growth of a protective feeling appear before the close of the war.' It was natural that the patriotic fervor which the events of the period of restriction and war called out for the first time in our history, should bring with it a disposition to encourage the production at home of a number of manufactured articles, of which the sudden interruption in the foreign supply caused great inconvenience. Madison, whose views on this subject, as on others, shifted as time went on and circumstances changed, recommended the encouragement of manufactures ; and in some of Clay's earlier speeches we can see the first signs of the American system of the

' It is curious to note that in 1802-1804, during the temporary lull that followed the Peace of Amiens, the committee reports seem to show a drift toward protection. See " American State Papers, Finance," II., pp. 29, 80, and the report on the Barbary Powers Act of 1804, " Annals of Congress," 1804, pp. 946-950.