Nathaniel Hillyer. Egleston.

The North American review (Volume 139) online

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in railroad construction are frequently specified as one such dis
turbing agency, through consequent wide-spread losses and the
transfer of capital from an active to a fixed and unavailable
condition. But in our case, whatever has happened has as yet
occasioned no scarcity of capital for every fairly promising
investment; and although holders of railway securities may
have suffered losses, the railroads of the United States, through
unprecedented reductions in freights, have never been such
serviceable factors in the work of domestic production and
exchange as at present. The national policy in regard to the
coinage of silver is also regarded by many as a primary cause of
business embarrassment and lack of confidence. But apart from
apprehensions of what may be (and it is not to be denied that the
effects of such apprehensions are serious), the evils of silver are
as yet mainly prospective ; and to spend time in discussing how
the instrumentalities of trade shall be improved, when the main
trouble is lack of trade to employ such instrumentalities as we
already have, seems as rational as for farmers to discuss what
sort of plows they will use, when it is land to plow and not
something to plow with that they most need.

To some, doubtless, the circumstance that a complaint of un
profitable industry and excessive competition in business is gen
eral at present in all commercial countries, may seem to constitute
proof that the reference of the existing condition of affairs in the
United States to our national fiscal policy is wholly unwarranted.
But in reply it may be said that while undoubtedly there is an
abnormal condition of business all over the world, and appar
ently a greater production of most commodities than are required
to meet any current demand, the coincident commercial dis
turbances have been least in the countries that enjoy the freest
commercial policy, as England, Belgium, and Switzerland, and
greatest in those that have by legislation unnaturally stimu
lated production on the one hand and restricted markets on
the other, as has been the case in the United States, France,



EVILS OF THE TARIFF SYSTEM. 279

and Germany. The reaction of the excessive prosperity of
1881-2, which has convulsed the whole financial and industrial
system of the United States, has in England occasioned but a
ripple in comparison. Her mills are not idle ; her workmen, as
a general thing, have had steady employment, at steadily ad
vancing wages ; and the demand and consumption of all those
commodities which most conduce to the good subsistence and
comfort of a people were never so great in Great Britain as at
present. The exports of British coal and British manufactures
have, furthermore, continued to increase steadily in value every
year since 1878, and for the month of May, 1884, were 11.6 per
cent, greater than for the corresponding month of 1883, while
the import of similar competing products into the country has
not at the same time increased. While failures in the United
States for the first six months of 1884 have been abnormally
great, the number in Great Britain for the same period was
only 2368, as compared with 6662 for the first six months of
1880. Besides, it is now very generally recognized that the
business disturbances that have prevailed the world over during
recent years, are due mainly to a process of re-adjustment to the
new conditions consequent on the wonderful changes that,
through invention and discovery, have recently taken place in
the world's methods of doing its work of production and dis
tribution; and that out of this re-adjustment, which is still
going on and is very far from complete, the "law of the survival
of the fittest ?? will assert itself as fully as it has been proved to
do in the organic world. And it would not seem to require any
argument to satisfy us that in this struggle, those nations that,
having the greatest natural resources, most completely emanci
pate themselves from all restrictions on the free and intelligent
employment of such resources, will prove themselves to be the
fittest. But with such impedimenta as our existing fiscal and
commercial policy now hang around the neck and clog the feet
of our domestic industries, what chance has the United States
for proving itself the fittest in this race for "international,
commercial, and industrial supremacy " ?

There is another point which, in connection with this subject,
has thus far been almost entirely overlooked, but is eminently
worthy of attention, more especially by all that portion of our
community that has of late experienced enormous losses through
unprofitable railroad investments. During 1882, there were over
VOL. CXXXTX. NO. 334. 20



280 THE NORTH AMERICAN REVIEW.

11,500 miles of railway built in the United States. It matters
not how many dollars the securities issued on this construction
may nominally represent, this eleven thousand five hundred
miles of railway added in 1882 to our mechanism of distribution,
at the moderate estimate of $20,000 a mile, really represents
$230,000,000 worth of actual food, fuel, clothing, shelter, iron,
lumber, and other forms of wealth created by men's labor, con
verted into this form of capital. As thus generally stated, these
figures convey but a faint idea of their magnitude ; but some
conception of their greatness may be obtained by comparison.
Thus, to illustrate, $230,000,000 is greater than the whole
amount of capital invested in all the cotton-mills of the United
States j greater than in all our woolen-mills ; and equal to all the
capital in all the iron-furnaces, forges, rolling-mills, and steel
works of the country. If applied to the construction of dwell
ings, it would suffice to supply a house worth one thousand
dollars to two hundred and thirty thousand families. It is equal
to the present valuation of all the buildings in the city of Bos
ton, and is greater than the taxable value of all the property of
several of the States. Twenty-five million dollars, invested
annually, will suffice to supply all the additional cotton-mills,
woolen-factories, iron-furnaces, and rolling-mills required to
meet the demands of any annual increment of our population j
while from six to ten times that amount is apparently needed
to construct the five to ten thousand miles of railway that are
now annually called for.

Whence comes this immense mass of capital, and why are its
owners so eager to subscribe to every plausible scheme pre
sented to them, in great part by persons whom experience has
shown to be unworthy of public confidence ? How happens it
that there has been such a body of capital as could be drawn
upon without difficulty by the promoters of such constructions
as the "West Shore Hudson River," the " Nickel-plate," and
other railroads, which were confessedly unnecessary, and not
called for by any substantial business interests? The object of
the owners of this invested capital was to obtain an income from
it ; the incentive to future gain was the motive that caused them
to save it. This capital consists of the excess of cotton, grain,
petroleum, and other commodities that we produce but cannot
consume, even when every man, woman, and child in our country
has enough. We export it because we do not need it, and the



EVILS OF THE TARIFF SYSTEM. 281

proceeds come back to us in the form of money or other commod
ities, which are added to our wealth or abundance. By the aid
of machinery that we have applied in the greatest measure to
agriculture, to manufactures, and to distribution, our productive
capacity has been so increased, that more capital is annually
added to our stock than we can use judiciously within our own
borders. Hence, the active competition of one owner with
another has so reduced the rate of interest as almost to render
the possession of capital a burden. Is this in the nature of
things, or is there some purely artificial cause for the plethora ?
If our own common-sense reasoning did not supply us with an
answer, a reference to Adam Smith would ; for his great work,
" Wealth of Nations," is throughout a demonstration that ob
struction to imports or exports immediately acts to reduce the
value of capital, and this is exactly what has happened to us as a
nation. Our excessive tariff has shut us out in a great degree
from the commerce of the world. We can neither own ships nor
make use of them, and we have no investments, of any moment, in
any foreign countries 5 but go where you will, you will find English
capital employed, while English commerce, carrying English
goods, reaches the remotest corners of the world.

With double the producing power of England, we have not
half her opportunity to use our wealth. We are merely pro
vincial ; our commerce is dwarfed ; our great merchants have
disappeared ; we have not suflicient nerve for our energy. Our
capital is confined to too small a sphere j and it is mainly for
this reason that the plausible and speculative railway promo
ter has been enabled to reap a rich harvest, to the detriment of
thousands who had believed themselves sure in the possession of
solid wealth. Money is wasted on useless railways, because the
opportunity for other investments has been restricted by a high
and so-called protective tariff, which has ceased to protect even
the special industries on whose behalf it was imposed.

Tariff reform is, therefore, inevitable, because the necessities
of the nation are going to compel it. If all existing leagues and
clubs organized to promote it, and all its special individual
advocates, should hereafter totally refrain from any action or
speech, its advent would be none the less sure ; because, although
war or short crops in Europe may temporarily change the situa
tion, industrial depression, business stagnation, and social dis
content in the United States, as a rule, are going to continue



282 THE NORTH AMERICAN REVIEW.

and increase, until the nation adopts a fiscal and commercial
policy more liberal and better suited to the new condition
of affairs. These views will not probably find acceptation
with that large class who have been educated to believe that
the remedy for every economic evil is a tax; but this class
will in time learn that if a tariff, as is claimed, has really been
instrumental in building up the colossal fabric of our manu
facturing industry, its work is done. They will not probably be
accepted by those who view the situation mainly from the rail
road and stock-exchange stand-point ; but this class, also, after
some further experience, will learn that there will be no healthy,
legitimate business on the stock exchange, unless the manufact
uring interests of the country are prosperous ; and that these
interests will have no money for outside investments, until they
can sell at a reasonable profit what they have the capacity and
desire to produce.

DAVID A. WELLS.



" A tariff exclusively for revenue is an injustice to all the poor people in
the land. What reason can you give to a man who has a dozen children
and is poor why you should tax the mouths and backs of his family and him
self to raise revenue for the support of the Government, rather than to raise
it upon property, as the States and municipalities do, unless you can show to
him that these duties are either levied upon luxuries which he does not use,
or are so levied as to protect the industries by which he lives ? Why should the
Government raise its revenue upon his necessities and the needs of his
family, rather than upon the property of the childless man of wealth the
Government, which alone stands between the rich man's possessions and the
strong who would wrest them from him? No good reason can be given,
unless you enhance his wages by as much as you take from him through this
method of taxation. Protection does this and more." (Speech of Hon. 8. L.
miliken, of Maine, April 30, 1884.)

THE foregoing extract from the speech of an able protec
tionist Congressman affords a rare example of candor and
willingness to look facts in the face. The same admission as
to the inevitable effect of tariffs upon imported goods was made
forty years ago by David L. Seymour, then a distinguished
member of Congress from New York. It is a concession as to
the wickedness of the whole tariff system, which the plain truth
demands, but which is seldom made. Every tariff must, by its
very nature increase the price of many articles consumed by



EVILS OF THE TARIFF SYSTEM. 283

the poor as well as by the rich, and must inevitably lay burdens
upon every man in proportion to the number of mouths that
he has to feed and backs he has to clothe, without regard
to his poverty and consequent inability to support taxation.
The talk about collecting tariff revenue from luxuries only is
idle and absurd. In this country, at least, it never was donej
it never will be done ; it never can be done. The fundamental
proposition upon which every discussion of the subject must be
based is, that a tariff-tax, whether paid directly to the Govern
ment or indirectly to the domestic producer, must and will
increase the cost of living of all classes of the community, and
will lay burdens on them in proportion to the amount they are
obliged to spend, without the slightest regard to the amount of
their accumulated wealth.

Taxes, it is universally admitted, should be borne in pro
portion to the amount of actual property owned by the tax-payer.
There are differences of opinion as to whether all classes of
property should be taxed alike ; but there is no difference of
opinion, we believe, as to the injustice of taxing a man who
owns nothing as heavily as a man who owns much. It is certain,
too, that taxes can be only paid out of savings. It is utterly im
possible that any man should pay a tax out of money that he has
already spent ; although he can be forced to pay out of his
savings a sum proportioned to what he has spent, instead of
what he has saved. Every tariff taxes men in proportion to
what they spend, and not what they save, because the tax is
paid by the consumer only when he spends, and in proportion
to what he spends. Now, the great mass of the community,
whom we generally call the poor (because their incomes, even in
this country, average much less than $400 a year) could not, even
with the utmost economy, help spending from two-thirds to
three-fourths of their incomes, even if there were no tariff and
no indirect taxation. But the wealthier classes, including all
those whose incomes are from $5000 upward, can live very com
fortably without spending more than one-fourth of their incomes j
and, if the same rule of stern necessity were applied to them
that is applied to the great mass of people, and they were only
allowed to spend $300 a year in the support of themselves and
their families, these classes would save nineteen-twentieths of
their incomes. But the burden of taxation imposed by a tariff
being the same in each case, while the savings out of which the



284 THE NORTH AMERICAN REVIEW.

tax is paid are enormously greater among the rich than among
the poor, the result is that the relative weight of taxation
under this system is enormously more burdensome to the poor
than it is to the rich. It is therefore clear, as Mr. Milliken and
Mr. Seymour conceded, that any tariff is a monstrous injustice
to the poor, unless it increases their income to an extent exceed
ing its burdens. The only question that needs to be discussed
is, whether a protective tariff does raise or can raise the wages
of ordinary workmen.

Mr. Milliken, like all other advocates of protection in
America, calmly asserts, as an incontrovertible fact, that " pro
tection does this and more." But the facts of history in this
country directly contradict the assertion. Wages never have
advanced as rapidly, even in nominal value, under highly pro
tective tariffs as they have under very low tariffs, except during
the war of 1861-65, which carried enormous numbers of work
men from their shops, and inflated the currency. Almost
directly after the close of the war, even while the currency re
mained inflated, wages fell to such a point that, measured in
gold, they were very little above what they had been before the
war, and, measured in purchasing power, were very much below
that figure. And for two years past, although the currency re
mains largely inflated, the average rate of wages in manufact
ures, mechanics, and mining, throughout the country, has been
decidedly lower than in 1860, although the rate of so-called
protection is now rarely less than twice, and often thrice, the
amount afforded by the tariff of 1860. There has been a larger
proportion of years of distress, short work, and low pay, during
the existence of the present tariff, than there ever was under the
low tariffs of 1846 and 1857. When the tariff was at its very
highest water-mark, in 1868, Hon. John Covode, a distinguished
Pennsylvania protectionist Congressman, publicly declared that
American workmen were in deeper distress than ever before in
the history of the country. Since then, with a tariff only slightly
reduced in any protective feature, and in many respects actually
increased, we have gone through still more distressing and dis
astrous periods, lasting from 1873 to 1878, and from 1882 to
1884, until to-day multitudes of protected American miners and
mechanics are working for fifty to eighty cents a day, without
steady employment even at those rates. The average rate of wages
in American cotton-mills, in proportion to the number of hours



EVILS OF THE TARIFF SYSTEM. 285

of work, is actually less than it is in England 5 and in many
large branches of protected industry the rate of wages has fallen
almost to the starvation-point. The statistics have been given
repeatedly, and there is not room for them here.

Such being the facts, it is time to inquire what is the true
theory that will fit these facts. Is this obvious and universal
decline in wages and depression of the working classes in our
country the natural result of protective tariffs, or have they
nothing to do with it ? The answer is very simple to those who
will frame their theories with reference to facts. The universal
protectionist theory is, that the policy of shutting out foreign
manufactures from competition with our own must inevitably
raise American wages, because it must increase the demand for
American manufactures. Protectionists never stop to ask what
kind of goods are shut out, and what cannot possibly be shut
out by any tariff ; they simply see that something foreign is shut
out, and conclude that everything of American production must
be in better demand. They argue that American manufacturers
will make more profit when foreign goods are excluded, and,
therefore, that American workmen will certainly receive better
wages. But all these theories are the purest assumptions, not war
ranted by facts, and directly contrary to experience and reason.

In the first place, experience shows that the natural obstacles
to the supply of finished manufactures from abroad are so great
that, even if our legislative policy were reversed, and we sought
to encourage such importations, we could not succeed. There
never has been a time in the history of this country, for at least
one hundred and fifty years, in which the great mass of finished
manufactures were not made here. We will not stop now to
show why this is so, because the fact is beyond all dispute,
and is established by an overwhelming mass of evidence,
running back to the year 1720. Statistics for the past sixty
years are more explicit upon this point than for the earlier
period ; and they show that more than seven-eighths of all the
articles that are now and have been for sixty years imported
from abroad (excluding articles of food) consist of things that
are used solely as materials for manufacture in some form ; and
this has continued to be the case, even under tariffs that imposed
higher duties upon the materials than they did upon the finished
manufactures. So great are the natural obstacles to the impor
tation of clothing in its finished forms, of house furniture, of



286 THE NORTH AMERICAN REVIEW.

houses themselves, and of most manufactured articles of family
consumption, that it is practically impossible that they should
be, to any large extent, supplied from abroad. We will mention
but one example, that of iron, in which, during the past ten
years, not so much as one-hundredth part of the whole importa
tion has been received in a state fit for family use. It is there
fore incontrovertible that the great burden of tariff taxation
falls upon materials used in manufactures ; and this burden the
manufacturers must pass on to their customers.

What is the necessary result ? Every tariff, and especially
every protective tariff, making materials more expensive to the
American manufacturer than to the European, the American is
compelled to raise the price of his goods to meet this tax. The
moment he does this his market shrinks, because it is a well-
known law that there are ten persons who can afford to pur
chase an article for one dollar, against one who can afford to
purchase it for two dollars. With every increase in price, there
fore, the manufacturer finds fewer customers and makes fewer
goods. But the necessity of making his prices suit the market
compels him to be content with a smaller profit than he might
have if his materials were untaxed. What, then, happens to his
workmen ? In the first place, he feels that he cannot afford to
pay so high wages as he otherwise would, because his materials
are made to cost more, while he cannot sell as many goods at the
advanced price necessary to repay the tax. In the second place,
the sale of his goods being restricted by their advance in price,
he does not need so many workmen as he did before j since
the number of workmen employed depends upon the number of
goods made, and the number of goods made depends upon the
number that can be sold. A protective tariff, therefore, cuts
wagesj at both ends. Increasing the price of the manufacturer's
materials disposes his mind to cut down wages to make amends j
and compelling him to raise the price of his goods makes it im
possible for him to manufacture so many goods, and absurd for
him to employ the same number of workmen that he would if
not interfered with. It will be said, in reply, that the benefit of
the tariff counterbalances all this, because it shuts out foreign
finished goods as well as materials ; and that the manufacturer
will increase his sales because foreign goods cannot compete
with him. But we have pointed out that the experience of one
hundred and fifty years shows that, under any tariff or under no



EVILS OF THE TARIFF SYSTEM. 287

tariff, the great mass of finished goods are and would be made
here. A protective tariff does not shut out any important amount
of foreign goods from competition with the manufacturers of
finished articles ; because scarcely any such goods ever did or
could come from abroad. The effect of a tariff, therefore, upon
the mass of absolutely completed manufactures is necessarily
injurious to the manufacturer and disastrous to his workmen.

A curious delusion prevails in many minds to the effect that,
if manufacturers are only secured large profits on their sales,
they will divide liberally with their workmen, in the shape of
increased wages. But large profits mean high prices, and high
prices mean relatively small sales. A manufacturer who is
guaranteed two dollars profit on each article that he sells will
be content with selling a much smaller number of articles than he
would be if he could make only one dollar on each. But the
effect of a guaranty of large profits on small sales is naturally to
induce him to employ a small number of workmen ; whereas, if
his profits depended upon the number of articles manufactured,
rather than upon the amount of profit on each, he would be
driven to increase the number of his workmen, in order to
secure to himself the gross amount of profit on which his mind
is fixed. The absurdity of supposing that wages must rise with
every increase in profits is so transparent as to be beyond argu
ment. If you increase the fees of a lawyer for the same amount
of work, from $5000 a year to $10,000, does anybody dream that
he instantly doubles the salaries of his clerks? If a builder
offers to put up a house for $10,000, and you generously give
him $20,000, do you imagine that he divides the extra profit
among his masons and carpenters? Why should a manufact
urer be expected to be more liberal? The result of all these



Online LibraryNathaniel Hillyer. EglestonThe North American review (Volume 139) → online text (page 28 of 60)