Front Page Titles (by Subject) ESSAY No. LXXV. - The Principles of Free Trade
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ESSAY No. LXXV. - Condy Raguet, The Principles of Free Trade 
The Principles of Free Trade illustrated in a series of short and familiar Essays originally published in the Banner of the Constitution, 2nd ed. (Philadelphia, 1840).
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ESSAY No. LXXV.
december 29, 1830.
Remarks upon the annual Report of the Secretary of the Treasury.
THE Report of the Secretary of the Treasury will be found in our paper of to-day. From it, it will be seen—
And, consequently, if the Sinking Fund is supplied, as we have no doubt it will be, with the necessary means of ten millions of dollars per annum, the sublime spectacle will be presented to the world, on the second of January, one thousand eight hundred and thirty-five, of a nation, containing a population of thirteen millions of souls, without a National Debt, of one single dollar, and possessing shares in the Stock of the Bank of the United States, to the value of $7,000,000.
When that day arrives, it ought to be celebrated as a day of national jubilee, from one extremity of the Union to the other. No event that has transpired since the 4th of July, 1776, has done more for the cause of liberty, throughout the world, than will be accomplished by a wide promulgation of the joyful truth, that our Republic has fulfilled all its engagements with those who confided to her honour, and, after paying in forty-five years, upwards of two hundred and twenty millions of dollars debt, besides nearly an equal sum in interest, had reached the happy goal, which had never before been attained by any populous nation. We hope the people will not lose sight of this jubilee. No celebration that could possibly be devised, would ring through the world with such eclat, as this grand consummation, accompanied as it would be by the further heart-cheering intelligence that the expenditures of the government, and consequently the taxation, direct and indirect, imposed upon the people, did not exceed one dollar a head, upon an average.
In reference to the estimates of the Report, for the approaching year, it is stated that the imports into the United States, during the year ending on the 30th September, 1830, amounted to $68,500,000, and the amount of exports to $73,800,000. This result, according to the doctrines of the restrictionists, is a favourable indication of our commerce. We export more than we import—and so we should do, if half our ships should be lost at sea, and yet no one would pretend that the country was a gainer, in such case, by exporting more than she imported. In truth, this fact, which in reality proves nothing, one way or the other, is only worth noticing, as giving another coup de grace, if one were wanted, to the cherished fallacy that the balance of trade is against the country. It had already been demonstrated that the rate of exchange on England was no evidence of the existence of such a balance, by the importation of coin from Great Britain into the United States, whilst exchange was at 6 per cent. premium, so called—and we now have it of record, from the custom-house returns, that no such balance exists; and yet the desire to hold on to the tariff is as strong as ever.
As to the views of the Secretary, in regard to the probable diminution of the revenue arising from the duties on coffee, cocoa, salt and molasses, we entirely accord with them. It does not of necessity follow, that the sum saved by the consumers of those articles, by the reduction of duties, will be specifically applied to the purchase of an equal value of the same commodities, in addition to what they already consume; nor does it follow, even if this were the case, that the amount of duty collected, under one cent a pound duty on coffee, for example, would be as great as under five cents; for this would suppose a consumption of five times the quantity, whereas the saving of four cents, enjoyed by the consumers, would only afford the means of paying for three pounds, the sum which they before used to pay for two. There is, in fiscal legislation, a happy medium, the striking upon which gives the greatest possible income. It is neither bordering on the extreme of very low duties, nor on that of very high duties—but each specific class of articles has its own medium, and it is the business of statesmen to find it out. In fixing most of our present duties, when revenue for the support of government and the discharge of the public debt, was wanted, we think that no scientific attention was devoted to this subject. Duties have been laid hap-hazard, without rhyme or reason, and care should be taken, in removing them, that the random system be not again pursued: for, by going below the mark, we should be compelled again to increase them.
The Secretary informs us, that, since the year 1825, there has been, with the exception of the year 1828, a gradual reduction of imports. This will appear from the following statement:
That this great decline in the foreign commerce of a population annually increasing in wealth and numbers, and which has added to the latter, within the last five years, at least ten per centum, calling for an additional import of 9,634,007 dollars, should have occasioned a “material depression” in the navigating interest, as we are officially informed has been the case, is not to be wondered at. A falling off of one-sixth of the import trade of a country is no light calamity for ship-owners and seamen, for it cannot but throw out of employment one-sixth of the tonnage employed in the import trade, to say nothing of the injury inflicted upon ship-builders, riggers, sail-makers, rope-makers, and the numerous other mechanics and labourers connected in navigating pursuits, in preventing that increase of their business which a gradually increasing commerce carries with it. The recommendation of the Secretary to Congress, to consider how far the navigating interest can be relieved from its burthens, is judicious and well-timed, and we hope that the Committee on Commerce will renew their efforts to bring the subject before the nation.
In reference to the suggestion of the Report, that any further reduction of duties, should any be contemplated by Congress, ought to take effect at a period “sufficiently remote for the payment of the entire debt,” we take the liberty, respectfully, of differing from the Secretary. The entire relief of the people from the burthen of the public debt, desirable as it undoubtedly is, is nothing, to be compared to their relief from their bondage to the Restrictive System; and we unhesitatingly say, that we would rather submit a little longer to a portion of the debt, than to the unconstitutional exaction of oppressive and unequal taxes. Some consideration is, however, due to the interests of those who have stocks on hand, that might be affected by a too great and sudden reduction, and a reasonable postponement of the operation of part of the reduction might be made, such as took place with the salt, tea, and coffee duties; and in regard to some branches of manufacture, we should be inclined to act with much liberality, provided that the manufacturers themselves should acquiesce in the reduction. But a postponement until after the debt should be paid, would be altogether too hazardous. Look at the fate of a similar act, passed in 1816. By that act, it was declared, that the duties on woollen and cotton goods should be reduced, from 25 down to 20 per centum ad valorem, at the expiration of three years. Before the three years had expired, another act was passed, extending the period for the reduction seven years longer. And what was the result? Why, that, before the ten years had come round, those very duties were increased, instead of being reduced, and the generous and magnanimous men, whose good faith had been imposed upon in this transaction, were laughed at by those who pocketed the benefits of this deception, and have even been impudently pronounced to be friends of the high duty system. We hope that no friend to our cause will hereafter vote for any bill that does not touch the duty, to some extent, before the ensuing session of Congress.
Upon the subject of smuggling, the Secretary states a fact, which is conclusive, as to the impolicy of high duties. It is, that more spices were exported from the United States, during the seven years preceding 1828, than were imported—and yet we do not raise an ounce of any kind. From this indisputable evidence, it will not be difficult to imagine that the game is carried on in other articles than cloves, mace, nutmegs, and cinnamon, to a greater extent than is dreamt of in your moral philosophy. May we not, indeed, account, in this manner, for a fact stated in the Report, and which never before happened, as far as can be ascertained from the Treasury returns, viz., that our official exports, during the last year, were 5,300,000 dollars more than our official imports. That this was not to make up a balance created in the year preceding, is evident from the fact, that the imports of that year exceeded the exports only $2,133,946, and this was a very small excess to result from the commerce of a year. We think, indeed, that the statements of both years testify to an immense amount of smuggling; for, the exports for the two years united amounted to $3,166,054 more than the imports, whilst it appears that, during the eight preceding years, the average annual excess of imports, over exports, was $4,215,418. Now, if, as appears, there was, in 1829 and 1830, merchandise exported, which ought to have produced an excess of imports to the amount of $8,430,836, and if, in place of doing this, it left a deficiency of $3,166,054, does it not afford strong ground for presumption that there has been smuggling carried on, if not to the extent of $11,596,890, at least to the extent of a great part of it? We have no knowledge that our merchants have been less successful, in the last two years, than in the preceding eight, and the foreign exchanges afford no evidence that they have large funds abroad to draw for.
We come now to that part of the Report which recommends an alteration of the system of determining the value of goods subject to an ad valorem duty; and here, we think, the Secretary has advanced a position which cannot be sustained. By the present laws, the duty is assessed upon the actual cost of the goods abroad, with an addition of certain charges, and ten per cent. when imported from any country on this side of the Cape of Good Hope, and twenty per cent. when from countries beyond it. This system of taking the actual cost abroad as the basis of the duty, is founded upon the clearest principles of sound reason, justice, and policy; for, whilst it holds out a strong incentive to merchants to purchase abroad as cheap as they can, by which the country gains, let who may be the importer, it consults sound policy in our intercourse with foreign nations, inasmuch as it gives to those who supply us upon the most favourable terms, the advantages to which they are fairly entitled.
What has astonished us greatly in the remarks of the Secretary, is, his regarding the advantages which the skilful and experienced merchant, possessing capital, enjoys over his unskilful, inexperienced, and moneyless competitor, as a sort of evil to the country that is to be averted by wholesome legislation. The Report says, “the purchaser who lays in his goods low, not only derives a profit directly from this circumstance, but from the difference in the amount of duty paid on them at the custom-house.” And, pray, is it not right that he should enjoy this advantage, and does he not thereby confer a benefit on the consumer by selling his goods cheaper than he could do if he had not had this advantage? But it seems that this advantage is more likely to be enjoyed by foreigners than by native merchants. This sort of argument partakes more of the “American System” than we had expected to find upon this occasion. And even admitting, for the sake of argument, that foreigners can supply us cheaper than the native merchants can, are the nation, the consumers, injured thereby? Do the native merchants themselves complain, that, owing to the present mode of fixing ad valorem duties, they are so injured by the foreigners that they wish the law changed? We apprehend not. But, after all, this sort of argument is founded upon mere surmise. We think it very doubtful whether foreigners do make their purchases any cheaper than the American merchants do, who now have their partners and agents located in Europe for the express purpose of buying cheap, for cash, furnished with better information as to what suits the American market, than any foreign resident can be. But, even if this were not the case, the advantage which the native importer has over the foreign shipper, in selling his own goods, far outweighs all the benefits which the other can derive from cheap purchases, although the Secretary considers it to be merely equal. As much of the discussion turns upon this point, we will bring into view a simple fact, which will illustrate, in some degree, our position. Where one merchant fails whose business it is alone to import, as is chiefly the case with those who import from Europe, and sell their own goods, there are ten fail whose business consists in exporting and leaving to others the sale of their goods, as happens with those, for example, who trade to the West Indies.
As to the fact mentioned by the Secretary, that “this advantage is greatly increased under the operation of the classification of woollen cloths,” we would simply remark, that this increase arises from the gross absurdity of the law, which imposes twice the duty upon a square yard of cloth which costs 101 cents, that it does upon one that costs 99 cents. And is it a matter to be complained of, that merchants should use every possible effort to buy upon the most favourable terms, in order that they may be able to sell to the consumers, coarse cloths, one-third cheaper than they could do, if they had not been able to obtain a reduction from the foreign manufacturer of two cents a yard?
But, to remedy these supposed evils, it is proposed to alter the mode of valuation, by taking the market value in the United States, of imported commodities, as the basis of the calculation. To this plan, the Secretary says, “the only objections which appear to have weight, are: 1st, the difficulty of making so minute an appraisement as would be necessary, of all the articles of importation, without a considerable increase of custom-house officers—and, 2d, of making the appraisement uniform at all the ports.” The first objection, he thinks, can “be obviated, by arranging the goods into classes according to value, in such manner as to render the appraisement not more laborious than at present.” If the question was one of labour simply, the position of the Secretary might possibly be right. But it is not so. It is one involving a degree of skill and integrity, and an acquaintance with the daily transactions of the market, which no man or set of men could possibly possess. Amongst the articles imported from aboad, and which are subject to an ad valorem duty, there are hundreds of articles, particularly fancy goods, of which no market price can be fixed, except by the actual chaffering between buyer and seller. There are, besides, every day imported new articles, never before manufactured, the market price of which can only be determined by the actual sales of the day, which sales cannot be made until the goods have passed the custom-house. To require an invoice, on oath, from the importer, of the value, in the United States, of his goods, would be, to require from a merchant the secrets of his trade, and at the same time to tempt the veracity of some, and to expose others to imputations of fraudulent designs, in case their estimates should happen to be below the prices which they afterwards find can be obtained. Besides, the market price is not always a fixed point. It ranges over a surface of five to twenty per centum, in a great variety of articles, and two men, equally honest and conscientious, might be found taking oaths, on the same day, varying so widely as to render one of them suspected of a fraudulent undervaluing.
In reference to the second objection, the Secretary thinks it can be obviated “by establishing a regular intercommunication and transmission of prices current and samples between the custom-houses.” Let us see how this would operate. There are near a hundred custom-houses in as many ports. Each one is to send a price current and a sample of every individual article, and of every quality of that article—how often we are not told, and whither we are not told. It can hardly be to each of the other ninety-nine custom-houses. We will suppose it to be to some central city, where a Board is to be established for the purpose of settling the valuation. This can only be done by taking the averages, and the tariff valuation would then be a rate which, perhaps, would correspond with the market price of no one principal port. It would be below that of some places, and above that of others, and would thus operate unequally. But this is not the worst of it. This average would be constantly changing, and, whilst one merchant in one port was entering his goods at one valuation, another, at a more distant port, would be entering his at a different one. In fine, we do really believe the scheme of the Secretary to be wholly impracticable, and we are quite persuaded that the present system of valuation would be found to be equally exceptionable, were it not for the aid of the invoices of the cost of the goods abroad, that furnish a key to the appraisers, without which they would be as incapable of forming a sound judgment of market prices, as a strange navigator, on our coast, would be, without a chart. But why require the oath of a merchant to a fact, the correctness of which he can only guess, when you are not willing to take his oath as to a fact of which he is sure?
But, there is another objection to this system of valuation, having quite as much weight as either of the others, which appears to have escaped the notice of the Secretary. It is, that no greater obstruction can be thrown into the way of foreign commerce, than uncertainty as to what duty will be payable on the importation of merchandise. Every one who is acquainted with the operations of trade, knows, that a variation of one or two per cent., even in the rate of exchange, very frequently decides a merchant to order goods from abroad, or to suspend his orders. According to the Secretary’s plan no one can tell, at any one period, what would be the rate of duty at the time his goods should arrive—and how could any certain calculations be made of the cost of importation? It will be answered, that, if the duty rises, the price will also have risen, and that will compensate the merchant. But will it compensate the consumer? Is it not enough that the consumer should pay an increased price for an article, but that he must also be compelled to pay an increased tax upon it? Sound policy, and considerations for the public, would rather seem to favour an opposite rule, as the British do with their corn-laws, that is, diminish the duty as the price rises, in order that the burthen may not fall too heavily on any one article.
But independent of the interests of the consumer, the merchant himself would much prefer leaving the duty as it now is, for, under a system like ours, where there are duties of 100 per cent., and where a rise in the market price of ten per cent. would make a rise also in the duty of ten per cent., nothing would be gained; and even with respect to articles which pay but 50 per cent. duty, not enough would be gained to compensate for the uncertainty of the duty, and for the diminished demand necessarily arising from the increased price, occasioned by the increased duty.
The argument employed by the Secretary as one of the reasons for the proposed change, viz., that, owing to an alteration in the relative value of gold and silver, since the pound sterling was declared by law to be the equivalent of $4.44, which has rendered the former in reality the equivalent of $4.80, is sound enough. It is perfectly true, that the importer from Great Britain pays duty on 7½ per cent. less than the actual cost in silver of his goods. But, notwithstanding this, he pays the duty which the law intended he should pay; for, those who made the law could not have been ignorant of a fact known to have existed for more than ten years. Any new rating of the value in silver of the pound sterling, therefore, would be a virtual increase of the duty; and, as this is admitted by the Secretary, we take great pleasure in again finding ourselves in agreement with him. What is also said relative to the depreciated currencies of foreign countries, is also true enough, but a better remedy for the evil than that of valueing goods in the United States, would be, to let every invoice made out in a foreign depreciated currency, be accompanied by consular or other certificates, of the true value, in effective money, of the said depreciated currency.