Front Page Titles (by Subject) ESSAY No. CX. - The Principles of Free Trade
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ESSAY No. CX. - 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. CX.
june 15, 1831.
Proceedings of a Convention of Wool Growers. Examination of one of the Reports made thereto. Doctrine of Minimums explained. Frauds upon the revenue.
WE publish to-day the proceedings of a Convention of Delegates, appointed by persons interested in the growth and manufacture of Wool, held at New York on the 18th of May last, as far as the same have been officially published. A reference to these proceedings will show that a committee was appointed to examine into the subject of the alledged frauds on the revenue, and that another was appointed “to take into consideration the expediency of forming a National Association, with auxiliary branches in each state, having for its object the procurement of statistical facts, the diffusing of information on all points relating to the national industry,”—[viz. the industry of the protected manufacturers]—“and the sustaining, by united effort, that industry against foreign rivalry;” that is, prevent the people from having cheap goods.
We propose briefly to examine the first of these reports, and, before so doing, we shall trouble the reader with a few preliminary remarks, explanatory of the doctrine of minimums.
A man, unskilled in the science of legislation as it is carried on at Washington, who should take up a report of the Secretary of the Treasury, giving a statement of the revenue derived from imports, would be able to discover no duty imposed upon woollen cloths of a higher rate than fifty per centum, and he would very naturally infer that no higher duty was charged upon any. It would appear to him that the official reports of the Treasury Department would carry on their face the impress of truth, for he would suppose that, as they must be drawn up in conformity with the laws, and that as in the legislation of a government created by the people, and for the people, no majority of Congress would be so daring as to practice fraud in the enactment of laws, with the express design of concealing from the people the real extent of their burdens, he would naturally conclude that, when he saw fifty per cent. recorded as the maximum of duty, it would not be possible that he should be actually paying one hundred per cent. And yet such is the fact—a fact which, if it could only be brought into the view of those who are the victims of the fraud, would of itself be sufficient to overthrow the American System, as a wicked imposture. But it may be asked, “Can it be possible that a man pays a hundred per centum duty, when the law says he only ought to pay fifty?” It is even so—and the mystery is soon cleared up, when it is stated that the very law which says you shall pay fifty per centum ad valorem, also says a yard of cloth which costs fifty-one cents shall be valued at a dollar. Suppose that Congress, in laying internal duties during the last war, had enacted a law in this form: “The tax upon a copper still shall be one dollar per gallon upon the capacity of the still, provided that a still which can hold only fifty-one gallons shall be deemed to hold one hundred gallons, and shall pay duty accordingly,”—what think you, gentle reader, would the ‘whiskey boys’ of Pennsylvania have said to such a law? We are very much mistaken if some of them would not have hoisted the liberty-pole as they did in old times, denounced the majority of Congress as guilty of an outrageous fraud, and put the collector of the tax at defiance. The discreet part of the community, to a man, would have condemned such unmanly and insidious conduct, and would have said, like patriots, “If the country requires that there should be a duty of two dollars a gallon on the capacity of the stills, let Congress say so above-board like men, and not take from us two dollars, when we think we are only paying one. Fair play is a jewel. The people have a right to know how much they pay towards the support of the government, and it is a violation of their rights if any thing is concealed which can be made palpable.”
This case of the still is the precise case of the woollens:—the law says that cloth, costing abroad—
“Between 50 and 100 cents per square yard, shall be valued at $1.00;—between 100 and 250 cents per square yard, shall be valued at $2.50;—between 250 and 400 cents per square yard, shall be valued at $4.00.”
And the duty is charged accordingly, upon the latter prices, at the rate of forty-five per centum. The result of this mode of cheating the public—(we like to call things by their right names)—is this:
But, not only is this mode of fixing the duty a fraud—it is even a fraud to call the duty an ad valorem duty. It is as much a specific duty as that upon sugar, and operates precisely in the same way—that is, the lower the quality of the article, the higher the duty. Thus the poor or working man, who is obliged to be content with coarse cloth, is made to pay from 45 to 111 per centum, whilst the rich man pays no more than 50 per centum for the very finest of his apparel. This is the system called the “American System”—this is the policy which men, professing to consult the interests of the farmers and working classes, are endeavouring to render “the settled policy of the country”—and, unfortunately, this is the delusion which has now such a strong hold upon a majority of the people of the Northern states, as to lead them to regard as their foes the philanthropists, the statesmen, and the patriots, who are now labouring to extricate them from the fatal heresy.
The first report above referred to, commences by stating what the law is relative to the valuation of goods under the different minimums, and the committee then proceed to lay down some positions, and to draw from them their inferences.
The first case they adduce is that of 80,000 yards of cloth having been imported by one concern, the principal part of which was entered at a value not exceeding 6s. 9d. per running yard, which gives the cost, per square yard, at about 98 or 99 cents,* and brings it under the one dollar minimum. The committee are of opinion that this cloth must have cost more than 6s. 9d. per running yard, and they form this opinion from two considerations: one is, that the goods were shipped to order, and not imported by the consignee on his own account, which they probably supposed involved the shipment in a sort of mystification; and the other is, that the prices which these goods brought in the New York market were higher than goods costing as low as 6s. 9d. ought to command.
As to the first consideration, the committee admit that the mode of consignment to order is not necessarily an indication of fraud. In this they are correct. Shipments are very often made in foreign countries, and the bills of lading filled up without the name of any consignee; in this case, the term “to order” is used, to signify that the goods are to be delivered to such person as the shipper may assign the bill of lading to, by endorsement. This is sometimes done where a shipper wishes, before his property gets into the hands of a consignee, to ascertain the state of his credit; in which case he transmits the invoice to a third party, to whose discretion the delivery of the bill of lading is intrusted. It may occur, owing to a fraudulent intention, but we are not aware of any instance in which a fraud could be perpetrated by an absent owner, by filling up the bill of lading to order, better than by designating the consignee. In either case, the consignee can only swear to the invoice according to the best of his knowledge and belief; and if there is any reason to believe that fradulent invoices are made out by foreign shippers, we know of no remedy but to prohibit foreigners from shipping goods to this country at all. This is possibly the next step in the march of the “American System,” which the woollen manufacturers will recommend. And now we should like to inquire, what has become of Mr. Mallary’s celebrated bill of May 28, 1830? Has it proved, as was predicted, wholly inefficacious? The committee admit as much. They are forced to confess that, notwithstanding their entire belief in the honesty and good faith of the collector and appraisers, and that portion “of the great body of American merchants who pursue an honest and honourable trade,” it has not been practicable to prevent the undervaluing of goods in the invoices.
As to the second consideration, the committee are partly right, and they are partly wrong. They have made out their case, we think, as to some of the goods referred to, but not as to all; and, as we have been at some pains to collect information on this subject, for the correctness of which we pledge ourselves, we shall enter into some details.
The committee infer that the goods in question were undervalued in the invoice, because they commanded in the New-York market, from $2.50 to $4.25 per yard. From this position it would seem to be taken for granted, that goods costing 6s. 9d. per yard, or less, will not command those prices. We have it in our power to show, that goods, which cost in England, on the 14th of January, 1831, 6s. 5d. to 6s. 8d., were sold, in the Philadelphia market, by the importer, to wholesale dealers, at from $2.67 to $3.20 per yard, after paying the full duty, and leaving the importer a profit of 18 per centum. We have seen the invoice, and account of sales, and from the high standing of the party, who, in this community, for integrity and character, stands second to none, we pronounce the inference of the committee, as to sales under $3.20 per yard, as resting altogether upon suspicion.
In reference, however, to the cloths which have sold at from $3.25 to $4.25, we have equally strong authority for believing that what the committee states may be true. The importer referred to purchased his goods in England, for cash, of one of the principal manufacturing houses, and he is of opinion that no goods could have been laid in cheaper, by others, unless in those cases where persons on the spot, looking out for bargains, should sometimes find chances of speculation, which a regular importer, who orders his goods from the manufacturer, cannot enjoy. It sometimes happens that a stock of goods belonging to the estate of a bankrupt trader, is placed under the auctioneer’s hammer, and sold at a sacrifice. It also sometimes happens that a manufacturer, who is pressed for money, forces his goods off at auction, or procures an advance upon them, of a broker, who is authorised to force a sale in case of their non-redemption. In any of these cases, a piece of cloth may very well come into the possession of a bona fide purchaser, at 6s. 9d. per yard, which the manufacturer would have held at a higher price; and we can see no difficulty in believing that one merchant may ship to this country the same quality of cloth, at 6s. 9d., for which another would have to pay ten, fifteen, or twenty per cent. higher. If, however, it be true, as the committee state, that goods have been entered at 6s. 9d. per yard, which have commanded, in the New York market, as high as $4 to $4.25, the presumption of an under-valuation, by the shipper, would be too strong to be resisted, although it would not necessarily implicate the consignee, who might be a commission merchant of the highest character, selected for his integrity, with the very object the better to conceal the fraud.
Now, admitting the case to be as represented by the committee, what does it prove? Nothing more than that frauds upon the revenue will be perpetrated just in proportion as the temptation is increased, and that it is impossible to prevent them by any vigilance at the custom-house. An intelligent importer has given us his opinion, that, to guard effectually against the possibility of fraud, one hundred appraises would be necessary at the port of New York alone, where such great importations take place; for, indeed, without the examination of every package, and even piece, what certainty can there be of fair valuation? But this is not all. One hundred appraisers might and would have different opinions as to the value of cloth, and an article which would be placed at 99 cents by one appraiser, and thus made subject to a duty of 46 per centum, might by another be placed at 101 cents, and thus be made subject to a duty of 111 per centum. Every one can see that it is the system of minimums which creates nine-tenths of the temptation to fraud. If the duty on woollen cloths were a bona fide duty of 45 per centum ad valorem, great and oppressive as it would be, it would remove the principal inducement for deceptive valuations. The duty payable on a cloth costing 101 to 120 cents per yard, would be but a trifle more than the duty upon one costing 99 cents, and this trifle would be too inconsiderable to sear the consciences of any great portion of the people. But when the reward of a false oath is the difference between 46 and 111 per centum, there are too many, we fear, who would endeavour to persuade themselves that a custom-house oath is a mere matter of form.
In the report of the committee, under consideration, there is one curious fact mentioned, as throwing difficulties into the way of a correct appraisement of cloths, which is, that the number of invoices presented at the custom-house, with low valuations, is so great, that the appraisers are amazingly puzzled. Now, prima facie, this fact ought rather to be proof of a low price of goods; for, upon what ground can these invoices be pronounced fraudulent? A number of invoices, corresponding in prices and quality, are a much better criterion of cost, than the opinions of any individuals residing three thousand miles from the market where they were purchased.
As to the course pursued by the Secretary of the Treasury, and for which he has been found fault with, by the committee, it only proves how difficult it is to execute laws where the penalty is out of all proportion to the offence. There is something so revolting in the idea of forfeiting all a man’s property, as might very well happen, merely because he was so fortunate as to purchase his goods in England a few cents cheaper per yard than his neighbour, that it is not probable that any other decisions need be looked for at the Treasury Department, unless fraud is too manifest to be doubted.
It is not a little remarkable that the Committee on Frauds say not a word about smuggling, which is unquestionably carried on to a considerable extent. They seem as if they were determined to let the smugglers enjoy the whole of the protection which their industry now enjoys under our system of encouraging domestic employments. They seem not to be aware, that just in proportion as undervaluations at the custom-house are prevented, capital and industry will be turned into the other channel; and we do aver, that, when the system of smuggling on the Northern frontiers gets well organized, it will be utterly impossible to prevent it so long as the duties afford a clear profit of 45 to 111 per centum. We do not mean to say that frauds on the revenue should be countenanced in any shape, but we are firmly persuaded that nothing can put a stop to them but a reduction of the duties. It is too much for the people of the United States to be taxed for the support of the government, and an aristocracy of manufacturers, and, at the same time, for the support of an aristocracy of smugglers.
[* ] The width of this cloth is usually about a yard and a half.