Front Page Titles (by Subject) INTRODUCTION. - Taxation and Work: A Series of Treatises on the Tariff and the Currency
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INTRODUCTION. - Edward Atkinson, Taxation and Work: A Series of Treatises on the Tariff and the Currency 
Taxation and Work: A Series of Treatises on the Tariff and the Currency (New York: G.P. Putnam’s Sons, 1892).
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The principal difficulty in dealing with the tariff question in recent years has been due to the fact that the evils of a bad system of collecting our national revenues are concealed. That is the fault of almost every system of indirect taxation. Those who suffer the most do not know what hurts them. There are also great numbers of people upon whom the burden falls but lightly who would even prefer to pay a larger sum by indirect taxation “unbeknownst-like,” than to be obliged to submit to a direct assessment like that by which our State and municipal taxes are collected.
The total amount of direct taxes for the support of State, county, city, and town governments is less than the total contribution of the people to the support of the national government, and yet these lesser but direct contributions are subjected to a sterner investigation than those which are contributed to the nation. We also get proportionately more for our money through the State and municipal governments than we do from what we pay for the support of the nation, bad as the expenditures in a few of our great cities may be.
The objects for which State and municipal governments are permitted to tax the citizens are very strictly limited, and in almost all the States a limit has been fixed beyond which cities and towns may not incur any obligations for any purpose, without making out a clear case of necessity and securing specific legislation thereto. The rule laid down in the Supreme Court in the decision rendered by Judge Miller, to which reference is made in the subsequent treatises, limiting the power of taxation to public purposes in the strictest sense, has been rigidly applied by the courts to States, towns, and cities.
On the other hand, national extravagence and what are singularly named “liberal appropriations,” at the cost of tax-payers, receive support from small classes of very influential persons, and are treated with indifference by the great mass of the people. Subsidies and bounties to private undertakings are advocated and justified which would not be tolerated for a moment in any State or city administration.
The expenditures of the government of the United States in the fiscal year ending June 30, 1891, after deducting the sum recovered from postal receipts, amounted to a little over five dollars per head of the population. These taxes are mainly collected upon articles of common use, and they fall like the dew of heaven upon rich and poor alike in substantially even proportions according to number rather than by ability to pay. The consumption of wool and woollens, of cotton fabrics, of iron and steel, and other materials, of leather and lumber, of spirits, beer, and tobacco, and of all other articles from which revenue is collected in any considerable measure, is very much more uniform than the distribution of property, real or personal, and also very much more uniform than the incomes of the people.
If these national taxes were assigned to the several States, to be included with their own assessments, and collected under a system of direct taxation, even at the per capita rate of five dollars a head, the utmost scrutiny would be applied to the expenditures to which this vast sum of money might be applied. It is very certain that under such conditions bounties to sugar planters would not have been granted; the purchase of silver bullion at the cost of the tax-payers would be stopped; the proposition to build a great fleet of useless battle-ships would receive no consideration; and the improvement of some obscure harbors in order to make them navigable for cat-boats, or the excavation of the channels of some rivers which are of no national importance, would not even be suggested.
The time had come when it became necessary to force the masses of the people of this country to give their attention to the methods of collecting and expending the national revenues. Two events have enforced the right attention. The tariff message of Grover Cleveland and the principles laid down therein have challenged the attention of the country, and will be sustained. The other event, which might not have sufficed to command general attention, except for the courageous act of President Cleveland, is the enactment of the McKinley bill.
It is an old and trite but yet true saying, that “whom the gods would destroy they first make mad.” The McKinley bill, framed for the purpose of carrying into effect a so-called policy of “Protection with incidental revenue” contains within itself the germs of its own destruction. Public attention having at length become aroused to the importance of this subject, the demand for the facts in the case has become imperative.
In the series of treatises which are reprinted in this volume, which first appeared in the Boston Herald, the New York Times, and other daily papers, I have endeavored to make an impartial statement of the account of the United States Government with the people; I have also endeavored as far as might be in my power, to bring the bearing and effect of our present system of taxation into conspicuous notice. Two official documents will soon appear by which my deductions and my conclusions may be tried.
First, the exhaustive investigations of Commissioner Carroll D. Wright when fully reported will enable every one to discriminate between the rate of wages, or what may be called the price of labor, and the cost of that labor in each unit of product. It has been customary to deal with these two elements as if they were the same, as if a low cost of labor per unit of product necessarily ensued from a low rate of wages. In fact, the very reverse is apt to be true; to wit, as stated in the treatises, high wages in money, or in what money will buy, are a correlative or result of a low cost of production per unit of product.
When this principle of high wages corresponding to low cost of production is fully comprehended, the whole basis of the discussion of the tariff question will be profoundly altered. The most pronounced advocates of a policy intended for or directed toward the promotion of domestic industry, the protection of American labor, and the development of the home market, may find themselves almost before they are aware of it advocating radical measures of what is now called Free Trade; that is to say, urging the abatement of all duties except those which are imposed for the sole purpose of collecting the necessary revenue with the least interference with the freely chosen pursuits of the people.
The second report, which may even convert some of its promoters who least expect such an influence from it, will be the report which is now being drawn up under the direction of the Finance Committee of the United States Senate upon the course of prices and wages in this and other countries for a long term of years.
The writer ventured to give in advance the necessary conclusions which will be derived from this report whenever it is made,1 to some of the members of the Senate Committee when they were first laying out their work for this investigation. This report will prove that in this and in all other countries in which modern mechanism has been applied, or which have been opened to commerce by the railway and the steamship, the prices of the necessaries of life, with a few exceptions (the most notable exception being the products of the forest), have fallen and are now almost as low everywhere as they were in a few States most abundantly supplied fifty years ago; quick and ready intercommunication among nations having substantially equalized prices the world over. This general tendency to a reduction in the prices of the necessaries of life has been subject to temporary upward fluctuations, especially under the influence of the Civil War in the United States and the disturbance of the world’s monetary system which ensued then and for a time thereafter. This fall in prices has been as great if not greater in countries like Great Britain, in which there is no protective clement in the tariff, as it has been in the United States under the highest tariff ever imposed, or in France or Germany under a highly protective system.
Again, this report will prove that there has been a steady rise in the general rates of wages in this and all other countries. Specific exceptions will be found, because the general rise in rates of wages has been accompanied by a tendency of cities and towns to increase in population at the cost of the rural districts. Certain parts of cities have become congested, and the problem of dealing with this lesser element or problem in what is known as “the labor question” has become one of greater and greater complexity. This report proving a general reduction of prices and a general rise in the rate of wages, without regard to the tariff system of each or either country, will be quoted in support of one theory as well as the other, by the advocates of a high tariff and of a low tariff and by the representatives of tariff Protection and of Free Trade.
But this report will probably contain one final summary which will be of the utmost service in the discussion of the tariff question; or, if the report does not contain the table indicated hereafter, it will be very easy to make such a table from the data that will be given in it.
The evil effect of duties upon the imports of crude and of partly manufactured materials consists in causing the price of these materials to be relatively higher year by year, or at the same date in the country which imposes such duties, than in countries in which they are free of taxation.
The way to prove this will be to give lists of the prices at wholesale of all the crude materials which enter into the process of manufacturing, and of all the principal articles of food in two or three of the chief markets of Europe and in two or three of the principal cities of the United States, putting between these columns of prices the rates of duty which may have been imposed upon each of these commodities by each country in each and every year covered by the record.
From this comparison, line by line, and year by year, the effect of each tariff of either country upon the relative cost of the materials which enter into the process of manufacturing and of the principal articles of food, will be fully disclosed. This table will enable every one to determine in the simplest and surest manner whether true Protection for domestic industry can be most fully assured by exempting materials and food from every form of taxation, or by putting heavy taxes on materials and food which may be of foreign origin to the relative disadvantage of the country that imposes the tax. This table will also enable every one to determine whether the McKinley bill protects the industry of this country, or whether it promotes the manufacturing supremacy of other countries.
When the tariff question is brought down from the glittering generalities and the specious and plausible arguments commonly presented, to this simple question of the relative condition in which it places the workmen of each and every country, the conclusion of the discussion and the final decision will not be far off.
The first step has been taken at the Republican convention for bringing about a repeal of the McKinley bill, and for substituting a well-adjusted measure of tariff reduction. This may not be what was intended either by the Committee on Resolutions, or by the Chairman of the Convention, Mr. William McKinley, Jr., himself. The framers of the resolution may not comprehend its purport any more than Mr. William McKinley, Jr., comprehends the tariff question.
The plank in the Republican platform on the tariff, if logically construed, would render it necessary to bring in a more radical searching, and complete measure for the repeal of the McKinley tariff, and the enactment of a very low tariff, than has been contemplated by any judicious person in the Democratic party. The resolution of the Republican platform is as follows:
“Resolved, That on all imports coming into competition with the products of American labor should be levied duties equal to the difference between the wages abroad and at home.”
Whatever may have been the intention of the framers of that resolution, if it were carried into effect, it would bring about a reduction in the duties imposed under the present tariff more rapidly than has been contemplated either in the Morrison bill, the Mills bill, or any other measure that has been framed by the promoters of tariff reform. This resolution will bring the discussion out from the glamour of crude theory down to simple questions of fact.
Throughout the campaign about to ensue every Republican speaker should be compelled to adhere to the terms of this resolution, and to deal with the problem of tariff reform consistently with it in a broad and general way, subject to exception only in respect to the finer fabrics which depend upon style, fashion, and fancy for their sale.
The labor cost of manufactured goods aside from the cost of materials, general expenses, and other charges, ranges from twenty per cent. in coarse textile fabrics up to thirty and thirty-five per cent. on the medium grades of this class of goods on which so large a part of taxation is imposed. In respect to articles made of metal, the labor cost ranges from twenty-five to fifty per cent.; in some relatively unimportant articles like watch-springs it is more. Materials are assembled from all parts of the world, but in dealing with a protective tariff, whether we are dealing mainly with the labor cost in the factory or in the workshop, it must be remembered that our duties are now imposed on the gross value, including not only labor but materials and general expenses, and in many instances in the McKinley tariff bill the duties exceed one hundred per cent. upon the gross value.
Any one who affirms that these duties were adjusted to compensate for any difference in labor will have to meet the charge of insincerity or absurdity. Even if a difference in the rates of wages such as has been proved to exist in this series of treatises corresponded to a similar difference in the cost of labor, the general rate of duties in the McKinley bill would have to be reduced more than one-half to make it consistent with the tariff plank in the Republican platform. In a broad and general way, counting the labor cost at one-third of the fabric and computing the foreign labor cost at one-half what it is here, which would correspond to the utmost claim ever made, even then a rate of duty of fifteen to twenty per cent. would correspond to the terms of the tariff plank in the Republican platform.
In other words, when the taxes are removed from the crude and partly manufactured materials which are necessary in the processes of our domestic industry, we shall compete either on even terms or at an advantage with other countries. When that time comes, the application of the Republican plank may only be made to the labor cost in the factory or workshop; the attempt to compensate for an alleged difference in the labor cost of materials being a manifest absurdity. When the question is narrowed down to a definition or measure of the difference in wages between this and other countries, nothing will be found of any material importance upon which a duty exceeding twenty-five per cent. could be justified, and even that would be an unreasonable concession to the fear of immediate competition rather than a rate that could be justified on any actual difference in labor cost where any exists. Mr. E. B. Bigelow, the framer and chief promoter of the present tariff on wool and woollens in its first phase, was fully cognizant of these facts when he said that “any branch of industry which could not be sustained by a protective tariff of twenty-five per cent. ought to cease to exist.”
The promoters of McKinleyism may be compelled to meet this issue by the simple question, What is the exact difference between wages abroad and at home in each important class of goods upon which duties are now assessed?
The first questions to be put to those who may support the McKinley bill in disregard of this plank in the Republican platform may well be these: Dealing in the first instance with the imports in Class A, “Articles of food and live animals,” each man should be asked, What is the difference in labor between the wages abroad and at home in the production of breadstuffs? Of course, no honest man can reply except by saying that the element of wages in the production of breadstuffs in the United States is less than it is in any other country, whatever the rate may be. Therefore, according to this Republican declaration, breadstuffs should be put at once into the free list. The next question should be—What is the difference between the wages abroad and at home in the product of provisions, including meat, butter, and cheese? When the resolution laid down in the Republican platform is applied to these articles they must be put at once into the free list. The same rule will apply to vegetables. The malignant duty upon potatoes is not and cannot be justified by any difference in the wages of the labor cost of the production of potatoes between this and any other country.
Passing next to Class B, “Articles in a crude condition, which enter into the various processes of domestic industry,” on the first application of the principle laid down in the Republican platform, which states that there should be no duty on any product, except one equal to the difference between wages at home and abroad, we must immediately put coal and coke into the free list. Next, the duty upon iron ore must immediately be removed, because wages in Pennsylvania, according to the sworn statements of the owners of the mines give the cost of labor in each ton of iron ore at seventy-five cents per ton: the present duty is seventy-five cents per ton; that is to say, it is one hundred per cent. more than it should be according to the Republican tariff resolution, for the reason that the labor cost in the production of iron ore, especially at the point of largest production in Pennsylvania, is less than it is anywhere else in the world from which any supply of ore could be derived.
When the principle laid down in the Republican platform is applied to pig-iron, it will be necessary to reduce the present duty lower than has yet been proposed in any measure submitted by the Democrats, if not to take it off altogether. The one difficulty in the matter is this, with reference to pig-iron and steel ingots, there is not a member of the Republican Committee on Ways and Means, which framed the McKinley bill, including Mr. McKinley himself, who can state what the difference is between the wages abroad and at home in the production of pig-iron and ingot steel.
The allegation has been made that most careful consideration was given in framing the McKinley bill to this element, and that it was framed to meet the terms and conditions of what is now the principal plank in the Republican platform. This statement is not true in fact, whatever the intention of the framers may have been. The bill is wholly inconsistent with this rule.
There are many places in this country where the difference between wages at home and abroad in the production of pig-iron and steel is in favor of this country: this cost of labor is less, and in some places the rates of wages are less, than in some places in Europe. Both articles are made in a large way, if not universally, at a less labor cost in this country than they are now in other countries. This is proved by the fact that the representatives of the principal works, where it is well known that these products are made at least cost, have not disclosed the facts to Commissioner Carroll D. Wright. Therefore, while his answers to this question may show a slight excess in the labor cost in this country as compared to others, such is not the fact. If the facts were disclosed as to the cost of labor of iron and steel at the most favorable points in this country, in the largest and most effective works, they would prove that under the application of the principle laid down in the Republican platform, pig-iron and crude steel should be put at once into the free list because this advantage in labor is with us.
Dealing next with the article of wool, the difference between the wages in this country, say in Texas and other parts of this country where sheep are raised in great flocks, in comparison with Australia and New Zealand, even in rate is in our favor, if lower rates are favorable. The rate of wages in Australia and New Zealand is higher, whatever the labor cost may be.
There is, however, not a single man who sustains the McKinley act, or among its framers, who can tell what the labor cost of wool is in any one season in this or in any other country, because it varies so greatly, season by season.
There is not a man on the Republican side who can sustain the duties on wool consistently with the principle which is laid down in the Republican platform. If they apply that principle they will only be compelled to put wool and a great variety of woollen and cotton goods into the free list.
In fact, the application of the Republican principles laid down in the platform for an adjustment of duties to the difference in labor between this and other countries, would result in a measure of too revolutionary a kind to warrant the approval of any judicious man, under the present conditions to which the long existence of a very high tariff has brought many arts in this country. This strict application would bring about a more rapid approach to absolute Free Trade in the English use of that term, than would be wise or safe under any single measure, or by any single act of legislation.
Under these conditions it would be judicious for all advocates of tariff reform who desire to follow that single issue safely and surely, to put the candidates on the Republican side to the question for the purpose of determining several points:
first, whether each one comprehends the plank upon the tariff in the Republican platform;
second, whether or not they know or can get information from the leaders as to what the difference in labor between the wages abroad and at home actually is; and,
third, whether they are in fact prepared to reduce the duties to that measure or to take them off wholly where the cost of labor is less in this than in any other country.
If Republicans are prepared to act on this resolution and to apply it according to its strict construction, the only work which will be left for the Democratic or Independent tariff reformers will be to prevent the Republican party from undertaking the reduction of the tariff in such a radical way as to promote a reaction that will be injurious to the whole cause of tariff reform.
Boston, June 16, 1892.
[1 ] Since the above was written the Finance Committee has presented its Report in July.