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Subject Area: Economics
Topic: Money and Banking
Topic: Popular Political Economy
Topic: Free Trade

CHAPTER XVIII.: Does Tariff Protection Promote Liberty? - Edward Atkinson, Taxation and Work: A Series of Treatises on the Tariff and the Currency [1892]

Edition used:

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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CHAPTER XVIII.

Does Tariff Protection Promote Liberty?

It may be asked why the matter of the tariff should at the present time be a cause of disruption of existing parties and be tending toward a division and reconstruction of parties on new lines?

The reason is that men of both existing parties have combined to defeat the effort to protect the little petty product of the silver mines by paying for it more than it is worth, and are now ready to combine to stop the effort to give bounties to the producers of wool and pig-iron.

This latter effort will be brought about by a combination of the representatives of the States whose products depend on the sale of the surplus for export with the representatives of States that will no longer submit to taxation on the materials which are necessary in their manufactures. It now remains to develop the distinction which I have made in the relative effect of duties upon imports, upon our exports.

It would be judicious for the advocates of a reform of the tariff to admit that when the so-called protective duty has been imposed for a sufficient length of time upon any article of foreign origin, for the production of which we possess equal advantages in this country as compared to other countries, a stimulus may be given to that specific branch of industry and it may be subjected to such urgent domestic competition as to cause a rapid reduction in the price of that article. That is the reason why many branches of industry which have been subjected to the unwholesome stimulus of a high tariff have been, on the whole, the cause of more loss to the investors than a source of profit. The worst kind of competition to which a skilful manufacturer can be subjected, is the forced competition of people who are not capable of conducting the business but who are induced to go into it by a protective bounty or preference.

Yet the only ground on which this system is justified is that which has been presented in the recent tariff cases brought before the Supreme Court. The law officers of the government justified not only the protective system but direct bounties to the sugar-planters upon the ground that the power vested in Congress to enact such a measure was ample and complete under the general provision of the Constitution, that Congress may legislate “for the general welfare.” While it is true that the court did not render any decision directly affecting the bounties to the sugar-planters, its decision on the whole sustained the ground presented by the law officers of the government.

That argument was in these terms in the briefs of the Attorney- and Solicitor-Generals who represent the present administration:

“The sugar-bounty clause was for the purpose of encouraging the production of raw sugar in this country.”

“It may be conceded that the bounty must be paid out of the Treasury of the United States from funds raised by taxation, and therefore that, unless Congress has power to levy a tax for the purpose of paying the bounty, an appropriation for a bounty is beyond its power.”

“Congress has power therefore to levy duties for the purpose of providing for the general welfare of the United States. It has been held in a number of cases, upon which the appellants’ counsel rely, that taxation must be for a public purpose, and therefore that, where it is proposed by a municipal corporation to pay money or lend credit to a private individual or company as an inducement to the construction of works within the limits of the municipal corporation, the remote consequences of benefit to the people of that corporation are not sufficient to make the purpose of the donation a public one, and laws authorizing the same are void.”

After quoting the cases cited against them, the law officers of the government then proceed with their argument in the following terms:

“The foregoing do not include all the cases on the subject, but they are sufficient to show the principle which the appellants here invoke to invalidate the bounty clause under consideration. We respectfully submit that they have no application in this controversy. They are all of them cases of municipal taxation which must be for public municipal purposes. It is obvious that the establishment of a particular industry in one place by a bonus to specified private individuals is a very different object for taxation than the encouragement by the national government of a widespread industry in many quarters of the Union for national purposes, with a view to diversifying the industries of the country and making it independent of other countries for necessities.”

“The principle was laid down in the case of Lowell vs. Boston, supra, that a purpose was not a public purpose because, by affecting the private interests of a great many individuals, it would ultimately affect the public weal. With respect to municipalities and States that can have no international relations, this is undoubtedly true, but the subject assumes a very different aspect when treated from the standpoint of the collective industries of a nation in competition with and in relation to the industries of other nations.”

“Such national action is required to offset the encouragement of the same industry in other countries, lest thereby we be made altogether dependent for the supply of a necessity upon countries thus far removed.”

“The Second Act of the first Congress of the United States, approved July 4, 1789, was an act imposing duties, which expressly recited its purpose to be the protection and encouragement of manufactures. The recital is as follows:

“ ‘Sec. 1. Whereas it is necessary for the support of government, for the discharge of the debts of the United States, and the encouragement and protection of manufactures, that duties be laid upon goods, wares, and merchandise imported, be it enacted, etc. (I Stats., 24).’

“The principle thus established necessarily justifies bounties, for, in the beginning of the operation of a protective tariff the amount of duty levied is a bounty to the domestic manufacturer, and it is with a view to such a benefit for him that it is levied. The sugar duties have always had the effect of a bounty to domestic sugar producers. . . .

“The question of the validity of bounties is thus as old as that of the protective tariff, and has been answered in the same way by constant legislative and executive action, in accordance with the views of that ablest of statesmen and jurists who penned the Report on Manufactures. . . .

“If a century’s construction of the Constitution by Congress is binding on the courts, then the question of the power to tax for a bounty to particular industries is no longer an open one. . . .

“A course of legislation and an acquiescence of the people as old as the nation itself has sanctioned both direct and indirect bounties for the encouragement of those industries which are closely allied with national growth and national independence, as a public purpose and within the power of Congress. . . .

“We have been discussing heretofore the validity of the bounty features of the sugar clause on the theory that provision of this sort was for the general welfare. There is another ground upon which it can be supported. All the authorities agree that the government may recognize a moral obligation to any class of citizens by direct appropriation, though the claim is not based on strictly legal grounds. . . .

“Here was a case where citizens, by reason of heavy sugar duties which had existed for many years, had been induced to make large investments in the plant required for the production of sugars; and now it was proposed by Congress to remove the duties because the revenue which they produced was more than sufficient for the use of the Government. The removal of duties would absolutely destroy fifty or sixty million dollars’ worth of property invested in this industry and protected by the duties. To enable persons whose property would be thus injuriously affected to prepare for the change, the Government was under a moral obligation to reimburse them for their loss or permit them by a bounty to continue the business until such time as the business might be self-sustaining.”

It will be observed that, so far as the Supreme Court sustained this construction of the powers of the National Congress, it held that the principle laid down by Justice Miller in Loan Association vs. Topeka, which I have previously cited, does not govern.

The principle was that “To lay the hand of the Government on the property of the citizen, and with the other bestow it upon favored individuals to aid private enterprises is none the less robbery because it is done under the forms of law and is called taxation.”

In defence of the McKinley act the law officers of the present administration sustained the right of Congress to commit this robbery under the forms of law, but the court did not give a decision upon that branch of the case. That issue may be raised directly at some future time.

It follows of necessity that, under the pretext of Protection, any and all persons in the United States may be taxed by the Congress of the United States for the benefit of any single class of persons that any Congress may select for a bounty.

If this position is sustained when the direct question of a bounty is adjudicated, it will follow that the legislative powers of the Congress of the United States may be misused without limit. Any tax to support any undertaking which a temporary majority of Congress may declare to be for the common welfare must be held to be for a public purpose, and so far as the Court has yet passed upon this claim, it has declared itself to be no longer a co-ordinate branch of the government, and that after such bounty has been paid for a certain period the recipients secure a vested right in the proceeds of taxation which the Supreme Court is powerless to abate.

It would also appear that the powers of the Congress of the United States are supreme—even greater than those of the Parliament of Great Britain in spite of the assumed restrictions of our written Constitution.

This renders the discussion of the tariff system as a matter of principle yet more imperative upon the people of this country, for the reason that where Protection begins revenue ends. That is to say, if a tax is levied upon a foreign import that so raises the cost of that import to the consumer as to make it expedient for him or any one else to undertake the manufacture of a domestic product of like kind,—then, as a matter of course, the import of that article ceases, and the revenue which had been derived from that import ends.

Now it will be observed that the so-called principle of “Protection with incidental Revenue,” and the effect of the McKinley act, which is based upon that idea, is to remove the duties upon imports of articles that cannot in the judgment of Congress be produced in the United States at equal advantage with other countries.

On the other hand, the so-called principle and the purpose of the McKinley act is to put the rate of duty so high that everything which, in the judgment of Congress, can be produced in this country shall be manufactured here, so as to stop the import of foreign goods of like kind. It follows of necessity that if the double purpose of this act could be carried into effect, all revenues from duties upon imports would cease, and that would render a resort to a direct tax for the support of the Government an absolute necessity.

This policy is therefore based upon the idea that the voters of this country will surely elect members of Congress who will be more competent than the voters themselves to determine what branches of industry may be rightly and profitably undertaken in this country, and what may not. The fallacy of this conception was never more completely exhibited than by Daniel Webster when he defended Free Trade upon principle before he had become a mere advocate of the policy of Protection in his later years.

In the great meeting held in Faneuil Hall in 1820 he used these words:

“It would hardly be contended that Congress possessed that sort of general power by which it might declare that particular occupations should be pursued in society, and that others should not. If such power belonged to any government in this country, it certainly did not belong to the general government. The question was, therefore, and he thought it a very serious question, whether, in laying duties under the authority to lay imposts, obviously given for the purpose of revenue, Congress can reasonably and fairly lose sight of those purposes entirely, and levy duties for other objects. Congress may tax the land, but it would be a strange proposition if Congress should be asked to lay a land tax for the direct purpose of withdrawing capital from agriculture and sending those engaged in it to other pursuits. The power, however, exists in the one case as much as in the other. It is not easy, it must be confessed, to draw a limit in such cases, and therefore, perhaps, it must be presumed in all cases that the power was exercised for the legal purpose, the collection of revenue, and that whatever other consequences ensued must be regarded as incidental and consequential to the exercise of the power. Still, it was a question very fit, in his judgment, to be considered by Congress, whether it was a fair and just exercise of power to elevate the incidental far above the primary object, or, to speak more properly, to pursue the latter in utter disregard of the former.

“To individuals this policy is as injurious as it is to government. A system of artificial government protection leads the people to too much reliance on government. If left to their own choice of pursuits, they depend on their own skill and their own industry. But if government essentially affects their occupations by its systems of bounties or preferences, it is natural, when in distress, that they should call on the government for relief. Hence a perpetual contest carried on between the different interests of society. Agriculturists taxed to-day to sustain manufacturers; commerce taxed to-morrow to sustain agriculture; and then impositions, perhaps, on both manufactures and agriculture to support commerce. And when government has exhausted its invention in these modes of legislation, it finds the result less favorable than the original and natural state and course of things. He could hardly conceive of anything worse than a policy which should place the great interests of this country in hostility to one another—a policy which should keep them in constant conflict and bring them every year to fight their battles in the committee rooms of the House of Representatives in Washington.”

It is manifest that even though Webster was the great defender of the Constitution and the representative of a party that carried its conception of the Federal power to an extreme, even he never dreamed of handing over the supreme power of Congress to the domination of the representatives of three petty branches of industry, such as Silver, Pig-Iron, and Wool, by whom the Government has of late been controlled and in whose administration of power no man in the whole country possesses any rights of property which a Congress so dominated and controlled is bound to respect.

The reaction has come, and it will very soon appear that this is a democratic country whose legislation is to be governed by the people for the people, and that no tax shall be levied which the Government does not receive and does not also retain for the public service only.

It may now be expedient to deal with and to define the principle of Free Trade, construing words as they are given in the dictionary. Free Trade is but a synonym for Liberty. Liberty is defined as the state of a free man. In support of this proposition we may cite a definition of Liberty given in one of the highest courts of our land by one of our greatest jurists.

In People vs. Gilson, N. Y. Reports, Vol. 109, p. 389, 1888, Judge Peckham gave a broad and lucid construction to the word liberty in deciding adversely upon a statute by which the Legislature of New York had attempted to interfere with the freedom of trade among its own citizens.

The learned Judge ruled that:

“The term liberty as used in the Constitution is not dwarfed into mere freedom from physical restraint of the person of the citizen as by incarceration, but it is deemed to embrace the right of man to be free in the enjoyment of his faculties with which he has been endowed by the Creator, subject only to such restraints as are necessary to the common welfare. Liberty in its broad sense, as understood in this country, means not only the right to freedom from servitude, imprisonment, or restraint, but the right of one to use his faculties in all lawful ways, to live and work where he will, to earn his livelihood in any lawful calling, and to pursue any lawful trade or vocation.”

In the application of this principle of liberty, we may now put in quotation marks the definitions which are either to be found in the dictionary or in the decisions of the highest courts of our land with the exception of the Supreme Court.

A principle is “a settled law or rule of action in human beings.” The principle on which the nation is founded is that of Liberty. The Constitution assures to every citizen the right of “life, liberty, and the pursuit of happiness.” Liberty is “the state of a free man.” To be free is to be “rid of that which confines, limits, embarrasses, oppresses, and the like.” Liberty in its broad sense is the right of one to use his faculties in all lawful ways, to live and work where he will, to earn his livelihood in any lawful calling, and to pursue any lawful trade or vocation. Trade is “the act or business of exchanging commodities by barter or of buying and selling for money.” Free Trade is therefore “the buying and selling of commodities” without being subject to acts which “confine, limit, embarrass, or oppress.”

In the exercise of Free Trade the citizen is entitled to Protection which is “preservation from loss, injury or annoyance” in his undertaking to “earn his livelihood in any lawful calling and to pursue any lawful vocation.”

The citizen cannot be deprived of the right to Free Trade by any act which “limits, embarrasses or oppresses him,” or by “taxation, except for a public purpose,” the Supreme Court when dealing directly with the rights of citizens having rendered a decision that “to lay the hand of the government on the property of the citizen and with the other bestow it upon favored individuals to aid private enterprises, is none the less robbery because it is done under the forms of law and is called taxation.”

The levy of a “duty” upon foreign imports is to impose a “tax, toll, impost, or custom.” A tax is a “rate or sum of money assessed on the person or the property of a citizen by government for the use of the nation or State” which cannot lawfully be used for any private purpose.

The effect of a tariff for what is miscalled “Protection” is to “limit, embarrass, and oppress” the citizen in the pursuit of his lawful “trade or vocation” for the purpose of “laying the hand of the government on the property of the citizen, and with the other bestow it on private individuals;” or, in other words to levy a tax which is not for the use of the government.

The policy of Protection under such acts as the McKinley act, when rightly defined is, therefore, a policy of privation. Free Trade qualified by the taxation of imports in order to raise a revenue for public purposes only, is the right of every citizen.

It may therefore be the duty of every citizen, without distinction of party, to vote only for members of Congress who will so adjust the duties upon imports that all taxes that the people pay the government shall receive.