The Online Library of Liberty

A project of Liberty Fund, Inc.

• Introduction.
• Taxation and Work.
• Chapter I.: Occupations. Distribution of Products.
• Chapter II.: Taxation Measured By Work.
• Chapter III.: Taxation Measured In Money.
• Chapter IV.: Principal Sources of Revenue.
• Chapter V.: How the Tariff Should Be Reformed.
• Chapter VI.: Taxation Which the Government Does Not Receive.
• Chapter VII.: British Tariff Reform.
• Chapter VIII.: Beggarly Compensation of United States Officials.
• Chapter IX.: What Is Protection?
• Chapter X.: Occupations That Cannot Be Protected By Duties On Imports.
• Chapter XI.: Method of Tariff Reform.
• Chapter XII.: Protection By Exemption From Taxation.
• Chapter XIII.: Free Trade the Objective Point.
• Chapter XIV.: Attempted Definition of the Principle of Protection By Senators Sherman, Hoar, and Aldrich.
• Chapter XV.: Hamilton’s Policy.
• Chapter XVI.: Tariff Protection Does Not Raise Wages.
• Chapter XVII.: Protection Promotes War; Free Trade Promotes Peace.
• Chapter XVIII.: Does Tariff Protection Promote Liberty?
• Chapter XIX.: Progressive Reduction of Duties.
• Chapter XX.: Cost of a High Tariff.
• Chapter XXI.: Development By Free Commerce.
• Chapter XXII.: High Wages and Low Cost.
• Chapter XXIII.: The Use of Machinery By Nations.
• Chapter XXIV.: The Waste of Armies.
• Chapter XXV.: Senator Morrill’s Report On Canada Received. Food and Wages.
• Chapter XXVI.: In the Matter of Silver, Bi-metallism, and Free Coinage.
• Chapter XXVII.: Volume of Trade.
• Chapter XXVIII.: Taxation By Bad Money.
• Chapter XXIX.: How to Maintain Silver Equal to Gold.
• Chapter XXX.: The Issue Joined.
• Chapter XXXI.: Personal Observations—conclusion.

CHAPTER XXI.

Development by Free Commerce.

I may now give a summary of the propositions that have been submitted in this series of chapters on Taxation and Work. My experience covers fifty years of observation, as boy and man, since I first became connected with the textile manufactures of this country. During thirty years since the publication of my first pamphlet upon Cheap Cotton by Free Labor, in 1861, I have given close study to all our industrial conditions.

In that pamphlet and in two subsequent treatises upon the cotton fibre in 1863, I made a forecast of the future of this plant, which was then deemed as visionary as my forecast of the future fiscal policy of this country may now be regarded. I presented all the facts on which the conversion of the seed into oil, oil-cake fertilizers, and paper stock would be accomplished, showed the value of the stalk whenever success is attained in separating the fibre, and the possible value of the root for tanning or dyeing.

I have been lately informed that the roots are now sold, and it is not improbable that my subsequent prediction will be fulfilled, that the fibre of the cotton plant will become a secondary product not equal in value to the other portions of the plant.

I am now profoundly convinced that the system technically known as Protection has reached its logical conclusion and destruction in the McKinley act, and that through a reconstruction of parties for the true consideration of financial questions, a system of national taxation will presently be adopted which will give just and equal protection to every branch of industry by exempting every crude or partly manufactured article from national taxation, and by reducing duties upon all other articles to a revenue basis, due regard being given to existing conditions in framing measures which will bring about this result within a short term of years.

If a beginning should now be made by the exemption of materials used in domestic industry from all taxation, with an adjustment of duties, even at somewhat higher rates, on finished products which are ready for consumption, there would presently be little opposition to abating such duties by ten per cent. each year until they should be either wholly removed or reduced to a moderate and permanent revenue basis.

My reasons for these conclusions are as follows: I hold it to be impossible for any person to come to any other conclusion who investigates the problem or the method by which I was myself convinced that the system of Protection in which I had been brought up was wrong. That method is to review the sequence of events since Hamilton framed a low-revenue tariff and advocated it upon the ground that it would give incidental protection to certain specific branches of industry which he then thought it might be desirable to promote more rapidly in this way, because the processes were either guarded in other countries by penal enactments for their protection, or were supported by bounties for the distinct purpose of keeping special control over them.

I think that any impartial observer or student who will take Hamilton’s list of manufactures, which were well established a century since, and keeping that list in mind, will pass in review the present conditions of all our varied and diversified occupations, will reach certain conclusions, which are as follows:

1st. All arts of any considerable importance in whose behalf tariff Protection is now invoked, were well established before the enactment of the first tariff of 1789, with the exception of the cotton manufacture which has been developed subsequently, notably by the invention of the American cotton gin. To this single important branch may be added some minor arts also due to subsequent inventions of which perhaps more have originated in this country than elsewhere.

2d. The specific branches of industry in whose behalf the support of a tariff has been invoked, have been few in number even among the specific manufactures of the country. They consist mainly of the primary processes in the production of iron and steel, of textile manufactures, glass, and pottery, and some of the cruder products in what are known as chemicals.

3d. These protected industries constitute a very small part even of what are classed as manufactures, and except when protected, not only by duties upon imports, but by patents like the Bessemer, or by the control of ore and coal mines in connection with the railways leading to them, they have produced neither higher wages nor greater profits than the more numerous and important branches of manufactures and metal working, to which no tariff protection could ever have been given, because no product of like kind could be imported.

4th. The specially protected branches of industry have been subject to greater fluctuation than any others,—have become bankrupt more frequently,—are more uncertain in giving continuous employment than any others,—while the labor is less American and more foreign, in many instances more systematically imported than is the case in any other kinds of work.

5th. It has been conclusively proved by the experience of the Southern States that no special protection is required even in the beginning of the work of mining iron ore or its conversion in the furnace or the iron works, or in the establishment of textile factories. It is also proved by our Southern experience that as soon as the interference of laws controlling the condition of laborers and the direction of their work had been done away with by the abolition of slavery, a very wide diversity of occupations established itself, which is rapidly bringing about the same general divisions in the occupations of the people that has also accompanied the settlement of every new territory and State in the West.

6th. Nothing more need be said about the supremacy of this country in the production of at least ninety-five per cent. of the products of agriculture that we require, and which we produce at the highest rates of wages and the lowest cost.

7th. Our supremacy in the matter of a supply of timber, except by comparison with Canada, is admitted.

8th. No other iron-producing country can approach us in the facility with which the materials for the production of iron may be assembled at the furnace, nor in the quantities of ore and fuel lying upon or near the surface of the ground and in close proximity to each other, to the end that, by the measure of day’s work, no other country can compete with us in the production of iron.

9th. The processes known as the manufacturing and mechanic arts consist in the final conversion of the crude materials, which are derived from the field, the forest, and the mine, into food, shelter, and clothing, all intermediate processes being means to these ends.

10th. The necessary supply of food is attained even in this country by the great body of the people, perhaps ninety per cent. of the whole number, at the cost of forty to fifty per cent. of the proceeds of their work. In Europe a much greater proportion of income is devoted to securing a supply of food, which on the continent is deficient in nutritive power. The most important primary elements in the production of food are phosphoric acid or phosphate of lime, and nitrogen. In respect to the first element, without which our grain and cotton crops might ere long be lessened, the recent discoveries of phosphates in Florida, added to those of South Carolina, give positive assurance of an adequate supply for centuries to come, by far exceeding any other known supplies. In respect to nitrogen, we possess in the cow pea vine the renovator of the whole area of southern land that has been scathed by the slave system of labor: its benefits, as yet almost unknown, may yet be extended over the North and West. In the alfalfa, in clover, and many other renovating plants, we also possess advantages over almost every other section of the earth’s surface yet occupied. What may yet be developed in South America waits for the establishment of safe government and sound finance.

Being thus assured of a supply of food material in such excess that we are now “smothered in our own grease,” it may be remarked that there is not a process in the mechanism of conversion, or in making the appliances of the household, which is not of necessity conducted in this country, or of which a similar product could in any considerable measure be imported from a foreign country. On the contrary, nearly every piece of machinery, and almost every household appliance for the conversion of food is relatively to other countries increased in its cost by the imposition of taxes upon the component materials.

No article of any considerable importance is imported for the construction and equipment of the grist and flour mill, for the making of agricultural implements, for the meat-packing establishment, for the sugar refinery, for the brewery, for the bakery, for the furnishing of the domestic kitchen with cooking utensils, for the creamery or the cheese factory, for the incubator, or for the domestic hen-yard. The product of the latter in annual value is equal to the output of all our iron furnaces, double the value of the wool clip, and more than double the true value of the silver product. In short, in this food department, which is the most costly element in the price of life, we supply ourselves with at least double the product at half the cost as compared to every European country, from which product those who do the work derive the highest wages because the process of production is conducted at the lowest cost.

More than forty per cent. of the people of this country are occupied in agriculture, and if to this force be added all the men and women who are occupied in providing the mechanism of the farmer and the appliances by which food material is prepared for consumption, more than one half the industry of this country is employed in providing the food of which the cost is about one half the price of life. It is deficiency in the supply of food and the consumption of armies that is the cause of the so-called pauper labor of Europe and the consequent high cost of production.

The only way in which Protection can be given to this paramount branch of industry is by the exemption from taxation of the materials of which its mechanism, tools, and appliances are made.

While agriculture cannot be protected by duties upon imports, its progress and prosperity may be greatly marred by the obstruction to exports which of necessity follows the obstruction of duties upon the import of the goods with which our exports are paid for.

11th. The shelter of the people of this country comes next in its relative importance; with it may be treated the mechanism of distribution by rail, river, lake, and canal, by means of which food, fibres, timber, metal, and fabrics are placed where they are needed.

It is impossible to give a complete measure of the manufacture of houses either in terms of money or terms of work.

It may, however, be readily proved that the manufacture of buildings or the means of shelter for people, processes and goods, gives employment to a larger number of workmen than are employed in all branches of domestic industry, of which any appreciable part could be imported from a foreign country. This proof may be given by an approximate estimate of the cost of providing house-room for the annual increase in our population. If we compute this increase at 2½ per cent., the increment in 1893 will number 1,600,000. If we assign an average of one house or its equivalent to each family of five persons at a cost of, say, $600 for each house or apartment, then the measure in money of the manufacture of houses for the increase of population only will come to $192,000,000 in 1893. The elements of a house are timber, stone, brick, glass, and metal, all of which are of necessity of domestic production in the class of houses with which we are dealing. The average earnings of the men who are occupied in the production of these elements of shelter do not exceed $500 per year. Deduct ten per cent. for the higher services of contractors and bosses, and we have in round numbers 340,000 men, occupied in all the arts that are required to manufacture houses, even for the increase of population at only $600 per family of five. This is an art that cannot be protected by a duty upon the import of dwelling houses, but which is taxed at every point by duties upon the timber, metal, and glass which constitute the component materials of chief value.

Each one must compute for himself the extent of the building trades by this computation of the least important branch considered in relation to quantity of material and labor consumed. Shelter in all its phases for men, processes, and goods cannot give occupation to less than 2,000,000 to 2,500,000 persons, or about ten per cent. of all who are occupied for gain, none of whom can be protected by discrimination in framing revenue measures except by the exemption of the materials which they use from all taxes.

The relative importance of the mechanism of distribution comes next. We operate 170,000 miles of railway at substantially five men to a mile or more, making 850,000. We have constructed an average of 8,000 miles of railway per year since 1880. As nearly as it can be estimated, it takes about sixty men to build and equip a mile of railway in all branches of the work. This makes 480,000 to be added to the operating force, making 1,320,000 men in this one branch of the service.

It has been already remarked that the traffic of the Sault St. Marie Canal now exceeds the traffic of the Suez Canal, from which every one may get some idea of the mechanism of our waterways. Add to these the constructors of wagons and carriages, and it would seem at least probable that under the head of the mechanism of distribution we are in fact dealing with a body of men numbering at least three million, who can only be protected by discrimination in framing revenue measures, by exempting all the materials which they use from taxation.

12th. The third of the most important elements in the cost of living is Clothing. It is almost useless to attempt to compute numbers or the measure of value of this branch of occupation, because it is so much divided and so large a part is done in the household. The complete census data are not yet at our disposal. No reasonable conception can be reached as to what part of the fabrics or the clothing of the people could or would be imported until the component materials of the fabric and the machinery of the factory are exempt from taxation. At $25 per head, the consumption of textile fabrics by 65,000,000 people would come to $1,625,000,000: which estimate may be warranted by extending the valuation of domestic textiles and imports so as to correspond to the average cost of conversion into clothing. This branch of industry is more affected by fashion and fancy than any other, and the consumption of clothing is more governed by these factors than the provision either for food or shelter.

Suffice it, that whatever may be the present necessity or expediency of continuing to raise a large revenue from duties on the finer textile fabrics, silks, embroideries, fine linens, laces, furs, ribbons, etc., etc., of which the greater portion of the imports consists, the true Protection of the manufacture of the more useful and staple goods of wool and cotton must consist in the exemption of their materials from taxation.

13th. It may be held that by giving consideration to the method of promoting domestic industry and protecting American labor by exemption from taxation, either on materials or on the processes of the work, a simple and effective system may be adopted, under which all the taxes that the people pay will be received by the Government. When that is accomplished, the correlative of national taxation, reduced to terms of work, will be that of four to five per cent. of the labor of the people. It has been computed in a previous treatise at that rate doubled in consequence of the bad methods in which the national taxes are now levied.

14th. It may be remarked that the views presented are inconsistent. It has been stated that, in the judgment of the writer, the protective system has not in the long run raised wages or increased profits, but rather the reverse. How then, it may be asked, can the cost of taxation for the support of Government and Pensions, estimated at $320,000,000 be doubled? If this sum, which as received and expended, represents the work of over 500,000 men for one year at $2 a day, or of a larger number at a lesser rate, and if the cost has been doubled by the mis-direction of taxation, what has become of the proceeds of the work of the second body of 500,000 or more men, the proceeds of whose work the Government has not received? If it has neither gone into profits or wages, what has become of it?

My reply is Nothing. It has all been wasted.

The attempt to attain Free Trade by developing a few special branches of industry by means of duties on corresponding imports at the cost of all other branches has failed; the longer it has been pursued the less has it accomplished its purpose.

It has only subjected a few arts to an artificial stimulus, making more work necessary to attain the same product, that might have been attained by exchange in greater abundance.

It has nowhere been held that the Protection of a high tariff does not make more work, but the object of science and invention is to save work and not to make it.

The direct objections to this system are threefold:

1st. It makes more work, but it diminishes the general product, from the sale or exchange of which all profits and wages are alike derived.

2d. It accustoms a great many people to depend upon the artificial support of the government instead of their own faculties, thus tending to disorder and corruption in legislation and in the civil service.

3d. It establishes a disparity in the cost of the crude materials which enter into all the processes of our industry as compared to other manufacturing countries with which we compete, so that whatever may be the range of prices in any year, until the tariff becomes inoperative they are higher in this country; therefore foreign manufacturers are protected to the injury of our own.

In conclusion, however, the final and paramount objection to the obstruction to the import of the means of payment with which foreign nations liquidate their purchase of the excess of our products of agriculture, is that its evil effect upon the price of all our crops is something that cannot be computed, and which will only be capable of estimation when these obstructions are removed.

In this series of short treatises I have endeavored to give the conclusions derived from a study of our conditions, in the hope that they may be conducive to a just settlement of problems which are vital to our future prosperity. I have given what appear to be the facts, and I trust that in the future, as in the past, my computations will be accepted by the representatives of both sides in this question whatever value may be attributed to my own opinions.

I regard it of great importance to the intelligent discussion of this question that even those who are opposed to a high tariff on general principles should not be persuaded into making exceptions, and into continuing the present system in part, with the idea that it may be profitable and suitable for a time to do so. For instance, it is assumed by some of the representatives of some of the Southern States, in which iron ore and coal exist in great abundance, that the continuance for a time of the duties on ore and coal may enable them to establish the production of iron more surely. That is, in my judgment, an error. Under such an inducement, iron works will be established by those who are not masters of the business, and the domestic competition which will ensue will be more fatal to stability and success than any foreign competition could possibly be.

I have said that the benefit, if any, that has been gained by the iron and steel producers during the last twenty years in excess of the ordinary gains in other business, has been due to the control of the patents and to the control of the deposits of ore and coal in combination with important railway systems, and not to the duties on imports.

Again, I believe it to be a very grave error to impute any excess in wealth or welfare in the Eastern States as compared to the Western and Southern to the protection of a high tariff. It would be impossible to give the statistical data that might be cited in support of my own views. Suffice it that I have followed the economic history of the textile manufactures of the New England States for a very long period. I am very well assured in my own mind that New England would be richer, its people more prosperous, its textile manufactories developed on a sounder foundation, if there had never been any artificial stimulus given to them beyond a system of duties computed for revenue only, on the general direction of Hamilton’s tariff. Even the manufacturing and mechanical industries of New England, which ever could be or ever have been subjected to foreign competition, except for the tariff taxes upon the crude materials which are necessary to them, are but few in number, and they constitute a very small portion of the specific branches of manufacturing and mechanical industry on which New England depends for the purchase of her food and other supplies from other parts of the country. The factory operative who has put his or her savings into one or more of the well managed savings-banks of New England since the enactment of the Morrill tariff of 1861, will have earned on the capital thus saved a larger increment of profit than has been attained by the average stockholder in the same factories in which such operatives have been employed. This is a matter capable of demonstration.

Finally, I am almost inclined to take the position seriously which I made the subject of an address before the United Boards of Trade of New Hampshire, not many months since; to wit, that the accumulated wealth of any community, and the welfare of its working people, as indicated by rates of wages and general conditions of welfare, will be assured in inverse proportion to the natural resources of the section in which such people dwell, and that their work will also be developed in greater measure, and greater prosperity will ensue, the less government interference is exerted to promote the investment of capital, or to influence the direction of the work, by tariff legislation.

In other words, the less the gratuities of nature and the less the bounties secured by legislation, the more sterile the soil and the more necessary the work, the more will gumption, aptitude, intelligence, and thrift be developed in every part of the temperate zone, and the richer and more prosperous will the people become who dwell under these apparently adverse conditions.

The stimulus of a moderately cold climate in which it is more comfortable to work in a factory than out-of-doors, gives a great advantage over the warmer or hot section of any country in the textile and many other arts.