The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface
• Part I: Introductory—some Principles
• Part I, Chapter I: Duties, Imports, Prices
• Part I, Chapter II: Protection to Young Industries
• Part I, Chapter III: The Principle of Comparative Advantage
• Part II: Sugar
• Part Ii, Chapter IV: Introductory—louisiana
• Part Ii, Chapter V: Hawaii
• Part Ii, Chapter VI: Porto Rico; the Phillipines; Cuba
• Part Ii, Chapter VII: Beet Sugar
• Part Ii, Chapter VIII: Refined Sugar and the Sugar Trust
• Part III: Iron and Steel
• Part Iii, Chapter IX: A Survey of Growth
• Part Iii, Chapter X: How Far Growth Was Due to Protection
• Part Iii, Chapter XI: Copper
• Part Iii, Chapter XII: Protection and Combinations. Steel Rails; Tin Plate
• Part Iii, Chapter XIII: Imports and Exports—dumping
• Part IV: Textiles
• Part Iv, Chapter XIV: The Growth of the American Silk Manufacture
• Part Iv, Chapter XV: The Silk Manufacture, Continued. European and American Conditions; Imports and Domestic Production
• Part Iv, Chapter XVI: The Silk Manufacture—some Conclusions
• Part Iv, Chapter XVII: The Cotton Manufacture. Progress of the Domestic Industry
• Part Iv, Chapter XVIII: The Cotton Manufacture, Continued. Contrasts With Other Countries; the Influence of the Tariff
• Part Iv, Chapter XIX: Wool
• Part Iv, Chapter XX: The Woolen Manufacture. the Compensating System; Woolens and Worsteds
• Part Iv, Chapter XXI: The Woolen Manufacture, (continued). Characteristics of the American Industry

Part II

SUGAR

Part II, Chapter IV

Introductory—Louisiana

The duties on sugar as they stood for the half-century after the close of the civil war illustrate several questions of principle. They present a clear case of the continuance of imports in face of duties; and yet a case which, as regards the imports of the later years of the period, needs to be interpreted with caution. During these later years, moreover, the imports came chiefly from regions with which the United States had special trade relations; either because of political control, as with Hawaii, Porto Rico, and the Philippines, or because of reciprocity treaties, as with Cuba. The relaxations of duty for the regions thus favored caused this schedule of the tariff to stand by itself. The domestic production of sugar, and especially of beet sugar, increased fast, under conditions which can be understood only in the light of the doctrine of comparative advantage. The refining of sugar, again, came to be during the half-century a great-scale industry, and was dominated by one of the earliest of the trusts. This was a conspicuous case in which the protective system might be charged with having nurtured or at least strengthened a monopoly. Lastly, the revenue from sugar was large; its fiscal yield throughout was important for the federal budget. Varied questions hence present themselves, ramifying into phases of economic inquiry that seem at first sight to stand in no connection with the sugar duties.

The duty on sugar during the greater part of the period was not far from two cents a pound. Under the tariff acts of 1870 and 1883, it was a little more than two cents (2.25 under the act of 1883). Under the tariff of 1890, the so-called McKinley bill, sugar was admitted free. But a bounty was then given on sugar of domestic production, at the rate of two cents a pound; so that protection was retained at this rate. In the tariff act of 1894, the "Wilson bill," a new system was adopted, bringing a lowered rate. The duty was made ad valorem instead of specific; the rate was made forty per cent, which, at the low prices of that period, was equivalent to little more than one cent a pound. Shortly after, however, the act of 1897 (Dingley) restored the duty very nearly to the level which had prevailed before 1890; it was fixed, on the grades chiefly imported, at about 1 2/3 cents per pound. In the act of 1909 (Payne-Aldrich) this figure was not changed.

The tariff act of 1913, however, made an incisive change, sure to have far-reaching consequences. The duty was reduced at once (i.e., by March 1, 1914) to a rate23 1 of one and one-quarter cents a pound. More important, sugar was to be admitted free of duty after March 1, 1916. The interval of two years before the final removal of the duty was designed to give the protected sugar industry (or rather industries) a sufficient period for adjustment to the coming change.

The duties above stated were on raw sugar. On refined sugar there were additional duties, so-called "differentials," designed to give protection to the refiners. The effects of the two sets of charges—on raw and on refined—are quite distinct, though often confounded in popular discussion. For the present, attention will be confined to the duties on raw sugar, by far the most important in quantitative effect and presenting also the problems of most interest to the economist.24

Until about the year 1880, the effects of the sugar duty were of the simplest sort. The imports were large, the domestic production comparatively small. The imported supply was from eighty to ninety per cent of the total. Hence the duty in the main was not protective. It was chiefly a revenue duty: by far the greater part of what the consumers paid in the way of enhanced price, or tax, went as revenue to the federal Treasury.

The domestic production was confined to Louisiana. There it had suffered during the civil war, and at the period with which we begin was less important, both absolutely and in proportion to the imports, than it had been before 1860. During the decade 1870-80 the Louisiana output, fluctuating with the seasons, ranged from 100 to 200 million pounds a year. The imports ranged from 1000 to 2000 million pounds. Not only was the Louisiana supply thus small in comparison with the total, but it was produced under conditions not dissimilar from those in the competing foreign countries. The question of the effects of protection was presented without complexity. The Louisiana sugar, like that imported, was made from cane, and by substantially the same methods and with labor of very much the same character. The climate, however, is less favorable for sugar cane in Louisiana than in Cuba, Java, and the other regions whence cane sugar is imported. The duty was "needed" for protection, because the Louisiana sugar was produced under physical conditions less favorable. The effect of the duty, considered from any but the mercantilist point of view, was obviously disadvantageous. But the national loss, assessed according to the orthodox reasoning, was not quantitatively considerable, since the supply came preponderantly by importation.

The later course of development in Louisiana brought some considerable changes. The Louisiana supply increased very much beyond what it was in 1870-80; yet it remained about the same proportion of the total,—not far from 10 per cent of the country's consumption. The increase was irregular, fluctuating with the Louisiana crops, which are peculiarly subject to variation from year to year because of the possibility of frost,—the serious natural drawback in this region. After 1890 there was a substantial gain, no doubt due in part to the effect on men's imagination of the bounty given by the McKinley tariff act. It is true that the bounty was intended to do no more, and in fact did no more, than make up for the abolition of the duty. But a bounty seems to make a greater impression than a duty,—not only on the general public, but also, strange as it may seem, on the producers whose affairs are directly concerned.25

Possibly there was in some degree a really greater benefit to the Louisiana sugar planters from the bounty than there had been from the previous duty; since some small fraction of the latter had probably been intercepted by the refiners.26 At all events the Louisiana sugar output grew very rapidly during the bounty period (1891-95), and reached, toward its close, dimensions which at no later date were much exceeded.

After the bounty episode there were important changes in the internal organization of the industry in Louisiana. Sugar prices the world over were low during the closing years of the nineteenth century and the opening years of the twentieth, chiefly because of the pressure on the market of the bounty-fed sugar from Continental Europe. The Louisiana industry necessarily felt the pressure, and thereby was forced, as is so often the case when profits are threatened by adverse conditions, to put its best foot foremost. Plantation methods and sugar-house methods were improved. Many plantations passed out of the hands of the old easy-going families, and were managed more efficiently by new men. The previous system of having a sugar-mill on every plantation was superseded by one of independent central sugar-mills, each grinding the cane and extracting the sugar for a dozen plantations, and each equipped with expensive and well-planned machinery.27 A necessary part of the new method was a network of light railways for carrying the cane to the grinding centers. The transition to this more capitalistic system, it may be noted, was not peculiar to Louisiana, nor first undertaken there. It took place in the other cane-sugar regions also, at about the same time and because of the same pressure from low prices of sugar. At all events, with the improvements, sugar making in Louisiana held its own, and even showed some increase, during the years 1900-10. How far its maintenance was dependent on the import duty,—whether the duty gave a net bonus to the producers, or simply enabled them to hold their own notwithstanding adverse climatic conditions,—is not easy to make out. Some good observers stated that the planting part of the industry was profitable, and would have been carried on even under a duty much lower. Others stated that there was no unusual profit, and that a reduction in duty would spell ruin.28 This latter, needless to say, was the opinion put forward, and doubtless held honestly, by the planters and sugar-mill proprietors, and led to vehement opposition on their part to the changes of duty in the tariff act of 1913.

At the present date (1915) it remains to be seen whether it will prove true, as was emphatically urged by the representatives of the Louisiana planters, that their industry will disappear under free sugar. Whatever the outcome, its history can hardly offer any peculiar economic problems. The case is a simple one of the dependence of a domestic industry on tariff support. More complex are the other consequences of the sugar duty, to which attention will be given in the chapters to follow.

Part II, Chapter V

Hawaii

The first important modification of the comparatively simple situation which continued so long as Louisiana alone was favored against the importing countries came from the reciprocity treaty with Hawaii in 1876. The islands of the Hawaiian group went through several industrial stages after their first contact with white men during Cook's memorable voyage (1778). At the outset sandal wood was the dominant article of commerce; next they became a center for the whaling trade of the Pacific; last came the stage of sugar planting. The treaty of 1876 provided for the reciprocal free admission into the United States and the Hawaiian islands of certain commodities, among which sugar was the only considerable article of commerce. The free admission of sugar into the United States proved to be of signal importance. Not only did it transform the internal conditions of the islands; it altered their relations with the rest of the world, and eventually led to their incorporation into the United States.29

At the time when the reciprocity arrangement was concluded, there was no expectation of any such considerable economic consequences. Political motives, in the main, led to the treaty. It was feared that Great Britain would acquire the islands; much was said of their desirability as a coaling station. The treaty seems to have been due chiefly to the persistent prepossession for owning or controlling foreign lands,—as if a nation by that one stroke secured additional riches,—and to the general jingo-mercantilist fear of being got the better of by another country. Something was due to the fact that American missionaries were established in the islands, and had great and growing influence among the natives. Though it was pointed out, in the debates, that sugar planting, already carried on in the islands, would become more profitable under the treaty, no great extension of the industry was anticipated.

The effect, however, was immediate; and it has proved to be cumulative. Before the treaty the imports of sugar had never risen to 20 million pounds. They touched that figure in the very first year (1876). Thereafter the rate of increase was extraordinary, each year showing a sharp advance above its predecessor. By 1882, the imports exceeded 100 million pounds; by 1887, 200 millions. There was some relaxation during the period of the McKinley tariff, 1890-94, for reasons presently to be explained. After 1895 the upward movement was resumed. The Hawaiian supply so grew that it finally exceeded that from Louisiana, large as the latter had become. By 1908 the quantity of sugar from the islands was more than 1000 million pounds; and it remained above that figure thereafter. From an insignificant item, it became an important one; in recent years (1908-13) about one-seventh of the total supply has come from this source.

Who got the benefit of this remission of duty? The United States Treasury lost very considerable amounts; so much sugar came in free that otherwise would have been taxed. The consumers in the United States did not get the benefit. The price of sugar did not fall; nor could it be expected to fall. By far the larger portion of the sugar consumed continued to be imported from non-favored regions and remained subject to duty. The Hawaiian planters did not sell their sugar at a price below that current in the United States,—a price necessarily higher by the full amount of the duty of two cents a pound. Clearly it was the planters whom one would expect to be the beneficiaries from the remission. And so it proved. The Hawaiian sugar naturally found its way to the Pacific coast, and there was sold at the full American duty-paid price.30 It soon supplied the whole of California and the other coast states, and, as the imports from the islands grew, made its way eastward toward the Missouri river. It was a main factor in the contest which went on for a while between the eastern refiners and those of the Pacific coast,—an episode of which more will be said in due course.31 But in all this the purchasers of the Hawaiian sugar found no advantage. They paid at least as much for their sugar as the people of New York or Massachusetts, who consumed dutiable sugar. The effect of the reciprocity treaty was to include the Hawaiian planters within the pale of the protective system. They were put in the same position as the planters of Louisiana. Or, to state the outcome in other terms, the United States gave a bounty of two cents a pound to the sugar growers of Hawaii.

This is the normal effect of a remission of tax on part of the supply. So long as some fraction of the supply continues to be steadily taxed,—so long as dutiable imports persist,—the whole is raised in price by the full amount of the tax or duty. The producer, domestic or foreign as the case may be, gets the benefit of the remission, not the consumer. The effect is the same in kind, only less in degree, if there is a partial remission,—if part of the supply is subjected, say, to only half tax or half duty. If a portion of the supply continues to pay the full tax regularly, the half which is remitted follows the same course as would the whole: it goes into the pockets of the producers.

Hence the extraordinary growth of sugar planting in Hawaii, and the extraordinary increase of the imports into the United States. The growth in the islands, however, took place under circumstances in many respects peculiar, and with unexpected political and social consequences. At the risk of some digression from our main topic, attention may be given to some of these consequences.

The planters who reaped the high profits were chiefly Americans, or of American extraction. Some were descendants of the American missionaries who during the preceding half-century had had such remarkable success in converting and guiding the natives. Some were new arrivals, who hastened to exploit the rich opportunity. Among the latter was the astute Spreckels, who combined the profits of Hawaiian planting with those of refining in California, built up a great fortune, and became an important figure in the islands. But the planters of the "old" American families remained the dominant element. Sugar growing, under any conditions a large-scale industry, was the more readily concentrated in comparatively few hands through their control, by lease from the government or by ownership, of the best available land. The great planters became an oligarchy, succeeding the missionaries as the real power behind the Hawaiian throne. The swarthy monarchs, King Kalakaua and his sister and successor Queen Liliuokalani, were little disturbed in their sham royalty so long as they confined themselves to dissipation and petty plunder. But both in turn were deposed when they undertook really to rule. There never was a more pasteboard throne than that of the latter-day Hawaiian kings and queens.

The enviable situation of the planters,—increasing output of sugar, high dividends on plantation shares, and high prices of sugar land,—received a rude shock in 1890. In that year the McKinley tariff act admitted sugar into the United States free of duty. Consistently with the protective principle, the Louisiana sugar growers were placated by a direct bounty of two cents a pound. But, the Hawaiian planters, not yet within the American pale, received no bounty. They had now to accept for their sugar the price of the open market, like the planters of Cuba and Java and Brazil. The price of sugar went down sharply in the islands; it is said to have fallen in a single day after the passage of the tariff act from $100 to $60 a ton.32 Hence great depression and much soreness of heart. The hard times that ensued meant, to be sure, not that all profits had disappeared, but in the main that the extravagances of the past had to be given up. As the heavily-watered sugar company stocks shrank, planters' expenditures could no longer be on a recklessly generous scale. Moreover, the pressure of need caused the methods of growing cane and extracting sugar to be greatly improved,—the same result that ensued a few years later under similar conditions in Louisiana. The hard times of 1891-94 proved a blessing in disguise; they led to improvements which were extraordinarily profitable under the favorable conditions which soon were restored.

The uneasiness and discontent bred by the pressure of 1891-94 led to the Hawaiian revolution of 1892, and to the treaty which the administration of President Harrison made for the annexation of the islands to the United States. It would not be just to say that sugar and reciprocity, and a desire to get once more under profitable cover, were the sole motives for the upsetting of the frail monarchy. The queen Liliuokalani and her predecessor Kalakaua had not been creditable specimens of royalty, and doubtless were a good riddance. Among the planters themselves there was some division of opinion on the expediency of annexation. None the less it is clear that the root of the movement was in the sugar situation,—in the wish to get back somehow into the golden relations with the American market. This was certainly the case when annexation was finally accomplished. It will be recalled that the Cleveland administration, on coming into power in March, 1893, withdrew from the Senate the annexation treaty concluded by its predecessor, and caused the collapse for the time being of the whole movement. But the Hawaiian monarchy was gone for good, and the Hawaiian Republic (with a carefully guarded suffrage!) took its place. Very soon after, in 1894, the United States again imposed, in the Wilson Tariff Act, a duty on sugar; not quite so high a duty as that before 1890, but high enough,—Hawaiian sugar being throughout admitted free,—to restore a handsome bounty for the island planters. Good times returned in the islands, and were rendered more secure by their final annexation in 1898. As soon as President Cleveland went out, the McKinley administration emphasized its adoption of directly opposite policies by renewing the negotiations for annexation. A treaty for annexation was concluded as early as June, 1897; but ratification by the Senate did not come until 1898, when the Spanish War and the Philippine conquest brought an added pressure. The favored position of Hawaiian sugar rested thereafter not on the basis of a revocable treaty (the treaty had become, after 1894, terminable at twelve months' notice), but on the solid foundation of a complete incorporation in the American dominions. Sugar growing, which had barely held its own from 1890 to 1894, now resumed its upward march. New plantations were opened, old ones enlarged their output, more and more sugar was poured into the United States, and the islands again boomed.

The increase of the Hawaiian sugar crop during the later years took place in a way that serves to illustrate still other economic principles. The tendency to diminishing returns in agriculture showed itself as the sugar growing resources of the island were pushed further. The best plantation lands had now been in use for many years. As more sugar was got from the soil it became necessary,—even for the maintenance of output at the existing rate,—to resort to high cultivation. The Hawaiian plantations hence became large importers and users of fertilizers. Therein they were in contrast with Cuba, where sugar land was abundant, and where, as one patch showed signs of exhaustion, the planter simply moved on to another virgin plot. Not only was there this pressure on the good sites in Hawaii: there was the natural tendency to descend in the scale of cultivation, and to use poorer and poorer sites. Sugar cane depends on abundant precipitation. This is supplied on the windward slopes of the islands by the moisture laden winds from the Pacific. But on the leeward slopes, and on inland areas shut off from the ocean by mountain barriers, the rainfall is insufficient. Here great irrigation works were set up, largely by pumping from artesian wells, and sometimes with an admirable technical equipment.33 In other words, under the bait of the artificially high price of sugar, capital and labor were turned to the utilization of natural resources not in themselves of the best. It is part of the same pressure on the land that sugar cultivation in Hawaii was intensive; the yield per acre is said to have been higher than in any other cane growing country;34 fertilizers, as has just been noted, were imported in large quantity. As is often the case in descriptions and discussions of intensive cultivation, these refined methods and high acreage yields were spoken of as meritorious, proving that the industry was doing well. In fact they proved that the land was being forced, that the tendency to diminishing returns had set in, and that strenuous exertions were being made to overcome the difficulties.

Hence there must be some qualification to the statement or implication in the preceding paragraphs, that the bounty or protection on Hawaiian sugar enured to the special profit of the sugar planters. It did, so far as they produced the sugar on the more favorable sites or under the more favorable conditions. So far as they had to turn to poorer sources of supply, or pushed their plantations to extra yield by high cultivation, they were led to make that disadvantageous application of labor and capital which is the more ordinary consequence of a protective duty. The higher price of sugar enabled the planters to carry on some sugar growing which they could not have carried on without the bonus. It is impossible to determine how large a part of the sugar planting of the islands was in this sense wasteful. The circumstance that during the years of free sugar (1890-94) their output, though it failed to increase, did not shrink (it remained not far from 300 million pounds), would indicate that up to this amount cultivation had not been pushed to the point of slackening returns. On the other hand, the output, after a steady growth from 1894 to 1908, remained after the latter year virtually stationary (at about 1,000 million pounds); apparently showing that with this amount the margin of profitableness, even though it may not have been quite reached, was being approached.

One further illustration of general economic principles may be noted. The bonus has caused in the islands a rearrangement of industry which has conformed to the principle of comparative advantage. It made sugar production a peculiarly advantageous industry,—advantageous, that is, from the profit-making point of view. Sundry commodities were imported into the islands for which they seem to be well adapted and which had formerly been made within their own limits. Though possessed of a temperate climate, and apparently capable of producing at moderate cost wheat, Indian corn, meat, they imported these staples.35 Sugar had been made the more profitable industry, and to this all the energies of the inhabitants were turned. Possibly the same result would have ensued in any case; sugar may have a comparative advantage even without a bonus; but the devotion of practically all the land and labor and capital of the islands to this one industry was settled once for all by the special advantage which was given it by favored treatment on the part of the United States.

Still another aspect of the Hawaiian experience is significant: its labor problem. The light-hearted easy-going native—the Kanaka—proved unwilling to do the unremitting hard labor of the cane fields and sugar mills. He had proved an excellent seaman, and could be induced to serve as teamster or cowboy. But for plantation work others had to be sought. Indeed, the Hawaiian race was disappearing; it could not resist the vices and diseases of civilization. The natives had been declining in numbers from their very first contact with the white race, and before long became a minor part of the population. Other labor had to be resorted to, more hardy in the fields and more willing to labor long and steadily. The Chinese were brought into the islands by the thousand. They came under a "penal labor contract," devised in the early days (the act authorizing it was passed in 1850): a contract under which the laborer bound himself for service at fixed wages for a period of years, and could be apprehended and delivered to his employer if he ran away.36 As an agent of the United States Department of Labor remarked, this arrangement had "all the advantages of slavery without its disadvantages."37 The Chinese coolies were a semi-servile labor force, absolutely at the planter's disposal for the stipulated term (usually five years), while yet he suffered no loss if they should die. That the coolies were not an entirely wholesome constituent in the population was obvious enough from the outset, and an attempt was made (in 1878-86) to secure Portuguese laborers from the Azores. A few thousand Portuguese were brought in under labor contracts and placed on the plantations. But though tough and hard-working, they proved, like the Kanakas, unwilling to remain permanently on the sugar fields. As soon as the stipulated term of service expired, they took a bit of land for their own cultivation or became artisans.38 The planters found it necessary to fall back on Asiatic labor, partly Chinese, partly Japanese.

After the annexation of the islands to the United States, in 1898, the labor problem entered on still a new phase. The prohibition of the immigration of Chinese laborers applied to Hawaii; moreover, the contract labor system was made illegal by the act of Congress providing for the government of the new territory. The planters were compelled to turn to the Japanese. These entered thereafter by the thousand, and became the largest single element in the population of the islands. They were not so docile as the Chinese, especially in view of their being "free,"—no longer contract laborers. They were able to ask for higher wages, and even to strike. They "made trouble" in various ways. But the planters, compactly organized, came to an agreement for uniformity in their rates of wages;39 they would not overbid each other; and the Japanese were satisfied with a moderate increase of pay. There was and is a constant movement to and fro between Hawaii and Japan; for the plantation laborer remains a bird of passage, as he always has been. For a time there was a movement also between Hawaii and California. The tension between the United States and Japan concerning the immigration of Japanese laborers was due in no small part to the fact that the islands became a stepping stone toward the land of high wages and real freedom. The agreement of 1908 by which Japanese immigration to the United States proper has been controlled by Japan itself put an end to this cause of friction; but in Hawaii the Japanese remain, and constitute the bulk of the laborers in the sugar fields.40

The political and social conditions resulting from this unexpected industrial development are obviously not consonant with the ideals of democracy. A great mongrel mass of sugar-plantation laborers,—Chinese, Japanese, the wasting Hawaiians, a very few Portuguese; above them an oligarchy of rich planters, with their bankers and shipping agents and other associates, and a few hangers-on; all dependent on a single industry puffed to unnatural dimensions by legislative favor,—this is not a welcome addition to the American commonwealths.

Most people think of an addition to a nation's dominions as they do of an addition to an individual's possessions. John Smith is more prosperous if he acquires more real estate; and the United States are supposed to be more prosperous if they acquire more territory. Hence we were willing to pay twenty millions for the Philippines, and think we did well to get Hawaii of its own offering and Porto Rico by right of conquest. In truth, they have been doubtful boons. If indeed new acquisitions serve to open, for settlement and utilization by a vigorous race, territory that otherwise would have lain fallow, there is a real gain. Such was the result of the Louisiana purchase, and of the acquisition of Texas and of the Pacific coast. These expansions, too, made possible a great extension of the geographical division of labor. But no such gains have come from our newly acquired dependencies. It is difficult to find in the whole Hawaiian episode anything but one long course of error. The American consumer paid for thirty years (barring the brief respite while the McKinley Tariff was in force) a tidy sum annually to the Hawaiian planters. In the later years of the period this tribute amounted to twelve or fifteen millions of dollars a year. For this there has been nothing of any real value to show,—unless it be a stepping-stone to the Philippines, another dependency hardly less unprofitable.

Part II, Chapter VI

Porto Rico; The Phillipines; Cuba

The war with Spain brought new complications of every sort, and among them none more striking than those in the sugar situation. In addition to Hawaii, Porto Rico and the Philippines became territory of the United States. Cuba was attached to this country by political and industrial ties. These three, as well as Hawaii, were producers of sugar. With regard to all, essentially the same problems arose.

The case of Porto Rico was almost precisely like that of Hawaii. The consequence of our acquisition of Porto Rico was that after 1901, this island was treated as an integral part of the United States. Its sugar, as well as its other products, became exempted from duty. Porto Rico was from the very outset in the position which Hawaii obtained through its annexation in 1898. Even more promptly and unconditionally than the other dependency, it was brought within the pale of the protective system.

It need not be explained again why sugar from Porto Rico, like that from Hawaii, was sold in the United States at the duty-paid price, though itself free of duty. The imports from the island (or supplies,—since in the view of the law they are not "imports") had not been considerable before 1900, having ranged not far from 100 million pounds a year. After the date when the favored treatment began, they rose fast. They doubled within three years, increased to nearly 500 millions in 1909, and were (in round numbers) 765 millions in 1913. Call it subsidy, bonus, protection, whatever name you will: the obvious fact was that the American consumer paid the full tax, which went, however, not to the federal Treasury but to the Porto Rican planters.

Whether the planters made unusual profits depended, as in the case of Hawaii and Louisiana, on their facilities for production. According as these were more or less good, the bonus operated either to put extra gains into their pockets or to sustain them with no exceptional profit in an industry carried on under unfavorable conditions. The rapid and continuous increase of the sugar output seemed to indicate that the conditions were favorable and that the planters profited handsomely. When an industry doubles its output every five years (such was roughly the rate at which Porto Rican sugar increased during the decade 1900-1910) it is reasonable to infer that the profits are more than generous. On the other hand, well-informed persons state that the land readily available for sugar growing is limited. Though some parts of the island have land equal to the best in Cuba, there is not enough for indefinite extension. Porto Rico is everywhere mountainous; the flat areas along the coast and in the valleys, alone available for sugar culture, are not large. Hence the prediction was made that even with the bonus from the sugar duty the output, while it might approach 1,000 millions, could not exceed that quantity.41

In Porto Rico, as in Hawaii, the situation led to attempts to extend cultivation and push the yield. Sugar growing was made profitable under conditions that would not have allowed a profit without the bonus. Rainfall and water supply again were of the first importance. The island is divided from east to west by a mountainous ridge, which causes the precipitation (here chiefly borne by northeast winds) to be heavy on the northern side, but on the southern side insufficient for the cane's need of abundant moisture.42 The insular government undertook great irrigation works, involving the expenditure of millions of borrowed money,43 all for promoting sugar cane culture; with the expectation, of course, that payments by the planters for the water would make the investment remunerative. From the engineer's point of view, even from that of the zealous colonial administrator, these were most excellent projects. But the economist must question whether they represented a fruitful investment, resting as they did on the unstable foundation of prices raised by the effect of duties.

In Porto Rico, as in Hawaii, it has been the enterprising and moneymaking American who has chiefly profited. "The lands suited to cane culture are rapidly passing under the control of wealthy corporations, by purchase or by contracting for a term of years the cane of the 'colonos' or farmers."44 This is doubtless inevitable. The same transition has taken place as in Louisiana and indeed in Cuba. Cane sugar making has come to be a large-scale industry, with great central mills to which the cane is brought by light railways for crushing. Only those who have large capital can embark in such an industry with success, and it is they who are likely to reap the larger share of any unusual profits. As an American official remarks, "it is the opinion of many close observers that the colonos and the peons who do the field work are not getting their share of the product."45

Turn now to the Philippines. They were long treated with less generosity than Porto Rico and Hawaii. Imports from the Philippines were admitted for many years at three-quarters of the ordinary rates of duty. The sugar duty after 1897, it will be remembered, was 1.62 cents per pound on the grades of sugar usually imported.46 Philippine sugar got a remission of one-quarter, about two-fifths cent per pound. This arrangement continued until 1909.

The difference between remission of the whole duty and of a part of the duty, as has already been noted, is one of degree only. In neither case does the consumer benefit. The favored producer simply gets in the former case a bonus or protection of the whole of the duty, in the latter of a part of it. So with regard to the Philippines: during the period from 1901 to 1909, their producers sold the sugar at the full duty-paid price, and were able to keep for themselves the fraction of a cent which the United States remitted from the duties.

So moderate a degree of favor had no considerable influence on the imports from the archipelago. These imports had never been large; and they showed no tendency to increase during the period of partial remission. Under the Spanish regime, sugar planting had been carried on, as had most other industries, in lazy and slipshod fashion. American rule, for the time being at least, seemed to bring no change in this regard. The bonus previous to 1909 was not sufficiently large to lead to any change of moment.

In the tariff act of 1909, however, a new policy was adopted. Philippine products were admitted free, and among them sugar. This remission of duty, however, was not unqualified. Only 300,000 gross tons of sugar (674 million pounds) were to come in free; any amounts beyond this limit were to be subject to duty.47 The restriction was due to a fear on the part of the domestic producers that imports might increase indefinitely: a fear justified by the course of events in Hawaii and Porto Rico. For the time being the amount allowed was generous enough,—far in excess of the then existing sugar output in the Philippines. The effect on that output, none the less, was immediate and marked; so much so as to suggest that the limit might have been reached within a few years. The imports of sugar from the Philippines, which had been 8o millions of pounds in 1909, rose to not less than 435 millions by 1912. The remission of duty on this considerable quantity, as need hardly be repeated, had the same effect as in the other cases: a loss of revenue to the United States Treasury, no gain to consumers, a bonus to the Philippine sugar producers.

The tariff act of 1913, though it did not put an end to this situation at once, so altered it that the inducements for increasing the Philippine sugar output ceased. True, it removed the restriction on the quantity of sugar which might come in from the islands free of duty; sugar, like other Philippine products, was to be admitted free without limit. But, as will be remembered, the duty was reduced at once (i.e., by March, 1914) to one-half the previous rate, so that the bonus to the Philippine planters immediately became much less. Within a little more than two years (i.e., by May 1, 1916) all sugar, whencever imported, was to be free; and then the bonus was to disappear entirely.

The liberal treatment of the Philippines had long been urged by President Taft, whose own experience in the government of the islands led him to regard with perhaps sentimental favor all measures for their benefit. It was largely through his influence that the free admission of their sugar was brought about in 1909. In view of the way in which Hawaii and Porto Rico had been dealt with, the ardent for extension of the same favors to the Philippines was wellnigh unanswerable. It was strengthened by the general tenor of the current protectionist reasoning,—the notion that duties are aimed at foreign producers and are borne by them.48 In fact, the duties had not been taxes on the Philippine producers at all; they had simply served, through their previous partial remission, to give a partial bounty; they now served, through their complete remission, to give a complete bounty.

Last in the list of dependencies and quasi-dependencies comes Cuba.

The sugar supplies from Cuba were, throughout the period under discussion, by far the largest constituent in the total, ranging from one-third to nearly one-half of the amount consumed in the United States. They fell off, inevitably, at the time of the insurrection against Spain and the consequent disordered state of the island; but after the restoration of peace the normal large amounts were again sent to the United States. Until 1903 they were subject to full duty. But in the course of the new arrangements which came after the Spanish war, Cuba, like the Philippines, was given a favored position. When the independence of the island was finally settled, and the United States troops withdrew, a reciprocity treaty was concluded by which Cuba made certain reductions of duty on American products imported into Cuba, and the United States made a general reduction of twenty per cent on Cuban products imported in the United States. Sugar was by far the largest article of import from Cuba, and the significance of the reduction on sugar was shown by some special stipulations regarding this commodity. The treaty went into effect in 1903. Cuban sugar thereafter was admitted at a reduction of about one-third cent from the full duty.49

So long as imports paying full duty came in from other sources, this reduction must be expected to enure to the benefit of the Cuban producer, not of the American consumer. The case would seem to differ from that of the Philippines (until 1909) in degree only. Though the sugar imports from Cuba had always been large, and became even larger under the influence of the favored treatment, they were in no year sufficient to displace entirely the full-duty sugar from other countries. These full-duty imports became, it is true, small in proportion to the total. They diminished to less than ten per cent of the total consumption, and in some years to hardly more than five per cent. But this small percentage still meant imports that were large absolutely: hundreds of millions of pounds came in each year, and they paid duties amounting at the full rate to several millions of dollars. These continuing imports, by no means small or sporadic, would seem to prove that the price of all the sugar consumed was raised by the full amount of the duty, that the American consumer got no benefit from the Cuban remission, and that the Cuban producer got a gratuity of one-third cent on each pound.

This conclusion, however, is subject to a qualification of the kind considered in the first chapter of this book:50 a qualification which shows once again the need of watchfulness in drawing inferences from the bare statistics.

The Cuban sugar supply was so large, and the proportion of full-duty sugar so small, that the situation began to approach that which would appear if full-duty sugar had been completely pushed out of the United States market. Had this result been reached,—had importation from non-favored regions ceased,—the relaxed duty on Cuban sugar would have been the only one in fact collected, and the price of sugar in the United States would have been raised not by the amount of the nominal duty, but by that of the Cuban duty,—not by 1.65 cents, but by 1.33 cents. All the other preferences to sugar producers, both those in the United States proper and those in the several dependencies, would have been reduced to the same extent. The rapid extension of production in the various favored regions threatened to bring about this result,—surely one to be welcomed by the American consumer. Though this consummation was not quite reached in the later years of our period, say in 1906-1913, the approach to it caused an appreciable relaxation of the burden from the full duty and some diminution of the gratuity to the privileged producers.

Raw sugar has come on the American market in recent times by instalments distributed unevenly through the year. The domestic beet sugar (of which more will be said presently) is marketed during the autumn months; but this supply reaches chiefly the western region, beyond the Missouri river. Toward the end of the year, the Louisiana crop appears, followed in January by that from Cuba and Porto Rico. During the first quarter of each year, from January until April and May, these West Indian supplies are virtually the only ones available. Then follows a comparatively lean period, in summer, when imports from Java come in; these are (or were) the main full-duty imports. The Hawaiian crop also arrives between the early spring and December. Of all the several supplies, that from Cuba is by far the largest; so much so, that during the early months of the year, it dominates the market. Virtually no other duties were paid at this season than those at the reduced rate on Cuban sugar. Under such circumstances it might happen that for the time being the domestic price was settled solely by the Cuban rate,—i.e., the outside price plus the duty on Cuban sugar; or that some Cuban producers held back a considerable part of their sugar, waiting for the later months when the price would again rise to the full-duty level, and maintaining the price for the time being at a point somewhere between full duty and Cuban duty. Conceivably, so much of the supply might be thus held back as to keep the price throughout at the full-duty level. In fact, it was the intermediate stage which seems to have been settled by the higgling of the market, with variations in different years and in different months of any one year. The Cuban planter did not get the whole of his differential tariff advantage; but neither did the domestic purchaser. The case shows the need of caution in inferring once for all, from the continuance of imports, that every part of the supply is necessarily raised in price by the maximum duty imposed on any part of the imports. Here, as in other parts of the economic world, there are eddies and cross-currents which must be watched and understood.51

Needless to say, such a transition period could not last indefinitely. The steady increase from the various favored sources of supply,—Hawaii, Porto Rico, the Philippines, Cuba, and the domestic beet-sugar region,—was sure in time to drive out completely the full-duty sugar, and to leave sugar from Cuba alone dutiable. Then this alone would affect the domestic price, and the differential advantage to the Cuban planter would cease.

During the transition period, though the Cuban planter failed to keep for himself the reduction in duty, the domestic consumer did not necessarily secure it. Such a seasonal and intermittent concession in price as the Cuban sellers were forced to make was likely to be absorbed by one or another of the various intermediaries who intervene before the sugar finally passes over the retailer's counter. It would appear that the refiners, who stand first in the chain of middlemen, kept some slice of the concession for themselves. It is quite possible that the wholesale and retail dealers kept the rest. It may be that the consumer got a fraction of it, either directly, or indirectly in the form of "bargains" in other articles, made possible by a shading of the terms on which the dealer secured his sugar.52 The connection between wholesale prices and retail is a loose one; all that can be laid down is that a long-continued decline in wholesale prices has its effect ultimately in lowering retail prices also, and that this is likely to be the case even if the wholesale fall is not large. Spasmodic and irregular changes, on the other hand, even though considerable, are more likely to dissipate their effects before the retail purchaser is reached.

Part II, Chapter VII

Beet Sugar

The beet-sugar industry presents questions essentially different from those considered in the preceding chapters. The sugar beet is grown in the temperate zone, and its cultivation is one among many possible, forms of agriculture. In view of its peculiar position and significance, it deserves careful and detailed consideration.

Chronologically, the beet-sugar supply is among the later additions to the total for the United States. Barring a slight amount from one or two California enterprises, no beet sugar at all was produced in the country before 1890. The bounty given by the tariff act of that year (1890) is often referred to in the literature on the subject, especially that put forth by protectionists, as having had a stimulating effect on the industry. Though this bounty was no more than an equivalent for the duty then remitted, it may have given some impetus, for the same psychological reasons as in the case of the Louisiana planters.53 Several states also gave bounties for the production of beet sugar, usually moderate in amount and limited in time; these constituting, so far as they went, a substantial bonus.54 Probably no less effective than the bounties at the start, and more effective as time went on, was the propaganda of the Department of Agriculture. That Department preached beet sugar in season and out of season; spread broadcast pamphlets dilating on the advantages of beet growing for the farmer and giving minute directions on methods of cultivation; maintained a special agent, who kept in touch with the manufacturers and farmers, and annually reported on the progress of the industry. The result was familiarity with the possibilities throughout the country, the removal of all obstacles from inertia and ignorance, and a rapid development in all regions where there was a promise of profits.55

At all events, the beet-sugar product increased rapidly after 1890. It quadrupled between 1890 and 1900, and more than quadrupled between 1900 and 1910,—a remarkable rate of growth. Far from remaining insignificant and quite negligible, its contribution to the country's sugar supply became more and more important. It surpassed that of Louisiana cane sugar, equalled that from Hawaii, and itself was surpassed only by the supply from Cuba. In round numbers, over one billion pounds of beet sugar were produced in each of the four years, 1908-12. The years 1912-13 and 1913-14 still showed a marked increase.

Equally significant and striking was the geographical distribution of the industry. The tabular statement on the next page shows what that distribution was.

One fact is obvious on a cursory inspection of these figures. The beet-sugar industry is in the main massed in the far west,—in California, Utah, Colorado, and the adjacent region. The agricultural belt of the central states has a very slender share. Only one state in this part of the country, Michigan, makes a considerable contribution to the supply. Wisconsin, and Ohio (not separately given in the table) each adds a little. No other state in this region has more than one beet-sugar factory. Barring Michigan, the production of beet sugar may be said to be confined to the Rocky mountain and Pacific states.

The explanation of this geographical concentration does not lie in any obstacles from climate or soil in other parts of the country. The beet flourishes over a very wide area. An instructive pamphlet issued by the Department of Agriculture shows the zone in which the sugar beet may be expected to "attain its highest perfection."56 This zone or belt, two hundred miles wide, starts at the Hudson, and sweeps across the country to the Dakotas; turns southward through Colorado, New Mexico, and Arizona; and then, turning again, proceeds west and northwest through California, Utah, Idaho, and the Columbia valley. It includes a great part of the north central region. Yet in the last mentioned, the most important and productive agricultural region of the country, there is virtually no beet growing or sugar making, except, as just mentioned, in Michigan. The climatic and agricultural possibilities are not turned to account until the far west is reached.

The reason for the absence of beet growing and hence of sugar-beet production in the north central region is to be found in the principle of comparative advantage: agriculture is applied with greater effectiveness in other directions. It is not that the climate or soil or even the men make it more difficult to grow beets here than in Europe. It is simply that other ways of using the land are found more advantageous.

An excellent investigator in the agricultural aspects of the beet-sugar industry has said:57 "The growing of beets is not agriculture, but horticulture." All the manuals and pamphlets insist on the need of elaborate preparation, minute care, much labor directly in the fields. The planting of the seed does indeed take place by drills, the plants coming up in continuous rows. But after this first operation, painstaking manual labor is called for. When the young shoots come up, they need first to be blocked, then thinned. "Blocking" means that most of the beets in the rows are cut out by a hoe, only small bunches being left, about ten inches apart. These bunches are then "thinned"; every plant is pulled out by hand except one, the largest and healthiest. "Great care should be exercised in this work, and by careful selection all the inferior plants should be removed... When thinning, it is a good plan to give the ground a thorough hand hoeing."58 Throughout the growing period the beets must be cultivated, partly with a horse cultivator, partly with the hand hoe. "The cultivator and the hoe should be used alternately until the beets are too large for horse cultivation without injuring them. Hand laborers should continue to go over the beet field, pulling the weeds and grass that may have persisted."59

Essentially the same situation appears when harvesting is reached. The beets may be first loosened by a plow and by a lifter; but each individual beet must be pulled out by hand. Then they are knocked together gently to remove the adhering dirt. Finally, they are "topped"; that is, the neck and leaves are cut off with a large knife." The removal of the tops of the beets is a tedious process, which in Europe is performed by women and children.... Constant supervision is necessary in this work."60

No machinery has been devised that serves to dispense with the large amount of hand labor called for. "Several attempts have been made to construct a mechanical device by which the beets can be topped, thus saving a large expense, and perhaps a successful device of this kind may some day be invented. So far as is known at the present time [1908], however, this process has not been successfully accomplished by machinery, and the topping must still be done by hand."61 "Inventive ingenuity in Europe and especially in America," said the Special Agent of the Department of Agriculture in 1906, "has been directed to planning a harvester which will do away, as far as possible, with this expensive hand work.... It cannot be said that any of these newly-devised implements works successfully in all soils."62 In 1912 the Department's report again had to confess that "a really successful beet topping and harvesting machine" was yet to be devised, and that "at present all the operations of pulling, topping and loading are done by hand."63

It follows that the successful growing of the sugar beet calls for a large amount of monotonous unskilled labor. No small part of it is labor that can be done by women and children and tempts to their utilization. Not only does the typical American farm and farm community lack the number of laborers required; the labor itself is of a kind distasteful to the farmers. "Thinning and weeding by hand while on one's knees is not a work or posture agreeable to the average American farmer. Bending over the rows and crawling along them on one's hands and knees all day long are things that the contracting farmer is sure to object to as drudgery.... Our farmers ride on their stirring plows, cultivators, and many implements."64 As was remarked by a witness at a tariff hearing: "the thinning and the topping of the beets it is pretty hard to get our American fellows to do, and they prefer to hire the labor and pay for it."65

Anticipating for a moment what will be said in the following paragraphs of the beet-sugar industry of the Mountain and Pacific regions, it may be pointed out how this need of extra labor has been met. The labor situation is instructive not only as regards the beet-sugar industry itself, but also as regards the general trend in the United States during the last generation.

Almost everywhere in the beet-sugar districts we find laborers who are employed or contracted for in gangs; an inferior class which is utilized, perhaps exploited, by a superior. The agricultural laborers in the beet fields are usually a very different set from the farmers. On the Pacific coast they are Chinese or Japanese. Except in Southern California, where the Mexicans are near at hand, most of the work is done by Japanese, under contract; there being usually a head contractor, a sort of sweater, who undertakes to furnish the men. In very recent years Hindus (brought down from British Columbia) also have appeared in the beet fields of California. In Colorado "immigrants from Old Mexico compete with New Mexicans (i.e., born in New Mexico), Russians, and Japanese."66 Indians from the reservations have been employed in Colorado. At one time, convict labor was used in Nebraska. In some parts of Colorado, in Montana, and at the beet fields of the single factory in Kansas, refugees from German colonies established long ago in Russia are employed. In Michigan, the main labor supply comes from the Polish and Bohemian population of Cleveland, Buffalo, Pittsburgh. The circulars issued by the Department of Agriculture and by the state boards and bureaus repeatedly call the attention of the beet farmers to the possibility of employing cheap immigrants. The troublesome labor problems, it is said, need not cause worry: here is a large supply of just the persons wanted. "Living in cities there is a class of foreigners,—Germans, French, Russians, Hollanders, Austrians, Bohemians,—who have had more or less experience in beet growing in their native countries.... Every spring sees large colonies of this class of workmen moving out from our cities into the beet fields."67

The sugar manufacturers, who buy the beets and make the sugar in their factories, play a large part in bringing this labor to the fields. Indeed, they play a large part in every phase of the industry,—on its agricultural side as well as on its manufacturing side. They supply seed; give the farmers elaborate directions on methods of cultivation; employ supervisors to visit and inspect the farms, and to spur the farmers to the needed minute care; of necessity they test the beets at the factory, and pay according to sugar content; and they often undertake to provide the labor. Sometimes the factories contract to attend to the field labor themselves, receiving from the farmers a specified price,—so much for bunching and thinning, so much for each hoeing, so much for topping. The farmers then have nothing to do but supply "reasonable" living accommodations.68 More often farmers not thus provided for secure their laborers through contractors, at a fixed price of so much (varying from $15 to $20) per acre for all the work; these middlemen being hunted up or selected for the farmers by the factory managers. Such "sweaters" make a profit from their sub-contract with the field hands; the system being open to the possibilities of overreaching which are too familiar under such arrangements.

All this is part of the transformation which has been wrought in so many parts of our social and economic structure during the last quarter of a century by the great inflow of immigrants. Agriculture as well as manufacturing industry is feeling the influence of the new conditions. Laborers from the congested foreign districts of the cities—Italians, Bohemians, "Huns," "Polacks," Russians—make their way to the market gardens surrounding the cities, to vegetable districts such as that of the Chesapeake peninsula, to the cranberry fields of New Jersey; these do the hand work for the shrewd Yankee farmers. Some of them may be on the way to the acquisition of land through their savings. But certainly for the time being the conditions are socially and industrially unwelcome. They are not dissimilar to those of the Sachsengängerei, of ill repute in eastern Germany. They are very different from the conditions which we think of as typical of agriculture in the United States. As in these analogous cases, so in the beet fields, there is an agricultural proletariat.

As yet, however, the main agricultural region of the United States,—the great central region in which are the wheat and corn belts,—has been little affected. Here we still find extensive cultivation, agricultural machinery, the one-family farm. It is true that during the harvest season there is a heavy demand for agricultural laborers, and that this is satisfied by laborers who may be said also to constitute an agricultural proletariat. It is true, further, that the stage of pioneer farming has been passed or is rapidly being passed, that rotation is becoming more systematic and skilful, the land more valuable, cultivation more intensive. Nevertheless this remains the region of the one-family farm. The farmers "ride on their stirring plows and cultivators" and in this way are able to do most of the work on their lands for themselves.

Throughout the corn belt, more particularly, there is no sugar-beet industry of any moment. It pays better to raise corn; there is a clear comparative advantage in corn growing. This grain is peculiarly adapted to extensive agriculture. It also lends itself readily to the use of machinery; corn can be "cultivated" between the rows by horse power. It is a substitute for root crops, and can be rotated steadily with small-grain crops.69 It is a direct competitor with the sugar beet for cattle fattening. The advocates of beet raising always lay stress on the value of the beet pulp, the residue at the factory after the juice has been extracted, for cattle feeding. But corn is at least equally valuable for the purpose, and the typical American farmer raises it by agricultural methods which he finds both profitable and congenial. One man can grow forty acres of corn. He can plant only twenty acres of beets; and these he cannot possibly thin and top.70 In Iowa "the farmers are progressive, successful, and satisfied. In fact, this has been the main obstacle to installing the sugar industry there. The farmers have not shown a disposition to grow the beets. When the farmers are advised that beet culture is accompanied with considerable hard work, factory propositions usually succumb to the inevitable. The farming class of the state is accustomed to the use of labor-saving implements in the fields."71

It is not an accident that the states of the Great Lakes region in which the sugar-beet industry has shown some development,—Michigan, and in much less degree, Ohio and Wisconsin,—are outside the corn belt. Except along the southern edge of these states, the grain does not ordinarily mature. Yet even here corn remains a formidable competitor of the sugar beet, in its use through ensilage.72 It is cut green, stored in the silos, and so is available for cattle feeding. It continues to be available in rotation with other grain and with grass. During the last two decades Wisconsin has become a great dairy state. "The pasture, hay, and corn lands of the state form the basis of the livestock industry."73 Here there is a profitable system of agriculture in which there is no need of the minute attention, the elaborate cultivation, the wearisome labor, which are required for the sugar beet. As compared with the far west, Michigan and Wisconsin, as will presently appear, lack some climatic advantages. A tariff subsidy may make it worth while for their farmers to grow the beets; but without the subsidy this use of the land cannot compete with others more advantageous.

When the tariff legislation of 1913 was under consideration the beet-sugar makers of Michigan pleaded strenuously for the maintenance of protection on the ground of consideration for vested interests. It must be admitted that the plea was in one regard of exceptional force. Not only had the general policy of protection been long maintained by Congress, and investment in accord with it encouraged; but, as one of the witnesses before the Ways and Means Committee said in 1909, "the investment which our company made in the sugar business was made on the invitation and urgent advice of the United States Government through its Department of Agriculture."74 It was a serious responsibility which the Department thus took on itself. Its zeal too often was indiscriminate. Its propaganda rested, in part at least, on a crudely mercantilist principle; on the assumption that it is desirable to produce within our own borders anything and everything that can possibly be produced there, and that a tariff policy based on this assumption will be maintained indefinitely.

Turn now to the far west, where most of the beet sugar is made. Two conditions are favorable to beet growing in this western region: the climate, and the special advantages of irrigation.

The variety of the beet suitable for sugar making flourishes in a cool climate; but it needs plenty of sun. "Abundance of sunshine is essential to the highest development of sugar in the beet. Other things being equal, it may be said that the richness of the beet will be proportional to the amount—not intensity—of the sunshine."75 Evidently the cool region of cloudless sky in the arid west meets this condition perfectly.

Again: "in respect to moisture, the sugar beet is peculiar in some respects.... There are three periods in the life history of the sugar beet which demand entirely different treatment so far as moisture is concerned: (1) the germinating or plantlet period; (2) the growing period; (3) the sugar-storing period." During the first "the beet needs sufficient moisture and warmth to germinate and start it, but never an excess." During the second, "the beet needs little if any moisture." During the third, or sugar-storing period, "the plant should be given no water. The conditions desirable at this period are plenty of light and dry cool weather. If the beet is given moisture to any considerable extent, it will be at the expense of both sugar and purity."76

The irrigated regions of Colorado, Utah, Idaho, Montana supply just the right combination of climate and moisture: cool temperature, abundant sunshine, moisture as needed, absence of moisture when harmful. Hence Colorado and Utah are described as the ideal beet-sugar states. "Considering everything, Utah is the ideal beet-sugar State.... Its natural conditions are quite similar to those of Colorado."77 In Colorado 12 to 25 tons of beets to the acre are readily secured; even in the early days 15 to 17½ tons were got on the average; whereas in European countries not only is the tonnage per acre less, but the sugar content smaller.78 California, where the industry first was undertaken on any considerable scale, and where it has grown steadily, has some special advantages. A good part of its beet district has just the required combination of climate and precipitation.79

Contrast such exceptionally favorable climatic conditions with those of the Great Lakes region. The successive reports of the Department of Agriculture dwell on the uncertainty of the beet-sugar crop in this zone because of the irregularity of rain and sunshine. The Michigan farmer, unlike the grower in the irrigated region, cannot count with certainty on abundant sunshine and cannot apply moisture exactly when needed: difficulties which threaten not only the quantity of the crop but also its saccharine content.80

The same climatic difficulties are encountered in the European countries where sugar beets are grown. There also the beet harvest and the sugar output are greatly affected by the weather during the growing and harvesting season. The north central states of our own country are not in this respect at a disadvantage. But they possess no climatic superiority for beet growing; whereas they do possess agricultural and industrial superiority for other crops. Beet growing, in other words, suffers from a comparative disadvantage. The far western region, on the other hand, does have unusual natural advantages for the sugar beet. Whether these natural advantages are so great as to enable the industry to hold its own, in free competition with cane sugar and with beet sugar made in the European regions of permanently cheap labor supply, is another question. But they explain why, under the stimulus of protection, the industry grew fast in that region, and in widely distributed parts of it; while yet under the same stimulus it made little progress in the typical agricultural states.

It is constantly said, with reference both to the mountain states and to those of the central region, that the culture of the sugar beet brings special agricultural benefits. The high cultivation, it is said, improves the quality of the land; general fertility is enhanced; a better rotation is established; the byproducts, especially the beet cake, are valuable for cattle feeding, and this in turn provides manure and maintains fertility; the factory makes a market for local coal and lime; it "stimulates banking and almost all kinds of mercantile business." These advantages have been dwelt on almost ad nauseam in the publications of the Department of Agriculture.81 So far as the tariff question is concerned, they prove altogether too much. If beet culture is so very advantageous for the farmer, why does he need a bonus or protective tariff to be induced to engage in it? The American farmer is not an ignorant or stolid person; he has access to a multitude of educational and propagandist agencies, and is even beset by them; he is a shrewd observer, a ready innovator. With the transition from pioneer farming, the agricultural methods of the central region have been revolutionized during the past generation. If beet culture were really so advantageous a part of the general change, we might expect its speedy and wide-spread adoption. The advocates of beet growing have simply accepted the common and fallacious notion that the highest cultivation is necessarily the most advantageous cultivation. The agricultural expert is apt to be intent on the gross product, on the largest yield per acre. But the best agriculture is that which secures the largest yield not per unit of area but per unit of labor. Minute cultivation means a large product per acre but by no means necessarily a large product per man.

The only solid ground for maintaining that protection for beet sugar has been of advantage to agriculture is that of the young industries argument. Ignorance, settled habits and prejudices, unaccustomed methods, the inevitable failures in first trials, all these obstacles may have stood in the way of the beet-sugar industry in its first stages. It is true that the argument for protection to young industries was not supposed to apply to agriculture by List and his followers, since unalterable conditions of soil and climate were thought to determine once for all the geographical distribution of the extractive industries. It would, perhaps, be hazardous to lay down an unqualified proposition of this sort. The course of industry may conceivably be guided and diverted to advantage in agriculture as well as in manufactures. The difference between the two cases would seem to be simply one of probability, of degree. None the less, an important difference in degree remains. It is more likely that industry will pursue its "natural" course in agriculture than in manufactures; since agriculture is affected much more by the physical factors of soil and climate and much less by acquired skill.

There are still other grounds for questioning the applicability to agriculture of the young industries argument. There is not in agriculture that close contact between different producers or that stress of competition between them which is most likely to lead to improvements; and a stimulus to improvement is the essence of the argument. In the contemporary German controversy, considerations of this sort have been advanced in support of the duties on grain; but there is quite as much weight in the counter argument that agricultural improvement is most effectively spurred by adversity. It comes not from high prices and easy gains, but low prices and the need of facing a difficult situation.82 The low prices of sugar which prevailed for a considerable period (especially in the decade 1890-1900) proved a blessing in disguise to the Louisiana sugar planters; their methods of cultivation and sugar extraction were improved in the effort to meet conditions of depression. The same seems to have been the case with the Hawaiian planters during the period (1890-94) of free sugar.83 It has already been pointed out how difficult it is to say whether protection tends on the whole to promote technical improvement or to retard it.84 A general proposition one way or the other would be as hard to prove conclusively with reference to agriculture as with reference to manufactures. But it seems clear that acquired skill and established advantages count for more in manufactures than in agriculture; and that tariff protection is therefore an even less promising device for promoting better use of the soil. Education, experiment stations, diffusion of the right sort of information, are much more promising. But education and the spread of information, to be really effective, must be adapted to the economic conditions. In this regard our Department of Agriculture for many years showed no discrimination. Under the Republican régime of 1897-1913 its publications were pervaded by a crude mercantilism. Its propaganda for beet sugar rested not on the young industry and eventual independence principle, but on the crude protectionist doctrine that any and every increase of domestic supply was necessarily to the country's advantage.

Questions in some respects different arise concerning the beet-sugar factory, which buys the beets from the farmers and makes the sugar. Here there is what the business world calls "a straight manufacturing proposition." Whether the manufacturing of sugar can be done to advantage in the United States depends on the same conditions as in other manufactures. It is much affected by the opportunities for using machinery and for the exercise of American inventive and engineering capacity in improving machinery. Such evidence as I can get indicates that so far as this branch of the industry is concerned, the conditions are not unfavorable to its sustained prosecution with little need, if any, of tariff support. When the first factories were built in California the machinery was imported from Germany. "The Yankee inventive genius of machinery men at once took hold of the matter, making so valuable improvements that both the above mentioned factories [at Watsonville and at Chino] were shortly refitted with machines of American make, and every factory in this country in the last few years has purchased American machines."85 So in the Department of Agriculture's pamphlet on the industry, it is stated that "in the early days of the beet-sugar industry in this country, Europe was called on to furnish all machinery. Now very little is imported, and in fact some of the foreign factories are using American-made machinery."86 The breaking loose from European tutelage and the introduction of technical improvements are significant indications of the successful adaptation of a new industry to American conditions and of the ability to meet foreign competition unaided. It should be borne in mind, moreover, that the factory managers take an active part in directing and supervising the agricultural operations. In this regard there seems to be abundant and successful enterprise. The managers of the beet-sugar factories have been chiefly instrumental in bringing the indispensable labor supply to the farms. Through traction engines and the like they have grappled with the difficulties of transporting the beets from the field to the factory. They have selected the seeds, and have assiduously spread information among the farmers on the best ways of getting a large tonnage of beets and a large content of sugar. In the far west especially, all this activity has been carried on with industrial and pecuniary success. Neither in the factory itself nor in the problems of organization arising from the interdependence of farm and factory has there been a lack of skill or energy.87

It is probably another sign of successful adaptation to new conditions that the American beet-sugar factory carries its operations a stage further than do the factories of Europe. The latter usually produce raw sugar only, which is sent to refineries for the last stage of preparation; precisely as our cane sugar is imported in the "raw" form, and goes through the refineries before being marketed for consumption. The American beet-sugar factories, on the other hand, make refined (granulated) sugar, which is sold at once to the grocers. In Europe the greater geographical concentration of beet growing and sugar making, and the consequent ease of transportation to refineries near by, probably account for the practice there prevailing. The different American practice doubtless took its start because refining was controlled, during the earlier years of beet sugar, by the Sugar Trust and its affiliated concerns; but it persisted because it fitted the geographical and industrial conditions of the industry. Another reason is that in continental Europe beet farming and sugar making constitute commonly one integrated enterprise, and are associated either with estate farming on a large scale or with direct coöperation between large-scale agriculturists and the factory owners. A different sort of cooperation between farm and factory was necessary under our conditions of land ownership, and this has been worked out successfully by the American manufacturers. Neither in the technical aspects of the manufacturing industry, nor in its appropriate organization, is there indication of disadvantage in the United States.

This brings us to the close of our examination of the sources of sugar supply, and their relation to the tariff. Let us now, by way of summary, proceed to a quantitative estimate of the consequences of the duty on raw sugar; postponing for the moment the consideration of the effect (comparatively slight, as will shortly be shown) of the additional duty on refined sugar.

The burden of the sugar duty can be measured with greater exactness than is often possible. We know that the price of sugar was raised by the duty throughout the area of consumption. In this case, we have no reason to question the significance of continued imports. The only serious qualification which needs to be made is that which arises for the later years from the uneven and irregular effect of the partial remission on Cuban sugar.88 Except for this, we could say with confidence that from 1897 to 1913 the price of sugar was raised, the country over, by the full amount of the duty,—one and two-thirds cents a pound. Allowing for the modifying influence of the Cuban remission, we may make our calculations on the assumption that the effect of the duty during the years immediately preceding 1913 was to raise the price of all sugar by one and one-half cents. The figure may not be accurate to the last dot; but the economist is fortunate when he can measure his results with so close an approach to exactness as this.

Of the tax paid by consumers in the form of enhanced price, a little less than one-half went to the government treasury; the rest,—more than half,—was handed over to the various favored sugar producers. Let us imagine the United States government to present an account, rendering to its wards, the sugar consumers, a statement of what had become of the sums collected from them. The government would properly enter on the debit side the total which it had taken from the consumers, on the credit side an enumeration of the various ways in which it had distributed the total. The fiscal year 1909-10 may be taken as representative. For that year the account would stand thus:89

It appears that in 1909-10 the government collected 111 millions of dollars from the sugar consumers. It put about 50 millions into its own treasury, using that sum for meeting public expenses; and handed over about 60 millions to the various sugar producers. The proportion going to the sugar producers tended to grow greater during the whole of our period,—from the close of the civil war until 1913. During the early years of the period, the sugar duty had been mainly a revenue tax. By its close, the characteristic features of a protective duty had become dominant: the treasury received less in revenue than the favored producers secured in largess or bounty.

The sum paid over to the sugar producers would be described by some free traders as a net bonus or tribute to the protected persons: robbing Peter to pay Paul. By other free traders it would be described as so much net loss to the country; not a source of extra gains to Paul, but merely an inducement for engaging in an industry in which the producer made no improper gains, while the consumer paid more than a proper price. The truth would seem to be mid-way. Since the production of raw sugar has the characteristics of an extractive or raw product industry, different producers were in different circumstances. Some were just able to hold their own even with the higher price caused by the duty: they were at the margin, and made no unusual profits. Such would seem to have been the case with many of the Louisiana planters, perhaps most of them; with many beet-sugar growers; with some planters in Hawaii and Porto Rico. Others were in the fortunate position of producing cheaply and yet selling at the duty-raised price; they secured unusual gains, a producer's surplus or economic rent. Such was probably the case with the majority of the Hawaiian planters, with some beet-sugar growers, doubtless with other sugar producers also. As regards this second class, the sugar duty brought not a net loss to the community, but a transfer from some to others: Peter really was robbed to pay Paul. How the total charge was divided between the two, it would seem quite impossible to say.

Part II, Chapter VIII

Refined Sugar and the Sugar Trust

The sugar refining industry has always been protected by duties higher than those on raw sugar. In early times,—before the civil war,—one factor that contributed to high duties on refined sugar was the circumstance that it was considered a luxury. Most persons used "brown" sugar; only the rich used refined. Partly for this reason, partly because of the disposition to protect sugar refining like other industries, the difference between the rates on raw and refined,—the so-called "differential" of recent years,—was so considerable that all refining was carried on within the country.90 The imports were mainly in the form of raw sugar. In this regard the situation remained unchanged from 1789 to the present time.

The mode of assessing the sugar duties and of fixing the differential has given rise to legislative and administrative difficulties. Until 1883 the duties were graded according to the "Dutch standard,"—the method of grading universally used in earlier times. Cane sugar as it comes from the sugar houses or sugar mills of the plantations is not pure, and is more or less discolored; it may contain anywhere from 3 per cent to 25 per cent of impurities. Under the "Dutch standard" its sugar content is supposed to be indicated by color. Dark or dirty sugar has low numbers; as the sugar becomes lighter, it is designated by the high numbers. The number 16 indicates approximately the line of division between raw sugar and refined. Sugar up to no. 13 is dark and presumably impure; sugar of no. 16 is very light gray in color; number 20 is white. Under the tariff acts before 1883 the "Dutch standard" alone was used in grading the duties; sugars of low number had lower duties, those of high number higher duties. Serious embarrassment ensued, however, because of artificial coloration of sugars having high saccharine content; and in 1883 the polariscope test was adopted for grading the sugar duties.91 This optical test,—one of the striking applications of science to industry,—determines the saccharine content of sugars without regard to color and with perfect accuracy. It had been in familiar trade use for some time before 1883, and its belated adoption by the government is but one of the many examples of the tendency of public management of business to lag behind private. Some relic of the "Dutch standard" system, however, remained in the tariff acts of 1883 and subsequent years, in that the dividing line between raw and refined sugar was still fixed on the old basis, that is, according to color. All dark sugar was dealt with as raw sugar, and was subjected to duties varying according to saccharine content as indicated by the polariscope test.92 All white sugar was treated as refined sugar, and subjected to an additional duty,—the so-called "differential." Under the act of 1883 this differential, serving as protection to the sugar refiner, was about one cent a pound. In later tariff acts it was much reduced, being

The significance both of the earlier high differential and of its later reduction can be understood only in view of the technical and financial development of the industry. The period from 1870 to 1890 saw two great changes, closely connected. Large-scale production developed with surprising rapidity; combination among refiners promptly ensued. The essential process of sugar refining did not indeed undergo great changes. As before, refining was accomplished by passing the raw sugar through ground boneblack. But machinery was applied much more effectively; the scale of operations was enormously enlarged; the capacity of the individual establishment became immensely greater.93 In no modern industry have the economies of the great establishment been more pronounced. A single refinery can turn out daily 5000, 10,000 even 15,000 barrels of refined sugar. Were it not for the limitation imposed by the expense of distributing the output over a wide area, it would seem that one vast plant could refine the sugar of the whole United States. As it is, there were in 1914 but two refineries on the Pacific coast, three or four on the Gulf coast, half-a-dozen or thereabouts on the eastern seaboard; and among these were a few older ones of comparatively small size, and some newer and larger ones that may be truthfully said to illustrate the wastes of competition. A refinery on the modern scale costs millions of dollars; when ready, and operating to full capacity, it does its work with extraordinary economy; to get it ready, however, in competition with established rivals, is a formidable task.

These would seem to be conditions almost ideally favorable for cut-throat competition and for the eventual emergence of some sort of combination. As they gradually developed, there came in fact the successive stages of the sharpest sort of competition; reduction in the cost of refining, and in the margin of price between raw and refined sugar; struggles and failures for the smaller refiners, sustained profits and dominance for the larger concerns; finally in 1887 the sugar trust, a "trust" in the older and more accurate sense of the word. The refusal of the courts to sustain this first form of combination led shortly (1891) to the formation, under strict corporate organization, of the American Sugar Refining Company. This great combination remained the conspicuous figure in the industry, and though no longer in any strict sense a trust, continued so to be called. With the year 1887 the combination problem emerged full-fledged.94

It has already been noted that under the act of 1883 (from 1883 to 1890) the differential on refined sugar was about one cent a pound. This meant a high rate of protection. The improvements in refining had reduced the cost of converting the raw sugar into refined to a figure considerably less than the differential. It seems to have been brought down even then to the figure at which it has been, maintained ever since,—not far from 5/8 cent a pound. The differential duty under the act of 1883, in other words, was much more than 100 per cent upon the cost of refining. It was virtually prohibitory of the importation of refined sugar. This high protection was not due to any deliberate intent. As in so many other cases, it was simply a legacy from older days, entailing consequences quite unexpected on the part of the legislators who had put it on the statute book.

The immediate effect of the prohibitory duty unquestionably was to promote the formation of the trust, and to enable it during its first years to reap large profits. The trust was formed in 1887. The price of refined sugar was at once raised,—that is, the margin between the price of refined sugar and raw sugar. No doubt competition during the years preceding had brought the margin below the line of normal profit; but it was promptly raised above that line. The chart on page 105 has been prepared to show the relation between the price of raw and refined sugar. A glance at it will show that for two years after 1887 the margin was high, and the profits of refining were then great. It is no wonder that the head of the combination, when testifying before the Industrial Commission in 1899, made the remark, destined to become notorious, "the mother of all trusts is the customs tariff bill."95

Chart I96

The subsequent course of events showed, however, that this dictum needed qualification. One of the unsettled questions with regard to combinations concerns the extent to which they are held in check by real or potential competition. The history of competition in this particular case has been so often rehearsed that the briefest review will here suffice. At a comparatively early date, in 1889, the trust became at loggerheads with the great sugar refiner of the Pacific Coast, Spreckels, of whose peculiar position in that region more will be said presently. The Trust established a rival refinery in California; the Californian, in retaliation, built one at Philadelphia. There was also other competition on the eastern seaboard. As the chart shows, the margin between refined sugar and raw, and hence the profits of refining, were sharply reduced during this first period of competition (1890-91). But the warring factions soon united. Spreckels was taken into the combination on favorable terms. The more considerable eastern competitors were also absorbed. For five or six years after 1892, the trust was again in almost sole control, and its profits again were high. Under the act of 1890, the tariff differential on refined sugar was such as to make competition by foreign refiners impossible, and so sustained the position of the trust. As the chart shows, the refiner's margin was profitably high in 1892 and 1893. The tariff act of 1894 reduced the differential (from ½ to 1/8 cent a pound), and the margin, though still comfortably high, became less excessive. The Trust was in virtual control of the domestic situation for several years after 1892, but after 1894 was held in check in some degree by a possibility of foreign competition under the lowered differential of 1894.97

Beginning with 1897, however, a new period of domestic competition set in, and there was a sharp decline in the margin and in the profits of refining. Competition ensued between the trust and the Arbuckles,—a large coffee firm which refused to accept the Trust's terms for sugar and proceeded to build a refinery of its own. The competition was so bitter that for a year or two the profits of refining seem to have entirely disappeared. This cut-throat contest was followed by a truce. After the opening of the twentieth century the situation in the sugar refining trade might be not inaccurately described as one of armed neutrality. The trust retained a strong position, yet not a controlling one. The Arbuckles remained as competitors; and on the eastern seaboard there were other competitors also. The margin became comparatively moderate. The profits of refining do not seem to have been excessive.

That tariff protection did not in itself have a determining effect on the gains of the refiners was shown by the absence of any visible influence on these gains from the Cuban reciprocity arrangement. The Cuban treaty went into effect in 1903. It has already been shown98 that within a short time it caused the price of Cuban sugar to fall in the United States, during a considerable part of each year; not indeed to fall by the full amount of the Cuban remission (20 per cent of the general duty), but by a substantial part of the remission. The refiners, in other words, were able to buy Cuban raw sugar at a substantial reduction below the full-duty price. The protection to them as refiners was thereby vastly increased. For the duty on refined sugar was not affected by the Cuban treaty; this remained throughout at the full rate of the tariffs of 1897 and 1909. Obviously the foreign refiner could not compete with the American refiner who got his Cuban sugar at less than the full-duty price of raw sugar. Except during those few months of the year in which full-duty sugar was imported from Java and other non-favored regions, the American refiners were in the position of having a protection that amounted virtually to prohibition.99 Yet the price of refined sugar was not maintained at all at the full-duty rate; it followed in the main the oscillations in the (reduced) price of Cuban raw sugar.

Surveying the whole course of events, it may be thus fairly said that the history of the sugar trust, so far as its refining operations are concerned, supports the view that protection, though it may stimulate the formation of a combination and for a time swell its profits, does not enable monopoly gains to be maintained permanently. After a few years of high profits, competition has set in. The strictly manufacturing profit in the long run was kept within competitive limits.

One further aspect of the case may be disposed of at this point. The refining industry, whether or no it needed protection in earlier days, ceased to need it by the close of the nineteenth century. The industry is one in which great plant and large-scale production tell to the utmost. It is of the kind in which American enterprise finds a congenial field, and in which this country has a comparative advantage. The indications are that refining is done as cheaply in the United States as in foreign countries, and that it does not need the prop of protection. Even with no protection at all,—that is, with no duty at all, or with such a duty only on refined sugar as would offset that on raw sugar,—the industry would maintain itself.

There were other parts of the trust's operations, however, which were influenced by the tariff. The strictly refining profit, which alone has been considered hitherto, was supplemented, for a time at least, by some other sources of gain. These were connected with the peculiar raw sugar situation described in the preceding pages.

Typical of these supplementary pickings were the extra profits secured on Hawaiian sugar. It has already been intimated that although the Hawaiian planters secured almost the entire amount of the remission of duty on their sugar, some fraction went elsewhere.100 Hawaiian sugar was sold in the United States, from the beginnings of reciprocity in 1876, on the basis of the New York price of raw sugar. But the planters never received quite the full New York price; they sold their sugar at that price less a fraction of a cent. The Hawaiian sugar naturally went to San Francisco, the nearest port. There it was sold at the New York price, less a sum which roughly represented the difference between the cost of carrying the sugar to San Francisco and that of carrying it to New York. This arrangement began in the days before the formation of the trust, and was then due to the circumstance that on the Pacific Coast refining was in the hands of monopoly. The same extraordinary growth of large-scale operations had taken place in California as in the eastern region, and had led to the disappearance of all refineries except one (that of the well-known Spreckels). If there had been effective competition among refiners in California, the Hawaiian planters doubtless would have secured the full benefit of the remission of duty on their sugar, without the loss even of this small slice. But as there was but one purchaser for their sugar in California, he could confront them with the alternative of either accepting from him a slightly lower price or transporting their sugar to the more distant market of New York. Hence the arrangement by which Hawaiian sugars were regularly sold in California at a fraction below the New York price. Needless to say, no benefit arose to the consumer from this reduction. The Californian refiner, so far from selling his product at a lower price than that of the east, sold it on the Pacific coast at a price higher by the cost of transportation from the eastern refiners across the country. The refiner pocketed an extra profit in both directions. He bought the raw sugar at a price below the New York quotation, and sold his refined sugar at a price above the New York quotation. It is not surprising that one of the great fortunes of the country was accumulated.

As has already been noted, a struggle set in between the Californian refiner and the trust in 1889, and came to an end in 1892; and after that time the trust, associated with Spreckels, dominated the field on the Pacific Coast even more completely than elsewhere.101 The arrangement with the Hawaiian planters remained as before. They sold their sugar at a fraction less than the New York price. From time to time there were variations in the terms of the contracts between them and the refiners. At one period the trust became what is described in the pleasant phraseology of business as "hoggish," and insisted upon too great a reduction from the New York price. The Hawaiian planters thereupon threatened to build a refinery of their own in California and in fact proceeded to do so; though before the stage of real competition was reached, a truce between the contestants seems to have been patched up.102

To many persons the process by which the Californian refiner,—at first Spreckels, later the trust,—secured a slice of the profits of the Hawaiian planters will seem iniquitous. To the dispassionate observer, it will appear simply as a quarrel over booty, in which neither party could claim virtue or be deemed guilty of sin. So far as the consumers of sugar were concerned, it made no difference how the contestants haggled over the division of the spoil. No doubt the refiners for a while secured substantial pickings; but had they not done so, the Hawaiian planters would simply have secured so much more.

An extra profit of the same sort was secured by the trust in its purchases of Louisiana sugar. Here too the commanding position of the refiner enabled the purchase of raw sugar to be made at prices below those which would have prevailed under a competitive régime. The trust was virtually the sole purchaser of raw sugar in Louisiana; for here also the march of large-scale production eliminated the small refiner, and left the one huge concern alone in the field. The planter of Louisiana, like the Hawaiian planter, was confronted by the alternative of paying for the transportation of the sugar to a more or less competitive market in New York, or of selling it to the trust in Louisiana at a price slightly below that of New York. It was simplest for him to accept the second alternative. Louisiana raw sugar was regularly sold at a fraction below the New York price. The refined sugar, on the other hand, was disposed of in the Mississippi Valley with no corresponding reduction. Here again the operations of the trust were regarded by staunch protectionists as thoroughly iniquitous; and so needless to say, they were regarded by the Louisiana planters. And no doubt there was one point of difference between the case of Louisiana and that of the Hawaiian planters: the planters of the former could plead that the trust deprived them of some part of the protection which Congress intended to give. The bonus to the Hawaiians arose through no deliberate intent; but Louisiana sugar was doubtless meant to have protection, through an enhancement of the price of raw sugar, by the full amount of the duty. A fraction of this protection was intercepted by the trust. And this fraction, like the other gains, tended to dwindle during the later years, as competition from various quarters deprived the trust of its position of control.103

It was often intimated that the trust secured in other directions additional profits. Thus it was alleged that extra gains were made through ownership of sugar lands and production of raw sugar in Cuba, Porto Rico, even in the Philippines. But the combination seems to have entered on no operations of this sort. Individuals owning shares in it no doubt were also investors in sugar plantations; but it seems to be strictly true that in so doing they acted simply as individuals. Americans were not slow to see the opportunities for profit created by the various exemptions from the sugar duty, and they took advantage of them in Cuba and in Porto Rico, as they did in Hawaii.104 In view of the popular hatred of trusts and trust methods, and the special obloquy under which the sugar combination fell, it is not surprising that anything unwelcome or objectionable in the situation should be fastened on it, and that there should be suspicion of activity on its part in the sugar growing dependencies. Coolly considered, however, all this is seen to have nothing to do with the refining situation or the trust. It made no difference to the consumer what sort of plantation owner in Hawaii or Porto Rico,—native or American, trust stockholder or unaffiliated planter,—was benefited by the sugar tax. Even if the trust had owned all the plantations, the causes of its profit from raw sugar would have been distinct from those of its profit on refining. As it happened, the two problems were distinct not only in their economic significance but as regards the persons involved. The trust itself owned no sugar lands and made no raw sugar; and such of its shareholders as invested in plantations played no dominant or even considerable part in the raw sugar situation.

A different phase of the trust's activity, and one which again was connected more with the duty on raw sugar than with the differential on refined, appeared in its endeavor to control the beet-sugar factories. The astute and unscrupulous head of the combination seems to have concluded, about 1900, that beet-sugar production would be profitable so long as the duty on sugar remained high; that the duty in fact was likely to remain high; and that the trust might secure a share of the beet-sugar profits as well as those from buying and refining cane sugar.

Accordingly large purchases were made of shares in various beet-sugar companies, from California to Michigan; and additional factories were erected by subsidiary companies. Here again the popular view was that the transactions were particularly objectionable because undertaken by a trust. It is probably true that the prices of refined sugar in the Rocky Mountain and Pacific regions were stiffened; since it was here that beet sugar was most largely produced, and here also that the combination profited most from a high margin on its refined sugar. In the main, however, it made little difference to the consumer whether the beet-sugar enterprises were owned by the trust or by "independents." Each benefited to the full by the import duty on raw sugar; and each based the price for refined sugar on the New York quotation. Nor was it of consequence to the farmer who sold the beets to the factories: he received the same price from both, and was suspicious of oppressive dealings by both, though doubtless with an added tinge of suspicion when aware of selling to a trust-controlled factory. The manufacture of beet sugar was at the least as well managed by the combination; it seems to have been better managed. So far as I am able to judge, combination in this case conduced to industrial efficiency. In the selection of seed, the conduct of agricultural experiments, the instruction of farmers, the agents of the trust were active and capable. Factory operations proper were also carried on at least as well as by independent makers. All this, however, had but little connection with tariff problems. These remained essentially the same, whoever owned and managed the beet-sugar enterprises. What might have been the consequences of control of beet sugar by the trust, if extended to the full and continued for a long time, is no easy problem. But the enforcement of the Sherman law, and a change in the personnel of the trust's management, led about 1910 to a policy of gradually divesting itself of the beet-sugar properties and investments. The same policy, of giving up the various arrangements for combination and control, was followed in other directions. The episodes described in the preceding pages belong to the history of the past.

It is obvious that the differential on refined sugar and the possible gains of the refining combination were quantitatively of vastly less importance than the duty on raw sugar. The latter meant a tax, in the form of higher prices of sugar, of a hundred millions a year or more; the former could make a difference at the most of a few millions. The effective duty on raw sugar I have reckoned at 1½ cents a pound. The differential on refined, after 1894 was only 1/8 cent a pound. The utmost additional profit made possible (not necessarily gathered in) by the trust because of the tariff was a matter of a small fraction of a cent,—perhaps 1/10 cent or at most 1/5. In the popular mind, the entire sugar duty was usually associated with trust control and trust robbery. Yet this part of it,—the differential on refined,—bears chiefly on another set of problems,—the significance of a very small fraction of profit on a huge volume of transactions, and the possible gain to be secured by something much short of iron-clad monopoly. An additional profit of 1/10 cent per pound meant several millions a year for the refining combination, but was of negligible effect on the price of sugar for the retail purchaser.105

[23.]This duty was subject to a reduction of 20% on sugar from Cuba, whence come almost all the imports. The duty on Cuban sugar was one cent. On the Cuban rebate and its effect see below, pp. 75-76.

[24.]For the details of the sugar duties, and the causes which led to the changes in the several tariff acts, I refer the reader to my Tariff History of the United States. The duties were usually arranged by gradations according to the quality (saccharine content) of the raw sugar, and sundry complicated questions arose because of the tariff gradations. These, however, though troublesome for the customs administrators, have but little bearing on the protective controversy.

[25.]Compare the similar case with beet-sugar production; below, p. 80.

[26.]For the consideration of this aspect of the situation, see below, p. 110.

[27.]See the testimony before the Senate Committee of 1911 on Sugar Refining (Hardwick Committee), pp. 1760-1797. The new system seems to have originated in Java among the Dutch, then to have been copied in Cuba, and adopted last in Louisiana. See the testimony of a well-informed observer, Mr. Rionda, in the suit of U.S. Govt. v. Am. Sug. Ref. Co., Transcript of Record, p. 7914.

[28.]Both opinions were expressed to me, in the confidence of familiar talk, by persons conversant with the situation in Louisiana.

[29.]The treaty, concluded in 1875, went into effect in 1876. It was to remain in force for seven years, then to be terminable on a year's notice. In 1884 a convention renewed the treaty for seven years from the date of ratification; thereafter it was to be again terminable on a year's notice. Ratification did not take place until 1887; seven years after that date, i.e., in 1894, the arrangement once more became terminable.

It was provided in 1884 that the United States might maintain a coaling and repair station at Pearl Harbor, a magnificent bay not far from Honolulu; and Hawaii engaged to give no other power a lien or lease on any of its harbors. Nothing was done by the United States at Pearl Harbor during the treaty period, but in later years (1907-13) much work was done for improving the channel, constructing a huge dry dock and erecting fortifications.

[30.]Subject to a slight reduction, however, which enured to the advantage of the sugar refiners; see below, p. 108.

[31.]See below, pp. 104, 105.

[32.]C. Whitney, The Hawaiian Islands, p. 194.

[33.]On one great plantation, separated by mountains 6,000 feet high from the water-soaked side of the island of Kauai, electric power was developed on the mountain streams on that side, transmitted over the mountains to the drier area, and there utilized in pumping water for irrigation from artesian wells. See the American Sugar Industry and Beet-Sugar Gazette, April 5, 1906. Cf. Whitney, The Hawaiian Islandsp. 194; Bulletin Bureau of Labor, 1903, pp. 725, 726, 733.

[34.]Whitney, p. 198. Cf. R. S. Baker, in the American Magazine, Nov., 1911: "I have seen great fields plowed nearly three feet deep with huge steam plows; and the stories of the use of fertilizers are almost unbelievable to a person accustomed to the ordinary farming methods of the middle West." The statistics of Hawaiian trade given in the U.S. Reports on Commerce and Navigation show that the islands imported annually (e.g., in 1910 and 1911) a million dollars' worth of fertilizers, chiefly phosphate.

[35.]"Hawaii, with a climate unexcelled, and a soil capable of producing the majority of both temperate and tropical products, nevertheless imports the bulk of its food. Although in the fifties, and a bit later, Hawaii supplied the Pacific coast with wheat and potatoes, it now spends abroad over one million dollars annually for food deficits of man and beast, the greater portion of which could be and should be raised on the islands. Of this amount nearly $300,000 goes for hay and grain, and $80,000 for dried fish, although the waters surrounding the islands teem with fish!... Hawaii could greatly increase both the quality and quantity of its cattle-raising by pursuing the industry more intelligently and less extravagantly. Corn is necessary to put the stock on the market in prime condition; but although there is scarcely a cattle range where corn would not flourish at a very small outlay of either time or money, the cattle men get their corn from California and pay two cents a pound for it!" Whitney, Hawaiian America, pp. 159, 173.

In 1911 the islands imported from the United States,

[36.]See Professor Katherine Coman's History of Contract Labor in the Hawaiian Islands, Publ. Amer. Econ. Assoc., 3d series, vol. iv (1903).

[37.]Report on Hawaii, Bulletin Department of Labor, no. 66 (Sept., 1906).

[38.]Some 10,000 Portuguese in all were brought in under contract, most of them between 1880 and 1885. "The Portuguese were brought in for the purpose of supplying plantation laborers, but most of them are engaged in skilled or semi-skilled occupations and even when the demand for field labor was most pressing, the second generation of Portuguese were leaving the islands.... While many Portuguese remain on the plantations till old age, they do not care to remain field laborers all their life." Report on Hawaii, Ibid., pp. 423, 429.

The Portuguese have tended in more recent years (1904-12) to drift to California; see note by V. S. Clark, in Publ. Amer. Statist. Assoc., June, 1913, p. 466.

[39.]Coman, p. 48.

[40.]The following tabular statement shows what striking changes have taken place in the population of the islands. The total population is supposed to have declined enormously since their discovery; and beyond doubt it declined very rapidly until the date of reciprocity (1876). It is estimated to have been 300,000 in the eighteenth century. In 1832, when the first census was taken, 130,000 were enumerated (Coman, p. 7). For some later years these are the census figures:

It will be seen that the total population declined until the reciprocity period was reached; that the native born Hawaiians (including all born in the islands, whether or no of the original stock) declined in numbers steadily, both before reciprocity and after; and that the marked growth in the total since reciprocity has come chiefly from the appearance, successively, of the Chinese and Japanese.—The figures are taken from Bulletin of the Department of Labor, 1903, p. 369, and from the 13th Census Bulletin on the Population of Hawaii.

Since 1910 a new element has appeared in Hawaii,—the Philippinos; these constituted in 1910-12 the most numerous Asiatic immigrants to the islands. Publ. Amer. Statist. Assoc., June, 1913, p. 466.

[41.]Statements to this effect have been made to me by persons conversant with sugar planting and with the natural conditions in Porto Rico.

[42.]"The average annual rainfall throughout the dry [southern] zone is forty-six inches, varying between twenty and sixty inches. The average amount is insufficient for the cultivation of cane, and a rainfall approaching the minimum is a destructive drought." Report, of the Governor of Porto Rico (Commissioner of Interior's report), 1911, p. 139. Cf. Report for 1909, p. 84, for an account of the physical geography of the island.

[43.] By 1911, bonds to the amount of $4,000,000 had been authorized for irrigation works. A map of the proposed systems is in the Report of the Governor of Porto Rico for 1911.

[44.]Report of the Governor of Porto Rico (Treasurer's Report), p. 85.

[45.]Ibid.

[46.]Philippine sugar was and is of lower grade (i.e., less saccharine content) than that usually imported; hence the duty collected on it was less than the figure stated in the text, and the remission of one-quarter was less. These differences, however, affected simply the method by which the duty per pound of raw sugar was adjusted to the content of pure sugar.

[47.]The same policy was adopted in the tariff of 1909 as regards tobacco and cigars from the Philippines: free admission of a limited quantity. In general, Philippine products "which do not contain foreign materials to the value of more than twenty per cent of their total value" were made free of duty. Rice, however, remained on the dutiable list.

[48.]This same notion appears in the legislation which regulated the financial relations between Porto Rico and the United States during the transitional years immediately after the conquest of that island, 1898-1901. The revenue from duties collected on imports from Porto Rico was put into a "trust fund" to be used for the benefit of the island, and in due time was so used, for roads, schoolhouses, and the like. (W. F. Willoughby, Territories and Dependencies of the United States, pp. 113, 114.) The assumption evidently was that the duties had brought a burden, not on American consumers, but on the islanders, and was no longer to be left on them once they became a part of us.

[49.] It was particularly provided that "no sugar imported from Cuba... shall be admitted into the United States at a reduction of duty greater than twenty per cent [of the rates of 1897]... and no sugar, the product of any other foreign country, shall be admitted by treaty or convention into the United States, while this convention is in force, at a lower rate than that provided by the tariff act... of 1897." In the tariff act of 1913 provision was made for putting an end to this restriction on the tariff legislation of the United States.

Cuba admitted a large list of United States articles at reductions of 25, 30, and 40 per cent; the most important being in the schedule which granted a reduction of 30 per cent. The treaty was to remain in force for five years, thereafter terminable on a year's notice.

Most Cuban sugar is of the grade (testing 95°) which was dutiable under the tariff acts of 1897 and 1909 at 1.65 cents; 20 per cent of this is .33 cent; the net duty on Cuban sugar was thus 1.32 cents.

[50.]See p. 16 above.

[51.]Until about 1909 the planters seem to have got the full benefit of the "differential" on Cuban sugar. Thereafter, as their increased output pressed on the American market during the spring months, the American purchasers began to get part of it. By 1912 and 1913 the Cubans seem to have lost even the whole, at least during part of the season; this is to be inferred from the fact that considerable quantities of Cuban sugar then were sold in England. See the Record in the suit of U.S. Govt. v. Am. Sug. Ref. Co., pp. 7926, 7929

[52.]The head of the well-known firm of sugar brokers, Willett and Gray, estimated that for the years from 1903 to 1911 the amount remitted on Cuban sugar was divided between Cuban planter, American refiner, and American purchaser in these proportions:

"Consumer" here signifies the purchaser from the refiner (wholesale dealer). Hardwick Committee Report (1911), p. 3551.

[53.]"It is certain that it [the tariff act of 1890] gave new hope to both operators and growers, and between the time this act went into effect, in October, 1890, and the following June, some $6,000,000 had been invested in beet-sugar factories in this country.... This small bounty, even for a brief time, was a wonderful stimulus to the struggling industry." G. W. Shaw, in Bulletin no. 149 (The California Sugar Industry) of the University of California, 1903, p. 17. Cf. p. 55 above, on the Louisiana situation.

[54.]On the bounties which several states have given, see a note by Mr. P. T. Cherington, in the Quarterly Journal of Economics, February, 1912, p. 381.

[55.]A series of Special Reports on the Progress of the Beet-Sugar Industry was issued by the Department, and from these I shall quote freely in the following pages. The "Special Agent," though by no means a scientific person, acquired and diffused much information.

[56.]H. W. Wiley, The Sugar Beet, p. 5. This pamphlet has been published in several editions by the Department of Agriculture; my references are to the edition of 1908 (Farmers' Bulletin 52).

In the Department's Report on the Sugar-Beet Industry for 1910 and 1911, at p. 29, a statistical statement is given of the millions of acres in the country (including such states as Illinois, Indiana, Iowa, Kansas, Ohio) adapted to sugar-beet raising; and the complaint is made that "if one farmer in four of these states were to plant a three-acre patch and give it the care that could readily be bestowed on so small a plot, it would be unnecessary for us to buy foreign sugar,"—a mercantilist utterance of the sort often found in the Department's publications.

[57.]Professor G. W. Shaw, of the University of California; among his various writings see the pamphlet on Sugar Beets in the San Joaquin Valley, p. 6; Bulletin, no. 176, Agricultural Experiment Station, University of California.

[58.]The Sugar Beet, p. 20.

[59.]Report on Progress... 1909, p. 19. The same story appears in all the accounts of beet-sugar growing. See for example the statements of Mr. Hathaway, of the Michigan Beet-Sugar Company, before the Committee on Ways and Means in 1909; Tarif Hearings of 1909, p. 3311.

[60.]The Sugar Beet, pp. 21, 22.

[61.]Ibid., p. 22 (1908).

[62.]Report on Progress... 1906, p. 38.

[63.]Report for 1910 and 1911, p. 64.

[64.]Report on Progress... 1906, p. 24. A correspondent writes me from California (1912): "Otherwise than in the performance of such labor as can be done with teams, very few Americans undertake hand labor in the beet fields."

[65.]Tariff Hearings of 1909, p. 3418. "Americans will not do that work; not one in fifty," said a Colorado beet grower, testifying (in 1911) before the House Committee to investigate the American Sugar Refining Co.; Hearings, p. 3192. Compare a similar passage in Report of Kansas State Board of Agriculture for September, 1906 (a special report on sugar beets), p. 20.

[66.]V. Clark, in Bulletin Department of Labor, September, 1908, p. 483.

[67.]Report on Progress... 1904, p. 37. Compare the Report of the Kansas State Board of Agriculture, cited above, p. 19. A correspondent writes me from Bay City, Michigan: "We secure the laborers in such centers as Cleveland, Detroit, Chicago, and Pittsburgh, and these laborers when brought to Michigan make a contract with the farmer to take care of his beets at a certain sum per acre, averaging about $20 per acre.... It is safe to say that about two-thirds of the beets are taken care of by outside labor. In our own case [a large sugar company] we probably brought in about 18oc, laborers." On some smaller beet tracts in Michigan, the farmers and their families do the work themselves, employing no "outside" labor.

[68.]The form of contract used by the Great Western Sugar Co. of Colorado is printed in the Hearings of the Committee to investigate the American Sugar Refining Co. (1911), p. 3186.

[69.]See the excellent analysis by Professor H. C. Taylor, in Annals of the American Academy of Political and Social Sciences, xxii, p. 179 (1903). Cf. the same writer's Agricultural Economics, pp. 65 seq., and Carver's Rural Economics, p. 100. Professor Taylor, in a recent paper (The Place of Economics in Agricultural Education and Research, p. 96; published by University of Wisconsin, 1911)states more explicitly his conclusion that "it is hardly probable that the sugar beet will ever be able to compete with corn on even terms in the corn belt of the United States."

[70.]Tariff Hearings of 1909, p. 341.

[71.]Report on Progress... 1904, p. 56.

[72.]My colleague, Professor T. N. Carver, states to me: "Corn silage will furnish fifty per cent more feed, acre per acre, than any root crop. Moreover it costs half as much, or less than half, to grow an acre of silage and feed it as it does to grow an acre of any root crop and feed it. The only chance for beet-root cake is to sell it as a by-product, the balance being covered by the profits on sugar."

[73.]Progress of the Dairy Industry in Wisconsin, by H. C. Taylor and C. E. Lee, p. 7; Bulletin no. 210 of the Agricultural Experiment Station, University of Wisconsin (1911).

[74.]Mr. C. N. Smith, in the Tariff Hearings of 1909, p. 3317.

[75.]Professor G. W. Shaw of the University of California, in the pamphlet already referred to, p. 6.

[76.]I quote again from Professor Shaw's instructive pamphlet, at pp. 16, 17.

[77.]Report on Progress... 1909, p. 37.

[78.]Report on Progress... 1904, p. 46.

[79.]"The exceptional soil and climatological conditions in California seem peculiarly adapted to the production of beets with a high sugar content. While their reported yield per acre is not so great as that of some other states, the sugar content is decidedly in excess of any other, so that with an acreage considerably less than that of Michigan the total yield of sugar is much more. The calculated yield per acre for the past season was very nearly 3,310 pounds. Many of the California soils are very retentive of moisture, so that with an annual rainfall far below that of the central and eastern part of the country beets can be grown successfully without irrigation. The little rain which they have is usually so nicely distributed through the early and middle seasons of growth as to leave almost ideal conditions for the period of ripening, with its accompanying storage of sugar in the cells. This ripening process is also materially assisted by the alternation of cool nights and warm days, a condition which seems best suited to the formation and storage of sugar in this plant." Report on Beet-Sugar Industry in 1910 and 1911, p. 19.

I take some satisfaction in recalling that, when discussing the beet-sugar situation as early as 1889, I referred to the unusual possibilities of California. "It is not impossible," I wrote then, "that the extraordinary combination of soil and climate in California may bring about a development which could not be attained in other parts of the country." Quarterly Journal of Economics, iii, p. 266, note.

[80.]References to the vicissitudes of the weather, similar to that quoted in the text, abound in the Department of Agriculture's Reports on Progress, e.g., Report for 1903, p. 139; for 1904, p. 113; for 1909, p. 46. Concerning the effect on the quality of the beets, see Report for 1903, p. 140; for 1904, p. 57.

A typical statement is that of a recent report: "Normally, the length of the growing season is sufficient and the rainfall is ample and suitably distributed throughout spring and summer, with dry, increasingly cool, fall weather to afford conditions needed for maturing sugar. It is to be noted, however, that in the case of the last crop (1911) this normal condition of affairs was seriously altered. A fine growing season was followed by an unusually rainy ripening and harvesting period, so that what had given promise of being the greatest crop ever produced turned out very poor in quality, although of fair tonnage." Report on Beet-Sugar Industry in 1910 and 1911, p. 22.

[81.]See for instance Report on Progress... 1901, pp. 132 seq.

[82.]See Ballod, in Verhandlungend. Vereins f. Sozialpolitik, 1909, p. 143, and Esslen, Das Gesetz des abnehmenden Bodenertrags, pp. 226, 237.

[83.]Cf. above, p. 62.

[84.]See chapter ii, p. 28, above.

[85.]Shaw, The California Sugar Industry (1903), p. 17.

[86.]The Sugar Beet (1908), p. 38. Similar statements have been made to me in conversation by persons engaged in beet-sugar making. Others, however, no less well informed, have expressed to me a doubt whether any appreciable improvements have been made by the American makers, especially when compared with what the Germans have done.

[87.]There was and is bickering, inevitably, between the farmers who grow the beets and the sugar manufacturers; the farmers maintaining that the manufacturers beat down the growers and pocketed the bulk of the profits for themselves. Very likely this was the case; but the growers got quite enough to make beet culture worth while, as is proved by its rapid extension. See Hearings on the American Sugar Refining Co. (Hardwick Committee) 1911, pp. 3313 and passim.

[88.]Considered in the preceding chapter, pp. 76 seq.

[89.]Figures of this sort are not so easy to compile as one might suppose. They must be put together from scattered statements in the Treasury Department Report on Commerce and Navigation and in the Statistical Abstract.

Domestic production is reckoned by seasons, not by fiscal years, and some adjustment is necessary for comparison with the imported (non-domestic) supply.

In any year it will be found that there are slight discrepancies between the figures given in the various sources. For the present purpose, the discrepancies signify nothing. The figures, which I have intentionally given in round numbers, state the outcome without any substantial deviation from statistical accuracy.

[90.]Thus, to give some typical figures, the duties on sugar were:

On some of the early problems of legislation and administration, see C. S. Griffin, "The Taxation of Sugar, 1789-1861," in Quarterly Journal of Economics, xi, p. 296.

[91.]In the years preceding 1883, sugars having high saccharine content were artificially colored dark in order to bring them in at a lower rate of duty. Long contests in the courts ensued, the government trying to collect higher duties, while the importers contended that under the language of the statute color alone, irrespective of saccharine content, settled the rate of duty. The importers finally won their case; hence the final application of the polariscope tests in the act of 1883. On this episode see D. A. Wells, Report on the Assessment and Collection of Duties on Imported Sugars (New York, 1878); "How Congress and the Public deal with a Great Revenue Problem," Princeton Review, November, 1880.

[92.]Thus in the tariff acts of 1897 and 1909, all sugar below 16 Dutch standard was assessed for duty as raw sugar, on a scale graduated by the polariscope test. Sugar testing 75° (75 per cent of saccharine content) paid 95/100 of a cent. For each additional degree, the duty became 35/1000 of a cent higher. Hence sugar testing 96° (which is the grade most largely imported) paid 1.685 cents per pound. If there were such a thing as raw sugar testing 100°, the duty on it would be 1.825 cents per pound. The duty on refined sugar, i.e., "all sugar above number 16, Dutch standard, or which has gone through a process of refining" was 1.95 cents in 1897, and 1.90 cents in 1909; leaving a differential (as stated in the text) of 0.125 cents in 1897, and of 0.075 in 1909.

The word "differential" is sometimes used in discussions of the sugar situation to designate not the additional duty on refined sugar, but the difference in price between raw sugar and refined. To avoid confusion, I shall use "margin" to designate this latter amount, reserving "differential" to indicate the refiner's protection under the several tariff acts.

[93.]An official in a refining company has given me the following figures showing the capacity of a refinery under his charge (not one of the largest) at the following dates:

[94.]For brevity, I shall hereafter follow popular usage in designating the American Sugar Refining Company, as "the trust."

On the history of the trust, see a monograph by Vogt, "The Sugar Refining Industry" (University of Pennsylvania), 1908; and on the earlier phase, up to 1900, J. W. Jenks, The Trust Problem, pp. 130 seq. Much information is to be got from the Report of the Industrial Commission of 1898 on Trusts and Industrial Combinations (1900); in the evidence before the Senate Committee of 1894; in the Hearings before the Committee on the Investigation of the American Sugar Refining Co., usually spoken of as the Hardwick Committee (1911-12); and in the voluminous testimony given in the suit instituted by the Government (in 1912-15) for the dissolution of the trust.

[95.]Report of the Industrial Commission (of 1900), i, p. 101. On this earlier period, see the excellent account in Jenks, The Trust Problem (1900), pp. 133 seq., where is also a chart showing in much detail the fluctuations in the prices of raw and refined sugar.

[96.]The cost of refining is usually stated to be 5/8 cent a pound, or 62½ cents per cwt. This is "cost" in the accountant's sense; including all direct and indirect outlays, but not including anything for return on the investment in the way of interest or profit. The amount by which the margin exceeds this "cost" is the source of profit for the refiner. The figure commonly given for cost (5/8 cent) is, of course, a rough and approximate one. It is much affected by the refinery's "running full": the more complete and steady is the utilization of the great plant, the lower is the cost per unit. I suspect that 5/8 cent is a liberal estimate of cost for a large refinery well managed and utilized to full capacity. But it seems to be impossible, under existing trade conditions, to run a refinery continuously to its full capacity.

Looking at the figures given for prices of raw and refined sugar, it will be seen that the margin varied from maxima of 1.42 in 1882 and 1.26 cents in 1888 to a minimum of .5 cent in 1899. The former figures meant a very large margin for profit; the latter meant no profit at all. During the later years (1902-10) the margin varied from .75 to .90 cent; or, in round numbers it exceeded cost, and contributed to interest and profits, by an amount varying from 1/8 to -8/10 cent per pound. I doubt whether it could be proved that, allowing for interest and "reasonable" business profits, this brought a price in excess of total normal cost. Compare what is said below, chapter xii, p. 210, on "cost."

The figures given are averages for the successive years. Such figures might be misleading, since there might be variations within each year, concealed in the averages, that would affect the significance of the table and chart. But in this case more minute and detailed tabulations lead to no changes in the results. A chart showing the price figures month by month has been made for me by Mr. H. L. Perrin of Boston University, who has carried on an investigation of the trust's history under my guidance, and no deviations were found that would modify the conclusions stated in the text. I am glad to acknowledge my indebtedness to Mr. Perrin.

[97.]It is not easy to make out precisely what was the situation of the refiner (i.e., the trust) during the period when the tariff act of 1894 was in force. The sugar duties of that act were regarded as a surrender to the trust; see my Tariff History of the United States, p. 308. It has been said that the ad valorem duty of forty per cent then imposed on raw sugar worked to its advantage. For some figures on the profits of refining under the several tariff acts of 1890, 1894, 1897, see the testimony of Mr. W. P. Willett before the Hardwick Committee (1912), pp. 3548-3549.

[98.]See p. 77, above.

[99.]The Cuban remission was not in terms limited to raw sugar; it would have applied to any refined sugar imported from Cuba; but in fact none came thence to the United States.

It is this situation which probably accounted for the indifference with which the refiners acceded to the reduction of the differential in the tariff act of 1909.

[100.]See above, p. 60.

[101.]In the holding company (The Western Sugar Refining Company) which took over the California refinery built by the trust and the Spreckels refinery, each party held one-half of the stock. The refinery which had been built by the trust was immediately closed, and was ultimately destroyed by the San Francisco earthquake. The Spreckels plant sufficed to refine all the sugar consumed on the coast. See Hardwick Committee Hearings (1911), pp. 927-932.

In 1911 the trust sold its stock in the Western Sugar Refining Co. (to the Spreckels interests); this being part of the policy of conformity to law adopted by the later managers.

[102.]In the earlier period, until about 1890, the Hawaiian planters were not united, and accepted varying prices for their sugar. Later they combined, and made contracts for a year or series of years with the trust, stipulating that all planters should get the same price,—a fraction below the New York price. In 1912 the reduction from the New York price was ¼ cent for sugar delivered at San Francisco, 1/10 cent for sugar delivered at Atlantic ports. The trust contended that its obligation to take at once all the Hawaiian sugar offered made some such reduction reasonable; and the willingness of the Hawaiians to enter on the arrangement for sugar delivered at the eastern ports (1/10 cent reduction) doubtless rests on this circumstance. It is not clear that during the later years of the period the arrangement was such that the Hawaiian planters had ground for complaint. See on this subject, the statement of Willett, in the record of the suit of the U.S. Gov't v. Amer. Sug. Refining Co., i, p. 83 (1912); testimony before the Hardwick Committee (1911), pp. 89-90, and 3610; and the pamphlet by F. C. Lowry, Our High Tariff on Sugar (published in various editions, 1909-1912; see the edition of 1909, p. 4).

[103.]Whether the Louisiana planters were "oppressed" by the trust during the later years is not easy to make out. Their spokesmen naturally thought so; see the testimony before the Hardwick committee (Hardwick Report, p. 1841). The representatives of the trust pointed out (ibid., p. 133) that they engaged to take the whole amount offered by any planter, at the stipulated reduction from the New York price, and to hold it and assume the risk of depreciation; all of which served to make the arrangement a reasonable one. See also the testimony of Mr. Atkins in the suit of U.S. v. Am. Sug. Ref. Co., Transcript of Record, p. 6318.—It must be remembered that during the later period the price of refined sugar in the Mississippi valley could no longer be kept up, being subject to the competition of other refiners and also to that of the beet-sugar makers of the west.

[104.]Cf. p. 60, supra.

[105.]In this sketch of the Sugar Trust, I have confined myself to those operations which had to do directly with the protective tariff. The furious speculation in sugar stock and its manipulation by insiders, the political corruption or semi-corruption practised by the early managers, the trust's methods of competition, the much-discussed episode of the capture of the Philadelphia (Segal) refinery,—all belong to the history of the trust problem, in which this particular combination could be the subject of a veritably sensational chapter. The frauds on the revenue through underweighing are also outside the scope of the present volume. They are connected with the administrative side of customs duties, and with the unsavory political conditions of the closing years of the nineteenth century. On the death in 1907 of H. O. Havemeyer, who had maintained through his life a curious despotic control of the trust, its management came into other and better hands, and a new phase began.