McCulloch on Smuggling

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Source: Cyclopedia of Political Science, Political Economy, and of the Political History of the United States by the best American and European Authors, ed. John J. Lalor (Chicago: M.B. Carey, 1899). 3 vols. Vol 3 Oath - Zollverein Chapter: SMUGGLING

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Hidden within the massive Lalor's Cyclopedia are some essays by important economists such as John Ramsay McCulloch (1789-1864) who was the leader of the Ricardian school following the death of Ricardo. He was a pioneer in the collection of economic statistics and was the first professor of political economy at the University of London in 1828. [The image comes from “The Warren J. Samuels Portrait Collection at Duke University.”] We have reproduced some of his essays from Lalor's Cyclopedia here in The Forum.

  • BALANCE OF TRADE—J. R. M'CULLOCH and HUGH G. REID
  • BILL OF EXCHANGE—J. R. M'CULLOCH and HUGH G. REID
  • BROKERS—J. R. M'C.
  • CANALS—J. R. M'C.
  • COASTING TRADE—J. R. M'C.
  • CORN LAWS.—J. R. M'C. and H. G. R.
  • DRAWBACK—J. R. M'C. and H. G. R.
  • HANSEATIC LEAGUE—J. R. M'CULLOCH AND H. G. REID
  • SMUGGLING—J. R. M'CULLOCH

SMUGGLING

SMUGGLING. The offense of importing prohibited articles, or of defrauding the revenue by the introduction of articles into consumption, without paying the duties chargeable upon them. It may be committed indifferently either upon the excise or customs revenue.

Origin and Prevention of Smuggling. This crime, which occupies so prominent a place in the criminal legislation of all modern states, is wholly the result of vicious commercial and financial legislation. It is the fruit either of prohibitions of importation, or of oppressively high duties. It does not originate in any depravity inherent in man; but in the folly and ignorance of legislators. A prohibition against importing a commodity does not take away the taste for it; and the imposition of a high duty on any article occasions a universal desire to escape or evade its payment. Hence the rise and occupation of the smuggler. The risk of being detected in the clandestine introduction of commodities under any system of fiscal regulations may be always valued at a certain average rate; and whenever the duties exceed this rate, smuggling immediately takes place. Now, there are plainly but two ways of checking this practice: either the temptation to smuggle must be diminished by lowering the duties, or the difficulties in the way of smuggling must be increased. The first is obviously the more natural and efficient method of effecting the object in view; but the second has been most generally resorted to even in cases where the duties were quite excessive. Governments have almost uniformly consulted the persons employed in the collection of the revenue with respect to the best mode of rendering taxes effectual; though it is clear that the interests, prejudices and peculiar habits of such persons utterly disqualify them from forming a sound opinion on such a subject. They can not recommend a reduction of duties as a means of repressing smuggling and increasing revenue, without acknowledging their own incapacity to detect and defeat illicit practices; and the result has been, that, instead of ascribing the prevalence of smuggling to its true causes, the officers of customs and excise have almost universally ascribed it to some defect in the laws, or in the mode of administering them, and have proposed repressing it by new regulations, and by increasing the number and severity of the penalties affecting the smuggler. As might have been expected, these attempts have, in the great majority of cases, proved signally unsuccessful. And it has been invariably found, that no vigilance on the part of the revenue officers, and no severity of punishment, can prevent the smuggling of such commodities as are either prohibited or loaded with oppressive duties. The smuggler is generally a popular character; and whatever the law may declare on the subject, it is ludicrous to expect that the bulk of society should ever be brought to think that those who furnish them with cheap brandy, geneva, tobacco, etc., are guilty of any very heinous offense. "To pretend," says Adam Smith, "to have any scruple about buying smuggled goods, though a manifest encouragement to the violation of the revenue laws, and to the perjury which almost always attends it, would, in most countries, be regarded as one of those pedantic pieces of hypocrisy, which, instead of gaining credit with anybody, serve only to expose the person who affects to practice them to the suspicion of being a greater knave than most of his neighbors. By this indulgence of the public the smuggler is often encouraged to continue a trade which he is thus taught to consider as, in some measure, innocent; and when the severity of the revenue laws is ready to fall upon him, he is frequently disposed to defend with violence what be has been accustomed to regard as his just property; and, from being at first rather imprudent than criminal, he at last too often becomes one of the most determined violaters of the laws of society." ("Wealth of Nations," p. 406.) To create by means of high duties an overwhelming temptation to indulge in crime, and then to punish men for indulging in it, is a proceeding completely subversive of every principle of justice. It revolts the natural feelings of the people; and teaches them to feel an interest in the worst characters—for such smugglers generally are—to espouse their cause, and avenge their wrongs.

—A punishment which is not proportioned to the offense, and which does not carry the sanction of public opinion along with it, can never be productive of any good effect. The true way to put down smuggling is to render it unprofitable; to diminish the temptation to engage in it; and this is not to be done by surrounding the coasts with cordons of troops, by the multiplication of oaths and penalties, and making the country the theatre of ferocious and bloody contests in the field, and of perjury and chicanery in the courts of law; but by repealing prohibitions, and reducing duties, so that their collection may be enforced with a moderate degree of vigilance; and that the forfeiture of the article may be a sufficient penalty upon the smuggler. It is in this way, and in this way only, that we must seek for an effectual check to illicit trafficking. Whenever the profits of the fair trader become nearly equal to those of the smuggler, the latter is forced to abandon his hazardous profession. But so long as prohibitions or oppressively high duties are kept up, or, which is in fact the same thing, so long as high bounties are held out to encourage the adventurous, the needy and the profligate to enter on this career, we may be assured that armies of excise and customs officers, backed by the utmost severity of the revenue laws, will be insufficient to hinder them.

—It would be useless to enter in this place into any lengthened details to prove the truth of these statements. Unluckily, the entire financial and commercial history of all countries abounds with instances in point, many of which must be familiar to every reader. The prohibition of foreign products, or the imposition of heavy duties on foreign or native products, does not take away the taste for them. On the contrary, it would seem as if the desire to obtain prohibited or overtaxed articles acquired new strength from the obstacles opposed to its gratification.

Per damna, per cædes, ab ipso
Ducit opes animumque ferro.

The prohibition of foreign silks which existed in England previously to 1826 did not hinder their importation in immense quantities. The vigilance and integrity of the custom house officers were no match for the ingenuity, daring and douçeûrs of the smugglers. And at the very moment when the most strenuous efforts were made to effect their exclusion, the silks of France and Hindostan were openly displayed in Almack's, in the drawing rooms of St. James', and in the house of commons, in mockery of the impotent legislation by which it was attempted to shut them out. There is, in truth, great room for doubting whether the substitution of an ad valorem duty for the whole system of prohibition was at first productive of any material increase in the imports of foreign silks. The repeal of the prohibition was a most judicious measure; but the duty being unfortunately fixed at too high a limit, it gave an overwhelming stimulus to smuggling. Before the abolition of the duty on silks, the expense of their clandestine importation from France was roughly estimated at about 15 per cent. ad valorem; and as the duty on silks, down to 1845, was double that amount, or 30 per cent., we need not wonder that it was estimated, by well-informed parties, that from a third to a half of the total quantity of imported silks escaped the duty. Indeed, every one is aware that their clandestine importation was carried on, to a great extent, within the port of London, and in the custom house itself, by the corruption and connivance of the officers. And this, we may be assured, was not a solitary instance. The corruption of the officers, is, in truth, an inevitable consequence of the over-tax system.

—The enormous duties that were imposed in England previously to 1823 on home-made Scotch and Irish spirits, produced an extent of smuggling and demoralization of which it is not easy for those who have not attended to such matters to form an idea. At present, however, the duties in that country on tobacco, brandy and hollands, but especially the first, are the great incentives to smuggling. The preventive water-guard is kept at a great expense for little other purpose than to hinder the clandestine importation of these articles. But notwithstanding its efforts, considerable quantities of them find their way into the country without being subjected to any duty. And how should it be otherwise? The price of tobacco in the contiguous continental ports may, on an average, be taken at from 8d. to 10d. per Ib.; and as the duty on tobacco is from 3s. 6d. to 5s. per Ib., need we be surprised to learn, that, allowing for the expenses of smuggling, if one cargo out of three be safely landed, the business is as profitable as it is adventurous and exciting? "But it is not so much by the introduction of tobacco from abroad as by its admixture or adulteration with other articles, that the contraband dealers endeavor to defeat the duty." It may, however, be right to state that it must not be imagined that the mere diminution of an oppressive duty on any article will put down the smuggling to which the duty may have given rise. The diminution may not be sufficiently great; and if so, it will have but little influence.

—These considerations show the degree of weight which should be attached to the statements of those who endeavor to excuse or apologize for exorbitant duties by showing that they have sometimes been reduced without any material increase taking place in the consumption of the articles on which they are laid, or any material diminution of smuggling. In exemplification of this it has been stated that though the duty on tobacco was reduced in England in 1825 from 4s. to 3s. per 1b., the consumption was not increased in anything like the same proportion; and that, notwithstanding the rapid growth of population, a period of ten years elapsed before the tobacco revenue rose to its former level. But no one acquainted with the facts could have anticipated any other result. Taking the cost of tobacco on an average at 6d. per 1b. (which is beyond the mark), the duty previously to and since the reduction has been respectively 800 and 600 per cent. ad valorem. And it is needless to say that the least of these duties holds out an overwhelming temptation to smuggling and fraud. The truth is, that the reduction of duty in 1825 was an ill-advised measure; and there is perhaps no great reason to conclude that the further reduction of the present duty of 3s. per 1b. to 2s. would be much wiser, or that, while it sacrificed revenue, it would be at all sufficient to suppress illicit practices. It is idle, therefore, by referring to instances of this sort, to endeavor to make it be believed that an adequate diminution of taxation is not followed by a corresponding increase of consumption. Had the duty on coffee, instead of being reduced in England in 1808 from 1s. 8d. per 1b. to 7d., been reduced to only 1s. 3d. (the proportion in which the tobacco duty was reduced), the effect would have been all but imperceptible; and instead of the consumption being immediately increased from about 1,000,000 1bs. to 9,000,000 1bs., the presumption is, it would not have been increased to 1,500,000 1bs. In taxation, as in everything else, unless the means be adequate to the desired ends the result will be nothing. If you offer a premium of eight to one on smuggling, do you imagine you will abate the nuisance you have called into existence by reducing the premium to six to one or four to one? It will be found in every case in which a reduction of duty is not followed by a more than corresponding increase of consumption, that the article continues to be overtaxed, or that the duty left upon it either exceeds the cost of smuggling or places it beyond the reach of those who might otherwise become its consumers. We are bold to say that no instance can be found in the financial history of any country of an adequate reduction of the duty on an over-taxed article not being followed by a cessation of smuggling and a great increase of consumption.

J. R. M'CULLOCH.