THE  TARIFF AND TRUSTS -- EXPENDITURES FOR INTERNAL IMPROVEMENTS

BY
Professor RICHARD T. ELY,
OF THE JOHNS HOPKINS UNIVERSITY.  
Source: Shaw, ed., The National Revenues (1888), pp. 56-67.

I must frankly confess to your that your circular letter is the most difficult letter to answer which I ever received. Your questions are far reaching in their scope, and it would be necessary to write a large book to give anything approaching an adequate reply. It is undoubtedly a good thing to compare conclusions of specialists, but to state conclusions without any explanation of the methods whereby one arrives at those conclusions is apt to lead to serious misapprehension.

I must acknowledge that the changed circum­stances of our time have driven me farther and farther away from any affection which I ever entertained for protectionism. The fact cannot be disguised that our protective tariff has been dreadfully abused. Its design was to shut off foreign competition altogether or to weaken its force, but not to prevent competition among domestic producers. Within a few years, however, home manufacturers, seeing foreign competition    [57] excluded, have availed themselves of this circumstance to form trusts and combinations, whereby all competition has been excluded, all producers have been placed at the mercy of a ring, and those who have dared oppose them have been crushed by a tyranny in comparison with which the alleged tyranny of trades-unions sinks into insignificance. While profits of employers in the ring have been raised by this process enormously, workingmen, instead of finding their wages increased, have been entirely thrown out of employment, for when factories and shops are closed by these combinations no provision is ever made for the workingmen who in them formerly gained a livelihood. To talk about the benefits of protection to labor becomes under such circumstances a hollow mockery; especially so since evidence is not wanting to show that these huge monopolies propose to turn their immense power against all combinations of workingmen and crush them just as they have the independent producers.  The fact is not to be gainsaid that trusts and combinations among producers are socialistic in character. They stand for the only real live and dangerous socialism which to-day exists, and their spread is greeted by scholarly socialists with unmingled satisfaction. What the socialists want is absolute concentration -- concentration of all production under a single authority. We may define    [58]   socialism as an unlimited trust. Socialists believe that by spontaneous processes as seen in modern combinations all production will some day be concentrated in a single management, when it will only be necessary to change the purpose of the management to inaugurate the reign of socialism. SOCIALISM I WILL DEFINE, THEN, AS THE EXCLUSIVE MANAGEMENT OF ALL PRODUCTION AND DISTRIBUTION BY A SINGLE TRUST ON BEHALF OF TILE PEOPLE.  Those who believe in competitive methods, or who even believe as I do, that tile legitimate sphere of competition is a very large one, including by far the greater part of our industrial life, must look with alarm upon the modern trust, and must favor the removal of the protective tariff behind which it has entrenched itself.            

The argument for protection to young industries may, under certain circumstances of time and place, have some force, and I am not prepared to admit that in no country should I ever favor protection. I do not call myself either a protectionist or a free trader so far as theory goes. I hardly think a universal law can in this matter be laid down. In the United States, at the present time, I am, so far as our own policy is concerned, a free trader. I would not introduce free trade to-day nor to-morrow; but with adequate regard for vested interests, I would gradually approach free trade. Is it not ridiculous    [59] to protect the strong against the Weak?  Yet that is what we are doing. We are becoming not merely the strongest bat by far the strongest industrial nation on the face of the globe and our industries need no protection.

Our farmers and our laborers gain no advantage whatever from protection. The market of the former is restricted. He sends his wheat to Liverpool, but in Liverpool he may not purchase in exchange those things which he needs, for we make it impossible by taxes on imported commodities. He trust buy in New York and pay larger prices to men who have no more affection for him than his Liverpool customers. The plea is urged that a diversified industry is needed.  No doubt the farmer is interested in a diversified industry, but that will come of itself. We have superior facilities for a vast number of industries, and I do not believe that any great industry would be completely ruined should free trade be introduced in the United States to-day. Many engaged in the production of iron and steel might be obliged to close their establishments, but it would be found that the superior facilities of some would enable them to continue. It is asked, What world those do who would be thrown out of work should we import things now produced at home? Manifestly, it is impossible to import commodities unless we export commodities in return. Foreigners will not    [60]   send us goods unless we give them goods in exchange. Those who are manufacturing things which, under a system of free trade, we would import, would find an occupation in producing goods for exportation. Free trade, or perhaps I ought to say freer trade, would bring about a better international division of labor. We would produce those things for which we have special gifts, as would foreign countries, and thus the products of labor and capital would, to the benefit of all, improve both quantitatively and qualitatively.            

If the advance towards free trade is made without due regard to existing conditions, the result will be the bankruptcy of many large manufacturers; and it is true that you cannot affect one industrial interest adversely without touching all others. Our economic life is an organism, and every part of it is connected with every other part. I have always favored the proposition elf Mr. Hugh McCulloch, our former secretary of the treasury, that a commission of impartial, fair-minded men, extremists neither in the interests of free trade nor in the direction of protection, be appointed to investigate the condition of our industries, and on the basis of their investigation to report a tariff bill. The unsatisfactory experience of the country with the tariff commissioners of 1882 proves nothing. That commission was appointed, not to bring in    [61]   an important report, but a report in favor of protection. The nature of its report was avowedly known from the start, and it was not based on the results of investigation. It seems to me that at the present time a more satisfactory commission could be appointed. It ought to include both scholars and business men. A business man like Hon. Abram S. Hewitt, and scholars like professors Taussig and E. J. James, differing in views, yet both inclined to be fair-minded, would be admirable members of a tariff commission.

My general ideas in regard to tariff reform are in favor of a simplification of administration by a substitution of specific for ad valorem duties in every practicable instance, and as large an extension of the free list as possible. Every time, an article is added to the free list one temptation to political corruption and " government by special interests " is removed.

I am in favor of reducing the debt by bond purchases whenever favorable opportunity offers, and also in favor of a protective expenditure of the surplus. There is an opportunity for the advantageous expenditure of the existing surplus, and the free traders do not themselves credit by their demagogical objections to every legitimate plan for the use of the national surplus. Their aim is, of course, to force the tariff question to the country by the accumulation of a surplus,    [62]   and they are too often willing to see a waste of national resources rather than consent to the wise expenditure of public money. I doubt, however, whether they strengthen themselves thereby. The practical outcome of this attitude is after all not economy, but a wasteful and disadvantageous expenditure of money in ways calculated to catch votes, as seen in most objectionable pension bills.

The newspaper outcry about river and harbor bills is largely to be explained in this way -- partially also by the inspiration of railroad men, who, above all things, do not want to see any improvement in our natural and artificial waterways.            

The amount of lying done about the character of appropriations for the improvement of rivers and harbors is something astounding. Conversation with any intelligent and honest man who knows anything about the internal improvements going on under the supervision of the federal government will show one that large appropriations, larger than any we have had, are really needed, will show one that money so spent would yield enormous returns to the people of the United States. My attention was first called to the true nature of newspaper criticisms of river and harbor bills by a United States engineer who in character and intelligence ranks among the highest in the service. His name is well    [63]   known, but it may be better, on account of his official position, not to mention it in this place. Since that time, all that I have observed has confirmed the statements of this engineer. A year ago this last winter, I visited Charleston, S. C., and Savannah, Ga., and found a considerable portion of the appropriations for those important harbors wasted on account of their insufficiency. Let us suppose that $400,000 is needed at once for the improvement of a harbor, and $200,000 is appropriated. It will often be necessary to suspend work until more is appropriated, and in the meantime the sea will destroy a part of what has been done.  This is a sample of the penny-wise, pound-foolish policy of Congress. Our Baltimore appropriations are quite insufficient. Although a believer in tariff reform, I quite agree with these sensible remarks quoted from the "Real Estate Record and Builders Guide" of New York for March 31, 1888: "Ours is an immense country, with innumerable waterways and harbors, or lake and ocean fronts. The growth of our enormous internal commerce calls for the improvement of these waterways and harbors, and the amount of work to be done is naturally very great. The local government engineers state officially that we ought to expend one hundred and sixty millions per annum for some years, in order to give the needed facilities to the internal commerce of the country. Knowing    [64]   how impossible it would be to get Congress to sanction so large a sum, the chief of the government engineers asks for only forty millions. * * The House Committee has introduced it bill asking for less than twenty millions. * * The inadequacy of the proposed expenditures is shown in the fact that the harbor of New York gets only $200,000, when to deepen the channel in the lower bay properly would cost nearly $4,000,000. $150,000 is given to the Harlem River improvement, when the total cost of the work will be nearly $2,000,000. * * * Quite a large sum is appropriated for the lower Mississippi, not one tenth enough, however, to insure against inundations due to any exceptional rise in the river. * * If we are as niggardly in the future as in the past, the recent appalling catastrophe due to the breaking of the banks of the Yellow River in China will be repeated in our Mississippi Valley. A large sum is also appropriated to the Sault Ste. Marie Ship Canal, through which more tonnage will pass than through the Suez Canal. The appropriations should have been five millions for this work, instead of less than one million.

"But the newspapers have commenced to clamor against the new River and Harbor bill. It does look so honest to object to the spending of money by the government. A thievish pension bill gets no such criticism, though it is money worse    [65]   than wasted. In the bill so unjustly vetoed by President Arthur, there was an appropriation for a locality called Cheesequakes, and how the wits of the press did play upon that name to cast odium upon the bill, of which nine-tenths of the appropriation were for objects of undoubted merit ! In the bill now before the House it is proposed to deepen the Wing Wang River in Oregon. What a chance is hero for the newspaper humorists ! It is very probable that this tremendous press opposition to waterway improvements is really inspired by the great railway corporations, who naturally want to have the whole carrying trade of the country at their mercy."

While some of the money appropriated may be wasted -- perfection is not possible in human affairs -- by far the greater portion of the money is well spent, and it is to be hoped that we may some day have a Congress with back-bone enough to withstand newspaper clamor, and make adequate appropriations for rivers and harbors and defences of our sea coast cities; also for a few great canals.            

     The clamor about public buildings is equally senseless. Money worth to the United States is less than three per cent per annum. Now, wherever government spends $1,000 for rent, it would save money to invest $25,000 in a building. Many cities have no federal building, and    [66]   they could with advantage be supplied with one. I would gladly see the amount of rent paid by the government diminished, and then in time of emergency we would derive advantage from the decrease in regular, ordinary expenditures.    

I world gladly see the property of existing telegraph companies purchased by the federal government. It is a disgrace that we alone of civilized nations have no public telegraph service, and that we are obliged to put up with our present abominably inefficient and expensive private monopoly.

Heartily as I am in favor of tariff reform, I would gladly see the revenues remain as large as at present, and a proper, that is to say, a productive expenditure of revenues. Among these expenditures, in addition to those named, I would include some such plan of refunding the debt as that so ably advocated by Professor Henry C. Adams in his article in the “Forum" for December, 1887. The main feature of the article was the separation of interest from the principal of debt, the capitalization of the interest and its prepayment. The advantage to be derived from this plan by the government, and the inducement properly to be offered bondholders, are satisfactorily described in the article.

I am in favor of an extension of commercial relations, and would gladly see a satisfactory scheme for a zoll-verein or commercial union    [67]   for all of North and South America, devised and put in execution.            

The main features of an ideal system of national revenues would, in my opinion, be these: Taxes laid on a few imported commodities for the sake of revenue; an internal revenue system laying taxes on a few articles like intoxicating beverages, and, possibly, tobacco; finally, some more elastic taxes which could readily be raised or lowered according to the needs of the federal treasury. Among our "ideal" taxes, one, perhaps, on the gross revenues of railroads engaged in inter-state commerce could be recommended.

The disadvantage of relying entirely on customs duties has been amply demonstrated by American experience. When largest revenues are needed, they yield least ; when least is needed, they yield most. We have suffered embarrassment and the loss of countless millions by the failure in the past to maintain a satisfactory scheme of internal revenue taxation, and it is to be hoped that this mistake will not be repeated.

I trust that this brief and inadequate sketch of my ideas in regard to a few federal problems may prove suggestive which is the most I hope for.                  RICHARD T. ELY.