Chapter VI. The Tariff Act of 1894

THE QUESTION of principle which was presented to the American people by the tariff act of 1890 was answered with remarkable promptness, and, to all appearances, in unmistakable terms. Immediately after the passage of the act, the party which had thus espoused the extreme protective policy suffered a crushing defeat; and, after two years of discussion and deliberation, the verdict at the polls was again overwhelmingly against it. The McKinley tariff had become law in October of 1890. In November, the Congressional elections were held, and the Republicans were defeated as they had never been defeated before. In the new Congress which was to succeed that which had passed the act of 1890, they secured only one quarter of the Representatives; their opponents outnumbered them three to one. Even States like Massachusetts, Ohio, Illinois, Michigan, long supposed to be stanchly Republican, returned Democratic majorities. The tariff question, which had been uppermost in public debate at this election, was again uppermost, two years later, in the election of 1892. President Cleveland, who had made the tariff question the political issue of the day, was once more nominated by the Democrats; and President Harrison was renominated by the Republicans. Again the result was a triumph for the Democrats, whose candidate received nearly twice as many electoral votes as his opponent. Again a row of Western States joined the ranks of the Democrats,—Indiana, Illinois, Wisconsin; while Ohio was retained on the Republican side by a slender majority of a bare thousand votes. The Congressional elections, while less dramatically one-sided than those of 1890, told substantially the same story. The Democrats had an overwhelming majority in the House; and in the Senate, as the elections in the various State legislatures were gradually held, they secured a working majority. The result was to assure them of full control of all branches of the federal legislature in the Fifty-third Congress, for the term of 1893–95.¹

The Democrats, twice victorious, might fairly claim an emphatic declaration of the people in favor of their policy. How clear the popular verdict may really have been, is as difficult to say as it must always be to interpret the meaning of a general election. The demoralization of the civil service, the scandals which that demoralization is sure to bring on every administration, the usual reaction of public favor, defections to the Populist Party—all these played their part. On the tariff itself, there was little in public discussion to indicate that the true questions at issue were fairly before the popular mind. A vague uneasiness about trusts and monopolies, which the protective duties were supposed to promote, clearly had much effect in strengthening the hands both of Democrats and of Populists; and the comparatively simple questions which at bottom are involved in the protective controversy were obscured by a cloud of talk about pauper wages and monopolist manufacturers, British free trade and American patriotism. Yet the tariff certainly had been squarely presented as the issue in these campaigns, and the Democrats were justified in acting on the theory that the popular will had declared itself against the policy of high protection.

But the enthusiasm which the victory at first aroused among the Democrats was dampened almost at once by the events of the extra session of the summer of 1893. The silver question had not been at issue between the parties in 1892. President Cleveland had repeatedly declared himself to be opposed to the policy of enlarging the silver currency. The Republicans also, even though they had tried to placate the silver element by passing the silver purchase act of 1890, had nonetheless declared themselves in favor of keeping the silver issues at par with gold. But the silver question, pushed aside by the tariff question in 1890–92, came suddenly to the front in 1893, when the commercial crisis, ascribed (with sufficient reason) to the excessive issues of silver currency, compelled action on the financial situation. President Cleveland called an extra session, for the one purpose of repealing the silver purchase act and discontinuing silver coinage and silver issues. The strong element in his party which was in favor of the free coinage of silver fought this proposal, vigorously in the House, desperately in the Senate. The administration succeeded; its policy was carried out; the silver purchases were brought to an end. But the bitter struggle within the ranks of the Democrats did much to shatter their cohesion, and to deprive them of that spirit of determination in their own ranks, and that respect and prestige in the community, which are secured by a united and singleminded party.

Another factor that weakened the effect of the victories of 1890 and 1892 was the narrow Democratic majority in the Senate. The slowness with which, under our political system, the composition of the Senate responds to changes in the popular vote, is shown by the precarious hold which the dominant party had in that body. In the House, with a majority of nearly two to one, it could proceed without regard to discontent or dissent on the part of a fraction of its own members. But in the Senate the defection of a very few among the majority would destroy its control of legislation. As it happened, for one reason or another there was danger of such defections. Some Democratic Senators were half-hearted on the general question of tariff reduction; others came from States which had strong interest in particular duties,—especially the Louisiana Senators. Old quarrels and bickerings, dating back to President Cleveland’s first administration, and due chiefly to petty squabbles over appointments to office, caused still others to take a spiteful pleasure in blocking the movement for tariff reform which the President had so much at heart. The administration made some endeavor, both during the extra session of 1893 and during this regular session, to restore unity and discipline, and to bring all the Senators to the support of the party policy, by putting offices at the disposal of the sulky few. But this move availed little. It threw back for the time being the all-important cause of reform in the machinery of the government; and yet did little or nothing to remove the difficulties that arose from the narrow and uncertain majority in the Senate. Thus, for one cause and another, there was danger of defection in that body, and a need, based on more or less serious grounds, of conciliation and of careful management; a need which, as it turned out, had a great and unexpected effect on the final shape of the tariff act.

Such were the political conditions under which the regular session of 1893–94 began. At the extra session of 1893, no attempt had been made to deal with the tariff; but the committees had been arranged, and among them the Committee of Ways and Means, which had thus been able to begin its preparations at an early date. Progress with the tariff bill was accordingly easy in the House. The committee reported its bill as early as December 19. That bill proposed some important remissions of duty, and in all directions made considerable reductions; not enough, indeed, to make it a revolutionary measure, yet enough to bring about, if enacted, a real and unmistakable change in the general tariff policy of the United States. Its specific provisions will be more conveniently discussed as we follow one by one the different phases of the proposed legislation, and the final outcome of the whole. The House acted with reasonable promptness: the bill was passed on February 1, substantially in the shape given it by the party leaders on the Ways and Means Committee.

Matters went more slowly in the Senate. There the finance committee did not report the bill until March 20, and then with many and important amendments. The changes were all in the same direction,—toward moderating the reductions, and taking the edge off the measure as passed by the House. When the bill came from the committee to the Senate, still further amendments of the same sort were added. Hence when, after long delays, it was finally passed by the Senate, on July 3, it was a very different measure, in spirit and in details, from that which had been passed by the House.

The House and Senate disagreeing, the bill went to a conference committee. Almost without exception, during the last thirty-five years, the details of tariff bills have been finally adjusted in such committees; and it was to be expected that in this case, as in others, the act as passed would be halfway between the House bill and the Senate bill. This expectation was disappointed. In the Senate the bill there had been passed by a vote of thirty-nine to thirty-four, and among the thirty-nine were two or three Populist Senators who owed no allegiance to the Democratic Party. The votes of all the Democratic Senators were felt to be necessary for its final passage. Several among them insisted on amendments admitted to be distasteful to the mass of their party associates; and the close balance of parties in the Senate enabled them to command the situation. President Cleveland’s letter to Mr. Wilson, the chairman of the House Committee of Ways and Means, urging resistance to the Senate amendments, had no effect beyond that of making clear to the country what were his own views. Whether better management in the Senate would have secured a result more in consonance with the party pledges and principles is not easy to say: beyond question, the leadership of the Democrats in the upper branch was lamentably unskilful. In the end, the House accepted all the amendments of the upper body, and the bill as shaped in the Senate became the act of 1894. President Cleveland signified his justifiable discontent with its provisions by permitting it to become law without his signature. It finally went into effect on August 28.

So much as to the immediate history of the act. We may proceed now to consider its main provisions.

First and foremost was the removal of the duty on wool, and with it an entire change in the duties on woollen goods. Wool and woollens had been for years the central part in the protective system. The change here was an important—almost revolutionary one; and it may be remarked at once that in the whole act no other articles of large importance were thus incisively dealt with.

Free wool was important in its political and in its economic aspects. The duty on wool had been the most significant feature in the policy of all-inclusive protection which the Republicans had emphasized in the McKinley act of 1890. It had been almost the only article through which protection could be promised and given to agricultural voters. There were duties, to be sure, on wheat, corn, and meats—articles which were continuously exported and obviously could not be affected by an import duty. But wool was imported, and was really affected by the duty; and it could be fairly maintained that here the farmers got some share of the benefits of the protective system. Moreover, some of the central States of the country, like Ohio, where there was much wool-growing, were closely divided in politics. Here the wool duty played a prominent part; and it required some courage among the Democrats to present themselves squarely on the platform of free wool.

In its economic aspects the removal of the duty on wool was important as a crucial application of the principle of free raw materials. In that advocacy of protection which has gained the most respectable hearing from serious students of economics,—the advocacy, namely, of what goes by the names of developing protection, educational protection, protection to young industries,—it has usually been explained that crude materials are beyond the scope of the protective policy. Even in the political arguments which we often hear from German writers of the present time, and in which national dependence and self-sufficiency play a large part, the line has usually been drawn against the inclusion of articles of this sort in the protective régime. The desire to encourage the manufacture of woollens has probably been quite as effective as these more theoretical considerations in preventing the extension of the protective policy to wool, even in the countries which in late years have gone so far in the direction of protection. At all events, no country of advanced civilization has maintained any duty on this material, and the retention of such a duty in the United States was perhaps the most characteristic feature of our protective system. President Cleveland had specifically advocated the free admission of wool in his message of 1887; the Democrats had put it on the free list in the Mills Bill, in which they outlined their policy in 1888; the Republicans had emphasized their adherence to the opposite policy by increasing the duty on wool in the McKinley act. Now, at last, it went on the free list.

Equally great, at least in form, was the change in the duties on woollen goods. Here the curious system of compound duties was completely swept away. Its history and development, from the first germs in 1861 to the elaborate rates in the tariff act of 1890, have been sufficiently detailed in the preceding chapters. No part of the tariff was more intricate; in none was it more difficult to ascertain the real degree of net protection finally given the manufacturers; in none were the duties higher. In place of these old complex rates a simple system of ad valorem duties was established. In the bill as passed by the House the rate (on the important classes of woollen goods) was made forty per cent. in the first year, with a reduction of one per cent. each year for five years, until eventually a definitive rate of thirty-five per cent. should be reached. But among the many changes made by the Senate was the adoption of a much more conservative policy as to woollens, and a considerable advance beyond the House rates. The rate was fixed at fifty per cent., once for all, on the more important classes of goods. Certain cheaper sorts of blankets and flannels, it is true, were subject to no more than twenty-five per cent.; and the cheapest kinds of fabrics for men’s and women’s wear were to pay but forty per cent. But, as in former tariff acts, these lower rates were applicable only to goods which had not been imported in the past, and would not be imported under the new rates. On all men’s clothes and women’s dress-goods which were valued at more than 50 cents a pound,—that is, on practically the whole mass of such articles really subject to foreign competition,—and on all manufactures of wool not specially provided for, the ad valorem duty was that of the McKinley act,—fifty per cent. Similarly, on the important classes of carpets, while the old specific or compensating duty disappeared, the ad-valorem duty was left at forty per cent. In general, the higher ad-valorem rates established by the tariff act of 1890 remained untouched: the change on woollen goods was limited to a simplification of the system of duties by the abolition of those specific rates which had previously been levied as an offset to the duties on the raw material.

Theoretically, therefore, the manufacturers of woollen goods lost nothing by the change. They were treated, in the act as finally passed, with marked tenderness: a tenderness further emphasized by the fact that, while wool was admitted free at once, the new duties on woollens did not go into effect until January 1, 1895. For a season they thus got their material free, yet had the benefit of the old duties on their goods. Practically, however, even with this aid toward adjusting themselves to the new conditions, the manufacturers had to face a trying period of transition. We have seen, in the preceding chapters, that the specific duties on woollens, though nominally a simple offset for the increased price of wool due to the duty on that material, contained in many cases a large amount of disguised protection. This was lost under the new system. Even where the case was different, and where the specific duties had done no more than to compensate, the gain from the abolition of the duties on wool did not inure to the manufacturers by any automatic process. They had to learn to take advantage of the lower price at which they could buy the imported wool, now free; and only by taking full advantage of it could they be in a position to meet the competition of the foreign makers, whose products were coming in at the simple ad-valorem duty on woollens. To do this, the domestic manufacturers, long confined to the use of domestic wool and of a very small range of foreign wool, had to learn to adjust or improve their machinery, to use new qualities of wool, and to make new kinds of cloths. The advocates of the remission of the duty on the raw materials had always maintained that the change would vivify the woollen manufacture, widen its range, and increase its prosperity. On the other hand, among the manufacturers and their representatives, there had been a natural aversion to the abandonment of a system, however complicated and confused, to which the industry had been compelled to accommodate itself by a quarter-century of legislation. What the final outcome would be, could appear only after a considerable trial of the new system, continued over some years at least. But the general public had not been trained by either side in the controversy to await the results with any patience. The protectionists had predicted immediate disaster; their opponents immediate prosperity. This mode of dealing with controverted questions is perhaps inevitable in popular discussion: certainly the post hoc, propter hoc argument has been applied to the protective controversy, both in its larger aspects and in its relation to particular industries, with astonishing readiness. No critical observer could expect the change in the duties on wool and woollens to show its real effects in one season, or in several seasons, or to work out its results without more or less uneasiness and embarrassment for the domestic producers. That its ultimate result—considering how tenderly the manufacturers were dealt with in the act of 1894—would be harmful to the woollen industry as a whole, seems highly improbable. So far as the general question of protection was concerned, the wool and woollen schedule in the act of 1894, while it made a sharp break with the past, in putting on the free list at least one important raw material, evidently left the principle of protection, as applied to manufacturers, absolutely untouched, and affected the operations of the woollen manufacturers no more than was inevitable in view of the radical policy followed with regard to wool.²

On other textile materials and products the changes in duties were by comparison unimportant. On most manufactures of cotton there was some change, but in few cases an effective change. On some of the cheaper grades there was on the surface a considerable reduction. Thus the cheapest class of unbleached and unprinted cotton goods became subject to a duty of one cent per yard, in place of the old duty of two and one-half cents. But these goods are made as cheaply in the United States as in foreign countries, if not more cheaply; they would not be imported in any event; and the change in duties was merely nominal. On finer cotton goods, more than likely to be imported, the changes in rates were not great. Where the duty had been fifty per cent. in 1890, it became forty per cent. in 1894; where it had been forty per cent., it became thirty-five per cent. On knit goods there was a more considerable reduction, at least as compared with the rates of 1890. These goods, as we have seen, had been subject in 1890 to a complicated series of mixed specific and ad-valorem duties. They were now subject to a simple duty of fifty per cent. This, while a reduction from the rates established in 1890, was higher than the duty in force before that date. Here, as in not a few other cases, the reform movement of 1894, as checked and pruned in the Senate, did not even succeed in wiping out all the effects of the extreme protective movement that preceded it.

Silk manufactures, on which the protective duties of the last generation had very important effects, were hardly touched. The duties on some silks went down from sixty to fifty per cent., on others from fifty to forty-five per cent. The changes were hardly worth mentioning. Much the same was the case with linens. Dressed flax was admitted at 1½ cents per pound, just half the duty of 1890. Manufactures of flax were admitted at reductions of duty very similar to those just noted as to silks. Since virtually no linens of finer quality were (or are) produced in this country, and those of coarser quality were as effectually shielded by the new duty as by the old, matters remained very much as they had been. One change was an exception. Bagging of jute, flax, or hemp, for grain or cotton, was admitted free of duty—a direct concession to the farmers and planters.

Next we may turn to the duties on minerals and mineral products. Here the articles to which public attention was chiefly given were coal and iron ore. These are by no means the most important articles in the tariff schedule relating to minerals and metallic products; but they are emphatically raw materials, the question of principle in dealing with such was hotly raised as to them. The two houses of Congress here disagreed sharply: the House put both articles on the free list, while the Senate insisted on the retention of duties, even though reduced duties. The dispute drew to this part of the tariff system a share of public attention disproportionate to the real industrial significance of the duties, and brought into full relief the failure of the act as finally passed to carry out with steady consistency the Democratic Party policy.

Free coal would be of some consequence on the north Atlantic coast and on the Pacific coast. Both districts happen to be far from the domestic sources of supply, and comparatively near to mines across the border. The Pacific coast got coal from British Columbia and from Australia, and felt the duty on coal as an undesirable burden. But with few manufactures, and a mild climate, the burden was not a serious one. In New England, essentially a manufacturing community, the case might be different. Some Canadian mines are geographically a bit nearer than the mines of West Virginia and Virginia which feel their competition. It was a question, to be sure, how serious that competition would be, how good the quality of the Canadian coal would prove, how effectively the transportation of this coal could be organized. But it was difficult to give any good reason for not allowing New England every opportunity for cheapening its supply of coal. The opposition to the repeal of the duty was a clear and simple case of an attempt of certain producers to make a levy on consumers. Coal had been made free by the House; the act left it subject to a duty of forty cents per ton. The old rate had been seventy-five cents. The amendment made by the Senate was felt in all quarters to mean a conspicuous failure to carry out consistently the program of the Democratic Party.

The result was similar with the duty on iron ore. The essential facts as to the working of this duty have already been stated.³ Here too the question of duty or no duty was immaterial so far as the great bulk of domestic production and consumption was concerned. The question was simply whether certain iron and steel establishments near the seaboard should get their iron ore free, or should be induced by a duty to buy domestic ore produced at a distance. Directly, the issue was between the great corporations which mined the ore in the West, and the other great corporations which had iron and steel plants on or near the Atlantic seaboard. It might be argued, indeed, that this was the only issue. In view of the long series of producers and middlemen whose operations must intervene before the finished product of industry can reach the consumer, still more in view of the hindrances to unfettered competition among the middlemen, it might be plausibly maintained that not only the immediate question, but the ultimate question, was between two sets of producers, not between the producers and the public. But here, as on many other questions, it is safe to proceed on the general ground that the wider the sources of supply and the cheaper the raw materials of production, the greater the chances that the benefits will filter through the layers of middlemen, and that the public as consumers will eventually gain. Hence, so far as any question of principle was concerned, everything was in favor of free ore. Arguments as to the development of struggling industries or the fostering of national independence could not be to the point; since the great bulk of our iron ore, and the great bulk of our iron and steel, were sure to be produced within the country under any circumstances. The fate of the iron-ore duty was the same as that of the coal duty. The House repealed it; the Senate restored the duty, but at forty cents instead of seventy-five cents per ton. Again the principle of free raw materials was set aside.

The duty on pig iron was brought down in the act from $6.72 to $4 a ton. In the House of Representatives the duty had been made twenty per cent., which would have meant a much more considerable reduction on most qualties of iron. Twenty years earlier, even ten years earlier, such a change as was proposed by the House would have been of great importance: even that enacted would have been of moment. As matters stand in the closing years of the century, the reduction did not signify much. The production of crude iron advanced at an enormous rate after 1880. With the discovery of new sources of supply, with improvements in production and transportation, the great bulk of the iron would be produced at home, even if there were no duties at all. Some parts of the Atlantic and Pacific seaboards, which are distant from the domestic centres of production, would import iron, if free of duty, rather than buy it at home. But in the main, the days in which the duty on pig iron could exercise very wide reaching effects, were gone by. The change made in 1894 encountered little opposition, because it could be no longer of great effect.

The duty on steel rails, that old bone of contention, was lowered from $13.44 to $7.84 a ton. From 1883 to 1894, each tariff act had taken a slice from this duty: each time in such manner that no direct effect was felt on prices, the decline in the duty following and not preceding the decline in prices. The steady fall in the prices of iron and steel products during the past generation has been due to a variety of causes. Partly they have been of world-wide operation, bringing about a tendency to lower iron prices in all countries; partly they have been of special effect in this country, in the discovery of new sources of supply, and their utilization through great improvements in transportation. No small factor has been the remarkable application of American enterprise, invention, and engineering skill to the production on a vast scale of Bessemer ore, Bessemer iron, and Bessemer steel. Through it all, the prices of steel and of steel rails have been steadily higher than they would have been without a duty and the tariff system has contributed to the maintenance of monopoly profits. The lowering of the duty on steel rails in 1894, like the earlier reductions, had no immediate results, the duty being still left at the prohibitory point. But, as in the case of previous reduction, the lower rate set a limit to possible future advance in prices. Nothing could have been lost, and something would probably have been gained, by a more incisive change.⁴

On one other much disputed article a change was made, of greater practical importance than in the case of steel rails, but again of less extent than might have been expected. The duty on tin-plate was reduced to exactly one-half that which had been levied in the act of 1890: it had been 2 cents per pound, and it was made 1 cents. The reduced duty is still higher than that in force before 1890; so that here again the legislation of that year was allowed to leave its mark on the statute-book.

In most of these cases specific duties were retained by the Senate, in place of the ad-valorem duties which had been adopted by the House. In some cases, it is true, the Senate simply raised the ad-valorem rates which the House proposed; and here the outcome was usually a substantial reduction from the old specific rates. Thus the duties on chains, guns, and some sorts of cutlery remained in ad-valorem form, and were considerably lowered. The general retention of specific duties by the Senate was among the changes which most disappointed the advocates of lower duties; and this for the simple reason that it was made the occasion for higher rates than had been proposed in the other form. So far as the direct question of administrative advantage goes, everything speaks in favor of specific duties; and our tariff reformers have usually been curiously blind to the difficulties inevitable in the collection of ad-valorem duties. But these latter have the unquestionable advantage of telling their own tale. What the meaning and effect of a specific duty is, can often be known only to a few persons familiar with the details of some minute branch of trade. In fixing them, the legislator necessarily seeks the advice of experts, who are likely enough to have wishes and interests opposed to those of the public. Wittingly and unwittingly, these duties have often been arranged in a manner to promote the interests of particular enterprises, and so to justify the charge that they tax the many for the benefit of the few. Hence the natural repugnance of those who are opposed to the principle of protection; hence their disappointment when the comparatively simple scheme of ad-valorem duties adopted in the House was transformed by the Senate into a system of specific duties intricate, bewildering, and not unfairly open to suspicion.

Among other manufactured articles, earthen-ware and china-ware were dealt with least tenderly. Here it is somewhat surprising to find a real and effective change in the duty. Finer qualities of china-ware went down from sixty to thirty-five per cent., the cheaper qualities from fifty to thirty per cent. The finer qualities had always been imported in very considerable quantities; it was very possible that under the reduced duty large quantities of the cheaper grades might also be imported.⁵ On what principle these articles should have been selected for special reduction, it is difficult to say; but certainly there was here a substantial change. Glassware of all sorts remained very much as it was.

Questions in many ways different from those which arose with regard to manufactures and raw materials, were presented by the duty on sugar. That article came into sudden and surprising prominence in the debates of 1894. It is true that it had played an important part in 1890, when the remission of duty on raw sugar had been an essential part of the general policy of the McKinley tariff act. But attention had then been given mainly to the burden which the tax on raw sugar imposed on consumers, and to the benefits which its remission would bring to them. In 1894, however, the tax on refined sugar, and its effect on the sugar-refining industry, received the greater share of attention. This change in the point of view was due to the fact that between the two dates the monopoly conditions in the refining of sugar had become a matter of common knowledge. Hence the question of protection as fostering monopoly was brought home to the public, uneasy at best at the development apparently on all sides of combinations and trusts.

The sugar duty, in its various forms, involved a great variety of economic and social questions. That on raw sugar involved both fiscal questions and questions as to the social effects of taxation. That on refined sugar presented at once a phase of the protective controversy and a phase of the new and portentous problem of monopoly combinations. It will be advantageous to consider separately the very different questions presented by the two parts of the sugar tax.

The reasons for and against a duty on raw sugar in 1894 maybe summarized thus. In favor of the duty it was to be said that it would yield at once a large, certain, steady revenue. Some increase in the revenue was agreed on all hands to be necessary. No one change in the McKinley act had done so much to upset the federal budget as the removal of the duty on sugar, and no one change was so certain to bring an additional revenue as the re-imposition of this tax. In view of the position of the federal Treasury as the holder of the metallic reserve for virtually all the paper money outstanding, it was of prime importance to put it in a secure financial position.

Next, while the sugar duty is a tax, it was in 1894 (setting aside the comparatively small domestic production of sugar) a simple tax, bringing none of the diversion of domestic industry and none of the ulterior consequences which flow from protective duties. It is commonly asserted by Protectionists that a remission of revenue duties, like those on tea, coffee, and sugar, is in a peculiar sense a remission of taxation; the implication being that protective duties on commodities made at home are not really taxes, but in some roundabout way are pure gain. It would be the part of courage and honesty for those opposed to protection to act on the ground that, while both alike are taxes, the revenue duties are the less burdensome and the less harmful of the two. They should, therefore, where opportunity arises, maintain revenue duties boldly and remit protective duties freely. As between duties on raw wool, coal, and iron ore on the one hand, and a duty on sugar on the other, the party opposed to the principle of protection should unhesitatingly have chosen the latter.

Thirdly, the Louisiana sugar producers were fairly entitled to some consideration. Unlike wool-growing, their industry involved a considerable plant and it offered no easy opportunity for a change to something else. An immediate abolition of the duty, or of the equivalent bounty which had been granted in 1890, would unquestionably work hardship to them. In view of the tenderness with which most of the protected industries were treated, they might reasonably complain of any sudden and unconditional withdrawal of the aid which they had had for generations.

The strong argument against the duty on raw sugar is that which bears against almost all indirect taxes productive of a large revenue. To be productive, such taxes must be imposed on articles of wide consumption; and articles of wide consumption are always of the sort consumed proportionately more by the poor than by the rich. The tax is socially unjust. The full weight of this objection can be fairly judged, to be sure, only on a consideration of the incidence of an entire system of taxation,—in the present case, not only of the federal taxes, but of the State and local taxes as well. It might conceivably be maintained that the State and local taxes, which are chiefly direct, serve to offset the injustice of an indirect tax like the sugar duty. They are levied in the first instance chiefly on the well-to-do; and though their ultimate incidence is in the highest degree complex, it is at least doubtful whether they bear with proportional weight on those classes in the population which would be most affected by a duty on sugar. It is probable, too, that other parts of the tariff schedule, notably the duties on textiles, bear most heavily on commodities consumed by the richer classes. But a comprehensive inquiry of this sort would almost certainly fail of a satisfactory conclusion; and it is inevitable that Congress should have an eye solely to the federal taxes which are under its control. Here there is the clear social injustice of a sugar duty, considered per se. Add to this its visible and unmistakable payment by consumers, and the pressure against it in a democratic community becomes formidable.

The conflict between sober counsels in favor of the productive revenue duty, and popular suspicion of its effects in aggravating inequalities in taxation and so in the distribution of wealth, was emphasized by the income tax proposal. Obviously the income tax, which was made a part of the tariff act of 1894, was precisely what the sugar duty was not. The revenue from it was uncertain in amount, and in any case would come in but slowly, affording no prompt relief to the Treasury. Moreover, levied as it was only on incomes exceeding $4000 a year, it was a tax on the rich alone, and thus precisely the opposite in social effect from the sugar tax. The income tax was popular in the South and West, where it was most strongly felt that the burden of taxation did not bear sufficiently on the rich, and where the strength of the Treasury was a matter of indifference, not to say hostility; while the sugar tax (barring the exceptional case of Louisiana) was strongly opposed in those regions.

Curiously enough, the outcome of the action of Congress was that both of these taxes were put into operation. In the bill as passed by the House, sugar had been made free, and the bounty abolished. But in the Senate the two Louisiana Senators were among those whose votes were needed if the tariff bill was to pass that branch, and they insisted on some concession to their constituency. The Administration, anxious for a substantial balance in the right direction at the Treasury, also brought its influence to bear in favor of the sugar duty. Consequently it was inserted by the Senate; while the income tax, which in the House had been in a manner a substitute for it, was also retained in the Senate. Later, the decision of the Supreme Court as to the unconstitutionality of the income tax as levied by the act, wiped out that part of the measure, and left the duty on raw sugar without an offset, to the bitter disappointment of those who had opposed both this tax in itself and the tax on refined sugar which it brought in its train.

As it became law, the act imposed a duty on raw sugar of forty per cent. ad valorem. The bounty of 1890 was abolished. The new duty was equivalent roughly to one cent a pound, or about one-half the duty in force before 1890, and one-half the bounty granted in that year. Its ad-valorem form was peculiar. Never before, except under the general policy of ad-valorem rates in the arts of 1846 and 1857, had sugar been subjected to any other than a specific duty. The form now adopted served to cut a Gordian knot: it was a short cut out of the difficulties which were met in the endeavor to arrange varying rates on different grades of raw sugar in such manner as to satisfy both the Treasury officials, the sugar producers, and the refiners. It connects itself with the discussion of the extra rate on refined sugar: to which we may now turn.

The salient facts as to the sugar refiners and their relations to the tariff system were simple and familiar. Sugar refining had been, almost as a matter of course, within the protective pale, and had been aided by a duty on refined higher than that on raw sugar. The policy of discriminating in this way in favor of the domestic refiners would probably not have been questioned, except in the matter of degree, had it not been for the development of monopoly conditions in the industry by the formation of the Sugar Trust, which later grew to be the American Sugar Refining Company, still popularly known as the Trust. This put a new phase on the matter in the public eye, the more so as the sugar combination had been one of the first among the trusts, and had been more prominently before the community than any other. The more ardent free-traders have always contended that protective duties are the chief cause of combinations and monopolies, or trusts. It needs no great acquaintance with economic history, and no great skill in general reasoning, to show that the tendency to combination has deeper causes than protective legislation, and presents problems more complicated, and in their social importance more weighty, than those involved in the tariff controversy. But it is undoubtedly true that in some cases the drift toward monopoly conditions has been promoted by favoring duties. Sugar refining happened to be a case of monopoly familiar to all the world; the monopoly in this case had in fact been both easier to bring about and a source of greater profit, because of the protective duty; while the nature of the article made a tax in favor of the monopoly producer particularly odious.

With all sugar free, whether raw or refined, the American refiner would be at some slight disadvantage, since freights would amount to a trifle more on raw sugar than on the less bulky refined sugar which might have been imported from foreign quarters. But this disadvantage would be insignificant. Hence when the House passed the tariff bill with both raw and refined sugar free of duty, it practically left the refining monopoly to stand on its own legs, neither helped nor substantially hindered by the tariff. When, however, a duty on sugar was resolved on in the Senate, the difficult question at once was raised how to adjust the rate on refined sugar to that on the crude form. A level duty, at the same rate on raw and on refined, would put the refiners to some real disadvantage. From 100 pounds of raw sugar something less (95 to 98) of refined sugar is obtained, and a level duty would operate distinctly to the advantage of the foreign refiner. Hence, if a revenue duty were imposed on raw sugar, and if it were desired to treat the refiners with absolute indifference, a slight additional duty should be put on refined. Exactly how great this additional duty should fairly be, it was not easy to calculate. The data for the calculation must come chiefly from the refiners; and any figures furnished by them must be received with caution. But a very small difference would suffice to prevent refiners from having any ground for complaint. If a duty of one cent a pound were put upon raw sugar, an additional duty of one-twentieth of a cent would be ample to offset the loss in weight on refined sugar made from the dutiable raw sugar.

Naturally, the sugar refiners wanted something more than bare equality. They wanted a continuance of the favors which the legislature had granted them for generations in the past. In 1890, when raw sugar had been admitted free, refined sugar had been subjected to a duty of one-half a cent per pound. It is probable that the processes of refining are carried on at least as cheaply in the United States as in any foreign country, and that even without any protection at all the sugar-refining industry could maintain itself, and the sugar monopoly make handsome profits. With a barrier against foreign competitors such as the tariff of 1890 gave, the profits were enormous. It was inevitable that great efforts should be made to preserve them.

Briefly, the changes which the sugar schedule underwent during the session were as follows. In the tariff bill as first reported to the House by the Committee of Ways and Means, raw sugar was left free, and a duty of one-quarter of a cent per pound was put on refined sugar. In other words, the largess given to the monopoly by the act of 1890 was to be reduced one-half. In the House, however, the feeling was in favor of a more radical change. The provision for a duty on refined sugar was struck out; and all sugar, raw and refined, was put on the free list, so depriving the trust of all legislative favors. In the Senate, the finance committee amended the sugar schedule by imposing specific duties on raw sugar, roughly at the rate of one cent per pound, with an additional duty of one-eighth of one cent per pound on refined sugar. The duty on raw sugar was inserted partly to gain revenue, partly to secure the votes of the Louisiana Senators for the bill. But when final action came to be taken in the Senate, still another change was made. The duty on raw sugar was changed from specific to ad valorem, and was made forty per cent. Over and above this, the duty of one-eighth of one cent on refined sugar was retained. Still further, a provision which had been introduced into the tariff act of 1890 was also retained, by which an extra duty of one-tenth of a cent per pound was imposed on refined sugar coming from countries that gave an export bounty. In this form the sugar schedule was passed by the Senate, had finally to be accepted by the House, and so became law. The final outcome was more than satisfactory to the Sugar Trust. There was the duty of one-eighth of a cent on refined sugar; and there was an extra one-tenth of a cent on refined sugar coming from those continental countries, especially Germany, which give an export bounty, and whose competition was alone to be seriously dreaded. The ad-valorem form of the duty was also advantageous, bearing as it did less heavily on lower grades of sugar than on higher.⁶ On the whole, the refining monopoly, while it lost something, came out of the struggle victorious, and was left in little less secure control over the trade under the act of 1894 than under the act of 1890.

Much was said during the session and after the session of influences brought to bear by the trust on certain Senators. An investigation held during the course of the session brought out some facts freely suspected before, and not creditable to our political life. It was admitted that the trust had made contributions to the chests of both political parties, although nominally to the State organizations only. No bargains are ever made in these too familiar cases, but it is expected and understood that what is called “fair consideration” will be given to the interests of the obliging donor. It was proved also that some Senators had speculated in sugar stock. No protest as to the absence of connection between such dealings and the legislator’s vote can save them from the taint of dishonor. It would appear also that the success of the trust was promoted by the position of the Louisiana Senators, who were anxious to secure a duty on raw sugar, and who seem to have entered into some sort of bargain for supporting the higher duty on refined sugar in exchange for aid to their own efforts.

In any case it is clear that the sort of manipulation by which the refiners succeeded in retaining their favors from the tariff was possible only because of the narrow majority which the Democrats had in the Senate. Where one or two votes would have sufficed to block the whole measure, the opportunity for dishonest or selfish pressure on legislation was easy. It is possible to bribe or convince or entangle a few legislators, and so bring them to throw to the winds party consistency and public justice; but fortunately our conditions are not so corrupt as to make it possible to bribe a whole party or overturn a strong majority. In the House, where the Democratic majority was greater, the manipulation of sugar duties was impossible. It was in the Senate, where a change of one or two votes meant failure to the whole measure, that the unsavory result was achieved.

No part of the tariff legislation of 1894 was more disappointing to those who were earnest in their advocacy of tariff reform than the outcome of the sugar imbroglio. None, too, did more to damage the prestige of the Democrats. They had posed as the champions of the public against the monopoly; yet the trust had conquered. It is true that the extra duty on refined sugar—the part of the schedule which alone was of real advantage to the trust—was less than it had been in 1890, and that the public in reality was better off than it had been before. But the intricacies of the case were too complicated to be readily understood by the average voter. The imposition of any duty at all on sugar was probably thought to be a surrender to the trust. The revenue tax on raw sugar, fairly open to objection on grounds of social injustice, was supposed in many quarters to be much more objectionable,—to be levied in toto for the benefit of the monopolists. The effect of a simple sweeping away of all duties on sugar, whether raw or refined, would have been transparent to the popular mind; but the impression left by the long and unsuccessful struggle, and the complicated outcome, was mainly that the promises of the Democrats had not been kept.

No doubt the strong feeling which the surrender to the sugar monopoly aroused rested largely on a blind opposition to combinations in general, and to the corporations which are supposed, rightly or wrongly, to have a monopoly position. Whether the tendency to combination is to be welcomed or regretted, has not often been soberly considered by the American public. The usual assumption is that it is an unquestionable evil, to be fought in every way by legislation. That disposition which shows itself, both among the welcomers of socialism and among many critical economists, to accept combinations and consolidations and to use them as instruments of social reform, finds hardly an echo in the United States. Doubtless the popular instinct here is right. The drift to consolidation and monopoly presents problems with which a democratic community can deal only under great disadvantages. To regulate it, to use it, to secure from it the possible benefits, requires a degree of nicety and consistency in legislation which our American communities could reach only by slow and arduous steps. Legislation to check consolidation may be unwise, and probably is futile; but legislation directed to encourage it, still more legislation to augment the profits of a monopoly, is surely of the worst.

The revulsion against the extreme protective system which showed itself in the elections of 1890 and 1892 was probably in a large degree a consequence of the popular feeling just described. While the essential question as to protective duties is comparatively simple, the intricate reasoning which is needed to follow the effects of such duties into all the ramifications of international and domestic trade can have but little influence on the average citizen. He reasons from few premises, and is affected by simple catch-words. The outcry against trusts and monopolies, though in fact it describes an exception rather than the normal working of protective duties, was probably the most effective argument in bringing about the public verdict against the McKinley act. It is expressive of the general feeling of unrest as to the power of great corporations, the growth of plutocracy, the gulf between the few very rich and the masses of comparatively poor, which is becoming a stronger and stronger political force, and is destined in the future to have larger and larger effect on legislation.

It is clear that the new tariff act made no deep-reaching change in the character of our tariff legislation. The one exception was the removal of the duty on wool. Barring this, there was simply a moderation of the protective duties. A slice was taken off here, a shaving there; but the essentially protective character remained. This would have been the case even had the Wilson Bill, as originally proposed to the House or as passed by that body, become law. That less anxiously conservative measure was of course alleged by its opponents to portend ruin to American manufacturers and prostration to American labor. In fact, while it might have affected some industries, it would have caused no considerable disturbance of industry and no considerable rearrangement of the productive forces of the nation. The act as finally passed was even less potent for good or for evil. In not a few cases, the duties, while lower than those enacted in the McKinley act of 1890, were still higher than under the tariff act of 1883. As far as it went, it began a policy of lower duties; but most of the steps in this direction were feeble and faltering.

Whether such a measure be good or bad, must be decided in the main on general principles. To follow out its influence on the prosperity of the community requires time for the observation of effects, and great skill and caution in the interpretation of industrial phenomena. Even had the new legislation been much more drastic, its final effects on general welfare could have shown themselves only after the lapse of a considerable period, and then might easily have been concealed or obscured by the operation of other causes. To judge a very moderate measure like that of 1894 by its visible fruits is so difficult as to touch the bounds of the impossible. The effects on any particular industry,—which are but a fragmentary bit of evidence as to the promotion of general prosperity,—are sufficiently difficult to trace. We have seen how the one radical change made by the act, in abolishing the duty on wool, required time to show how it might affect the wool and woollen industry. Even after the lapse of time, there could hardly be such an unmistakable result one way or the other as to prevent doubt and dispute. When all the evidence on this point was in, it could still be of little avail toward answering the fundamental question,—whether the productive forces of the community were applied to better effect with a low tariff than without it.

But the general public has been taught to expect immediate, almost magical effects. Both parties in the protective controversy have preached the same gospel, and made the same promises. For high duties and for low duties alike it has been claimed that they would convert depression into prosperity. This has been the case, in more or less degree, throughout our tariff history; and the inevitable disappointment with the expectations so raised has had its effect in bringing about the vacillations in public feeling and the frequent changes in policy. The act of 1894 was defended and attacked on the same superficial grounds; and it happened to suffer from the contingencies of the moment. It went into effect shortly after an acute commercial crisis, and in the worst stage of a period of severe depression. The crisis and the depression, were due, in this case as in all others, to a long and complex set of causes, some of them still obscure even to the best informed and most skilled observers. That the tariff act played any serious part in bringing them about, would not be maintained by any cool and competent critic. But the great mass of the public judged otherwise. The act had been followed by hard times; at best, it had done nothing to remedy them. Half-hearted in its provisions, unlucky in the time of its enactment, it could make no warm friends, and earn no general approval.

Thus, whether in its effects on legislation or on public opinion, the movement for tariff reform from 1887 to 1894 was in its outcome disappointing. The decisive victories in the elections of 1890 and 1892 had led the free-traders to form high hopes: the real beginning of the long deferred reform seemed at last at hand. But the victorious party was soon split by internal dissensions. With the acute crisis of 1893 and the growing accentuation of differing opinions on the currency, that issue forced itself forward. The session of 1893–94, as it progressed, witnessed slackened enthusiasm, inept leadership, and an inglorious result. President Cleveland’s action in permitting the new tariff act to become law without his signature, put the final stamp of indifference and disappointment on the measure.

---

¹ For convenience of reference, the strength of the two parties in Congress in 1889–95 is here summarily stated:

	House Republicans	House Democrats	Senate Republicans	Senate Democrats
51st Congress, 1889–91	166	159	39	37
52d Congress, 1891–93	88	236	47	39
53d Congress, 1893–95	126	220	38	44

In addition to the 44 Democrats and 38 Republicans in the Senate of the 53d Congress, there were three Populists. These might be expected ordinarily to vote with the Democrats on tariff questions; but their support could not be implicitly relied on.

² For some consideration in detail of the effects of the old system on wool and woollens, see an article by the present writer in Quarterly Journal of Economics for October, 1893; a criticism of this article by Mr. S.N.D. North in the Bulletin of the Wool Manufacturers, for December, 1893; and a pamphlet by Mr. E.D. Page, on The Woollen Tariff (New York, 1893). Compare also what is said of the act of 1897, infra, pp. 328–335.

³ See above, p. 231.

⁴ I have given an extended description of the growth of the iron industry since 1870, and an analysis of the working of protection, in two articles in the Quarterly Journal of Economics, February and August, 1900.

⁵ See what is said of earthen-ware and china-ware in my paper in the Quarterly Journal of Economis, vol. iii., p. 286.

⁶Ad-valorem duties are assessed on the value of the imported commodities at the time and place of purchase. Raw sugar comes largely from distant countries, or from countries with which transportation is not highly organized, as from Cuba, Java, Brazil, and the Hawaiian Islands. The value at the place of purchase is comparatively low, and freight is comparatively high. On the other hand, refined sugar would be imported, if at all, only from the more advanced European countries. Freight charges from these are low, and the value at the time and place of purchase does not differ very greatly from the value at the American ports. Virtually, therefore, the ad-valorem duty is less heavy on raw sugar than on the refined, and so yields to the refining monopoly an advantage, not easy to calculate yet probably substantial. It is certain that this form of duty was advocated by the representatives of the trust—in itself a reasonable ground for suspicion.