Some Aspects of the Tariff Question
1. One of the familiar methods of enumeration is to describe the taxes which follow the consumer from the cradle to the grave; a modern use of this tactical device is in the speech of Mr. Underwood, when introducing the tariff bill of 1912-13 in the House of Representatives, August 13, 1912. 2. In this analysis I follow the method of Albert Gallatin, in his Free Trade Memorial of 1831; reprinted in the collection which I have edited, State Papers and Speeches on the Tariff, pp. 122-123. 3. See chapter xiii, pp. 202-212. 4. Cf. the remarks on a similar situation in Marshall's Principles of Economics, Book V, chapter v, § 6 (6th ed.). 5. A case of a different kind, yet analogous to those considered above in that it rests on abnormal conditions, is adduced by Professor Brentano. The Russian state, being under obligation to make heavy remittances to foreign countries on interest account, reduced its railway rates on rye when Germany raised duties on that grain; thus virtually shouldering the duty. The stolidity, lack of resource, and general immobility of the Russian peasantry are also said by Brentano to have contributed, for a considerable time, to the same result. L. Brentano, Die deutschen Getreidezölle, p. 22. 6. An exception to this statement appears in the case of tin plate. There the foreign (British) production had been largely for the American market, and the duty of 1890 did serve for some to depress the British price. See below, chapter xii, p. 176. 7. See my Tariff History of the United States, p. 418 (edition of 1914). 9. On this episode full figures are given in Brentano, Die deutschen Getreidezölle. 10. Cf. what is said below, chapter x, pp. 144 seq. 11. See below, chapter xix, p. 318. 12. The reader will note that I speak in this chapter merely of the difference between price with the duty and price without the duty, not committing myself on the question whether this difference constitutes or measures a national loss. The presumption is that a national loss occurs, and is measured by the enhanced price which the consumer pays on the goods produced at home (not on those imported, since here the consumer's burden is offset by the government's revenue). Those conversant with the theory of international trade need not be told that there is the further possibility that duties will disturb the equilibrium of international demand and supply, and lead to a readjustment by which the duty-levying country will gain. See the classic passage in Mill, Political Economy, Book V, chapter iv, § 6. Cf. Marshall's Memorandum (of 1908) on the Fiscal Police of International Trade, §§ 7-9; Taussig, Principles of Economics, chapter xxxvii, § 1. The possibility has been questioned, but not in my opinion on solid grounds, in a note by H. H. O'Farrell in Quarterly Journal of Economics, August, 1912. Some further theoretical aspects of the problem seem to me to deserve attention; but this is not the place for examining them. Part I, Chapter II 13. J. S. Mill, Principles of Political Economy, Book V, chapter x, § 1. 14. See my Tariff History, pp. 34, 45. 15. Thus, in 1912, there was opposition to a proposed reduction in duty on sewing machines, even though they had long been exported in great quantities; because some special kinds might still be imported from Germany. The same opposition, under similar conditions, was made to proposed reductions on saws, machine tools, electrical machinery,—all of them articles of which there could be at most sporadic importations. See Hearings before the Senate Finance Committee, 1912, on Metal Duties, pp. 172, 342, 1143, 1151. 16. See for example the passage from Samuel Batchelder's writings quoted in my Tariff History, p. 143 note. Cf. a similar utterance by Posadowsky, a conspicuous figure among German protectionists, quoted by Goldstein, Der deutsche Eisenzoll (Volksw. Zeitfragen, no. 268), p. 33. 17. See Amé, Les Tarifs de douanes, vol. i, pp. 318, 338, 399. 18. Compare what is said below, pp. 153 seq. 19. Compare what is said below, chapter xxi, p. 353. Part I, Chapter III 20. So far as money wages are concerned, the dominating industries are those which export. I have considered this problem fully in a paper in the Quarterly Journal of Economics (vol. xx), from which I quote the following paragraphs (pp. 510-511):— "Those countries have high money wages whose labor is efficient in producing exported commodities, and whose exported commodities command a good price in the world's markets. The general range of money incomes depends fundamentally on the conditions of international trade, and on those conditions only. The range of domestic prices then follows: it is high so far as the efficiency of labor in domestic commodities is small, low so far as the efficiency of labor in domestic commodities is great. "The situation is simplest in the case,—difficult to find in the real world, but instructive for illustration of the principle,—of a country having a monopoly of a given article of export or set of exported articles. By monopoly, I mean here not that the producers within the country fail to compete effectively among themselves, but that the producers of no other country compete with them. The price of such exported articles would depend, in the manner with which the reader may be supposed familiar, on the equation of international demand. The more the consumers in other countries care for them, the higher will their prices be pushed. The less the labor with which these articles are produced at home, the higher will be the money wages resulting from these high prices. The higher money wages in the exporting industries will set the standard for money wages in the country at large; and the general high wages may or may not be accompanied, as already explained, by high domestic prices. "Where a country exports in competition with other countries,—the well-nigh universal case,—the same forces are at work. The prices at which the exports are sold depend on the world demand for the commodity. In that world demand, or, to speak more carefully, interplay of demand, the extent to which the consumers in the several countries care for the articles imported into them determines which countries shall sell their exports on advantageous terms. Those countries whose exports are in most urgent demand will have the greatest possibility of high money incomes. Whether they will have high incomes in fact, depends on the labor cost of their exports. The wheat which is exported both by the United States and by Russia sells at the same price; but that price means large money returns in the country of machinery, efficient labor, and cheap internal transportation, and low money returns in the country which lacks these advantages." 22. See a passage quoted in my Tariff History, p. 393, note. Part II, Chapter IV 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. Part II, Chapter V 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. 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. 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. Part II, Chapter VI 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. 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. 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. Part II, Chapter VII 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. 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. 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. 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. Part II, Chapter VIII 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. 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. 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. 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. Part III, Chapter IX 1. The figures of production, at quinquennial intervals, are (in 1,000 tons of 2,240 lbs.):
2. For an account of the industry during this period I refer to my Tariff History of the United States, pp. 123-125. 3. During the earlier years, bituminous coal was much used in the blast-furnaces without being first coked. But soon this crude procedure was given up, and the coal was used in the form of coke. 4. The production of pig-iron by fuel at quinquennial intervals is given below. By way of illustrating the trend over a long period, the year 1855 has been taken as the starting-point. The figures, as in the previous table, indicate thousands of gross tons:
Charcoal iron has qualities that make it advantageous for certain uses, and hence it continues to be produced in small quantities. 5. It should be noted that in the Marquette region, also, iron ore was secured at the first working and for many years thereafter by open cuts. But the extraction of ore on a great scale has proceeded by underground operations. 6. Variously spelled: Mesabi, Mesaba, Messabi, Messaba. 7. The United States Geological Survey, in its successive admirable Reports on the Mineral Resources of the United States, has followed the history of the iron fields of Lake Superior, as, indeed, of all the mineral resources of the country. In the issue for 1895-96 (forming vol. iii of the Seventeenth Annual Report of the Survey) a summary description is given, with convenient sketch maps showing the location of the several fields. The relative importance of the fields, the order in which they were developed, and their relation to the iron ore production of the whole country, are shown by the following figures:
8. Jevons, The Coal Question, second edition, chap. xv. Jevons in that chapter looked for important changes in the United States, chiefly from the wider use of anthracite in iron making. The fact that "the Americans are, of all people in the world, the most forward in driving canals, river navigations, and railways," was noted by him as sure to affect the American iron trade; but even his keen imagination and wide knowledge could not foresee how much and in what directions this "driving" would operate. 9. "A happy application of anthracite coal to the manufacture of iron, the discovery of new beds of bituminous coal, the erection of iron works in the vicinity of the most easterly beds now existing, and the improved means of transportation which may bring this at a reasonable rate to the sea-border, may hereafter enable the American iron master to compete in cheapness with the foreign rolled iron in the Atlantic district.... The ultimate reduction of the price of American to that of British rolled iron can only, and ultimately will, be accomplished in that western region which abounds with ore, and in which is found the most extensive formation of bituminous coal that has yet been discovered in any part of the globe, and this also lying so near the surface of the earth as to render the extraction of the mineral less expensive than anywhere else." Albert Gallatin, "Memorial to the Free Trade Convention" (1832), as reprinted in State Papers and Speeches on the Tariff, pp. 179, 180. 10. The production of coke was (in tons of 2,000 lbs.)
In the second column I have combined in a single figure the production of the older Connellsville region and that of the "lower district" which came to be of importance after 1900. See Mineral Resources of the United States, 1911, Part II, pp. 215, 256, 259. 11. "Few people who have not actually run a blast-furnace realize what it means to fill the capacious maw of one of these monsters with raw material. A stack of 200 tons' daily capacity, running on 50 per cent ore, must have delivered to it each day something more than 400 tons of ore, 250 to 300 tons of coke, according to the character of the metal required, and over 100 tons of limestone,—say 900 tons of raw materials. Add the 200 tons of pig-iron shipped out, and we have a daily freight movement of 1,100 tons, taking no note of the disposition of the slag. This is 55 carloads of 20 tons each [A modern ore car will carry 50 to 60 tons; and coal cars have been introduced carrying 90 tons.—F. W. T.].... Starting up a furnace of ordinary capacity calls immediately for the labor, from first to last, of nearly a thousand men; for the use of at least a thousand railway cars, and many locomotives; for perhaps several steamers and vessels on the lakes." A. Brown. "The Outlook in the American Iron Industry," in the Engineering Magazine, October, 1899, p. 88.—By 1910, the daily capacity of a "modern" iron furnace had again been doubled, reaching 400 tons a day, and bringing a corresponding increase in the ore and fuel required. 12. "Every extra handling means more cost.... Formerly it was necessary to trim the cargoes; and this had to be done by hand, and gave employment to a great many men at exceedingly high wages. The work, however, was killing while it lasted. Now trimming is in most cases done away with, because the immense size of the freighters renders them stable in any weather; and, if there is any great inequality in the trim of the boat, it is rectified by shifting the water ballast from one compartment to another." Peter White, The Mining Industry of Northern Michigan, in Publ. Mich. Pol. Sci. Assoc., iii, p. 153. 13. Of the enterprises merged in the Steel Corporation, the two largest, before 1900, were the Carnegie Company, and the Federal Steel Company, the latter dominated by the firm of J. P. Morgan & Co. Both carried on vertical combination on a great scale,—mining the coal and ore, transporting them on railways and vessels of their own, and operating great iron and steel works. The Carnegie works centered about Pittsburgh, the Federal about Chicago. The American Steel & Wire Co. illustrated both vertical and horizontal combination. The same was the case with the so-called "Moore properties": the National Steel Company with its affiliations, the Sheet Steel, Tin Plate, and Steel Hoop companies. The Bridge (structural steel) and Tube companies had no raw-material supplies of their own, and so represented horizontal combination only. The history of the great consolidation has often been told. The authoritative account is in the Report of the Commission of Corporations on the Steel Industry, Part I (1911). An excellent summary is in Berglund, The United States Steel Corporation, in Columbia University Studies (1907). 14. In this table the figure for eastern Pennsylvania is for the iron smelted in the state with anthracite, or anthracite and coke mixed, while that for western Pennsylvania is for the bituminous (coke) iron. The separation by fuels, it is true, does not indicate with complete accuracy the geographical distribution. But the iron smelted in Pennsylvania east of the Appalachian chain was formerly smelted almost entirely with anthracite, and is still smelted mainly with a mixture of anthracite and coke; and, at all events, this was the only mode in which the statistics at hand made it possible to separate the eastern and western parts of Pennsylvania. In the southern district, Virginia and Maryland are near the seaboard, and might be constituted a group apart from the other states there included. But the iron industry in them, as in the others, is of recent growth, and depends both for ore and fuel on different sources of supply from those of the northern seaboard region. By far the most important iron producing state in the southern district of the table is Alabama. 15. The increase in this district is due entirely to the development of great steel plants in Buffalo, N. Y., using Lake ore and Pennsylvania coal, and therefore belonging industrially rather to the central district than to the eastern. 16. See Fitch, The Steel Workers, pp. 102-103. Part III, Chapter X
The war duty on pig-iron had been $9.00 a ton; it was reduced to $7.00 in 1870. Steel rails as a separate item appeared for the first time in 1870. The reductions of duties in 1872 were part of the "horizontal" 10 per cent reduction made on most manufactured articles in that year, repealed in 1875.— For the history of the various tariff acts and the way in which the iron and steel duties were dealt with in them, the reader is referred to my Tariff History of the United States. 18. See chapter ii, p. 19, above. 19. The production of these special brands varies greatly, within the country and without, apparently from the sporadic and easily exhausted pockets of the peculiar ore. But the domestic production, on the whole, has been rapidly increasing. See the Report of the American Iron and Steel Association for 1898, p. 40. 20. See the Appendix to D. A. Wells's Recent Economic Changes, pp. 469, 470. 21. That such an interplay would have lessened the fluctuations in prices is made more probable by the fact that the ups and downs of industrial activity are not precisely synchronous in the international sphere. The speculative revival in 1870-73 began in England and on the Continent earlier than in the United States. The American revival in 1879-80, on the other hand, preceded the European, as did also that of 1886-87. In 1889-90—certainly so far as iron went—the European demand again showed renewed strength earlier than the American; and the same was true in the period 1897-99. 22. See an instructive article by J. S. Newberry in the International Review for November, 1874, i, especially pp. 778-780, where it is pointed out that at that date "the ingenious, enterprising, and energetic Americans" were still "far outdone by their English relatives." 23. A careful and detailed survey of the development of the German iron industry is given by G. Goldstein, in a series of articles published in the Verhandlungen des Vereins zur Beförderung des Gewerbefleisses, Berlin, 1908-09. An excellent brief account, with extracts from the speeches of those who advocated protection to the iron industry because "young," is in the same author's paper, Der deutsche Eisenzoll; Ein Erziehungszoll, Volkwirtschaftliche Zeitfragen, Berlin, 1912. On later developments, among them the growing importation of ore, see an article by E. Günther, in Schmoller's Jahrbuch, Heft 3, 1914. 24. Professor M. Sering in his Geschichte der Preussisch-Deutschen Eisenzölle von 1818 zur Gegenwart (Schmoller's Forschungen, iv) traces the history of protection to iron, with special regard to the period 1840-70, and concludes that in this earlier period there was successful application of protection to young industries; intimating also that the German iron industry was well on its feet when he wrote (1882) and that there was no good ground for duties as high as those enacted in 1879. Compare, for the United States before the civil war, what I have said in my Tariff History of the United States, pp. 123 seq. 25. I venture to reprint here some passages from my presidential address of 1904 before the American Economic Association, on the "Present Position of the Doctrine of Free Trade," Papers and Proceedings of the Seventeenth Annual Meeting, pp. 54 seq. "Not only the spirit of freedom and enterprise within the community has its effect, but that spirit with reference to other communities also. The political position of a country and its martial success seem to have a reflex effect on the industrial success of its citizens in time of peace. "Here the recent development of Germany is apposite. Her industrial advance during the last thirty years [1870-1900] is one of the striking phenomena of our time, and leads naturally to speculation as to its causes. No doubt these causes are varied, as in all such cases. The thorough organization of popular education and of scientific education is one cause. The stimulating effect of free trade within the country, as established by the Zollverein since 1834, is another: though this gain had been enjoyed by France throughout the nineteenth century, and by England for centuries before. Much is due to the whole change in the political and social atmosphere which came with the crumbling of petty absolutism, and which was consummated with the foundation of the German Empire. But to all this must be added the new spirit which came over the country after the war of 1870. Germany emerged from the conflict with a new sense of strength and confidence. The new feeling communicated itself to the field of peaceful industry. Vigor, enterprise, and boldness showed themselves. Large enterprises in new fields were launched and successfully conducted, and great captains of industry came to the fore. A spirit of conquest in all directions seems to have spread through the people, bred or at least nurtured by the great military conquest of the Franco-German war. "Is it fanciful to suppose that consequences of the same sort have appeared in other countries also after victorious wars? England emerged from the Napoleonic wars with a great feeling of pride and power. She alone had never yielded to the great conqueror. The period which followed was that of her most sure and rapid economic advance. She then established the hegemony in the industry of the civilized world which she maintained through the century. The northern part of the United States, after the civil war, felt a similar impulse. That struggle had been on a greater scale than was dreamed of at the outset, and its outcome proved the existence of unexpected power and resource. It is probably no accident that the ensuing years showed a spirit of daring in industry, and sudden and successful activity in commercial enterprises. "No one is more opposed than I am to all that goes with war and militarism. It is with reluctance that I bring myself to admit that the same spirit which leads to success in war, may also lead to success in the arts of peace. Yet so it seems to be. Men being what they are, nothing rouses them so thoroughly as fighting. The temper which then pervades a community, communicates itself by imitation and emulation, and shows itself in all the manifestations of its activity. A great war lifts the minds of men to large undertakings, and takes its place with other factors in stimulating the full exercise of the powers of every individual." 26. J. S. Mill, Essays on some Unsettled Questions of Political Economy, p. 148; see also his System of Logic, Book VI, ch. vii, §§ 2, 3, 4. 27. In the article "Volkswirthschaft" in the Handwörterbuch der Staatswissenschaften, reprinted in the volume Ueber einige Grundfragen (1898), Mill is referred to as trying to prove his theorem "with the inept example [groben Beispiele] that the general inquiry, whether a system of protection makes a country rich, can lead to no result. He fails to see that he puts his question wrongly; i.e., in terms too general. Specialized investigations, such as Sering's on the German iron duties, Sombart's on the tariff policy of Italy, and others of recent times, show that inquiries which examine properly the facts in detail may prove, with reasonable certainty, when protective duties operate to promote prosperity." Ueber einige Grundfragen, p. 296. Cf. what Schmoller says in his Grundriss, ii, Book IV, especially pp. 647 seq. (1st edition). 30. The figures are derived from the American Iron and Steel Association Reports. They are for gross tons (2,240 lbs.). 31. The figures are derived from the American Iron and Steel Association Reports, and from British periodicals. They give the prices of two grades of iron which are fairly comparable in the two countries,—foundry iron and Bessemer steel. Part III, Chapter XI 32. I am indebted for the preparation of this chart to Mr. E. P. Coleman, Jr., who investigated the copper industry under my guidance while an undergraduate in Harvard College. 34. See the vivid account of the enterprise in the Letters and Recollections of Alexander Agassiz, chapter iv. On the general significance of risk, especially in metalliferous mines, compare Einaudi, La Rendita Mineraria, § 13, pp. 47 seq., and Taussig, Principles of Economics, chapter xliv, ii, pp. 92 seq. 35. The following figures, giving in round numbers the production of copper, indicate what was the position of the Michigan mines in 1860-80. For comparison I have given figures for later years also. By 1890 Michigan had lost its dominant position among the copper producing districts; the discoveries in Montana and Arizona (to mention the chief) completely changed the situation.
Part III, Chapter XII 36. Accounts of the steel rail pools of this earlier period are to be found in the Iron Age, November 16, 1893; February 11, 1897; January 1, 1901. On the general prevalence of such agreements in the iron and steel trade see Belcher, "Industrial Pooling Agreements," in Quarterly Journal of Economics, xix, p. 111 (1904). 37. See the chart on p. 140. 38. See for example the testimony in the government suit of 1912-13 against the Steel Corporation, Transcript of Record, pp. 1674-1681. There was apparently no written agreement, but all the essentials of a pool. An arbitrary figure ($17 or $18 a ton) was fixed, presumably an approximation to prime cost; everything received above this by each member was paid to a representative of the pool, who divided the money among the members according to fixed allotments. This arrangement was kept up until 1904, possibly even to a later date. 39. See the testimony in the Steel Corporation suit, pp. 92, 337. 40. The steadiness of price was not in reality so complete as the chart, based on the "official" quotations, would indicate. During 1903 there was heavy demand for steel rails, and the mills were unable to fill the orders that poured in from the railroads. The contract price remained $28.00, but not for prompt delivery. Premiums were paid for "spot" rails; in other words, the market price went up. Considerable importations took place during this year, chiefly to ports on the Pacific Coast,—the only importations of consequence since 1887. This flurry subsided within a year. 41. See what is said below on exports and "dumping," pp. 202 seq. 42. See an article by E. S. Meade, "Price Policy of the Steel Corporation," Quarterly Journal of Economics, May, 1908, xxii, p. 452. 43. On this topic, I have been greatly aided by the research of one of my students, Mr. D. E. Dunbar, the results of whose work are shortly to be published in book form as one of the Hart Schaffner & Marx prize essays. 44. The precise duties, with ad valorem equivalents (on the basis of foreign prices) for the specific duties of 1875 and 1890, were:
A duty of 2.5 cents a pound had been provided (i.e., probably meant to be imposed) in 1872, but had never gone into effect, because of the Treasury ruling referred to in the text. 45. That is, by 1894. The tin plate duty, though imposed in 1890, did not go into effect until July 1, 1801. 46. I append at the close of this chapter statistics on the tin plate situation. 47. For example, in the middle of 1913, the constituent elements in the cost of production for a ton of tin plate stood in round numbers as follows:
I derive these figures from information privately given. 48. On this earlier stage, see the good account in Jenks, The Trust Problem (1900), pp. 157 seq., where is also an elaborate chart showing the course of prices 1888-99. 49. The tin plate stock was exchanged for stock of the Steel Corporation on these terms:
50. See the next chapter, pp. 208 seq. 51. Thus in 1901, a writer in the (English) Iron and Coal Trades Review, May 2, 1901, speaks of "labor-saving appliances thoroughly exploited in America.... There is not a single point about the Welsh tin plate trade that can be said to compare favorably with the American." It should be said, however, that an unmistakable bias against the trade unions runs through this paper. A correspondent of the London Economist (January 29, 1910) remarks that "the English manufacturers sullenly clung to their old methods" for a considerable period, but "eventually scrapped their worst mills" and regained prosperity. The Iron and Coal Trades Review for March 28, 1913, printed an extended paper, read before the South Wales Institute of Engineers, by Mr. H. Spence Thomas, in which the Welsh industry is described and some comparison made with the American. "American practice gives 1,500 to 2,000 boxes per mill per week, whilst the English average is only half of this quantity." "In America all the pots are handled by overhead cranes,... by these mechanical means America is a great way ahead of the generality of our English works." In the discussion on this paper (p. 488) there was reference by several speakers to the difficulty of introducing improvements in face of the workmen's opposition. One referred to an episode in his own experience: "he put up an electric crane to do work for annealers that had hitherto been done by themselves; yet not one penny had been got off the annealers' wage bill" [the annealers were paid by the piece]. Still another said that "they were handicapped by the disinclination of the workmen as a whole to cooperate. If this could be secured, he felt they could do as well in the matter of output and economy as was now done in America." On the restriction of output by the men (to 36 boxes per eight-hour shift), see Jones, The Tin Plate Industry, pp. 182 seq. This limit, easily within their powers, was slowly and reluctantly given up, in 1900-02. On opposition to labor-saving devices, ibid., p. 185; and on American improvements, p. 132. 52. Mr. Jones, in his excellent book on the Tin Plate Industry (pp. 99, 100), is disposed to admit that protection to young industries was in this case applied in the United States with success; and adds that "if in spite of the difference in the general level of prices in the two countries, the money costs of production differ so little, it is obvious that the net amount of human energy employed in tin plate manufacture is much lower in America than in Wales." 53. I have come across nothing to indicate whether the Standard Company got a rebate or "drawback" from the Steel Corporation, such as the latter concern gives to manufacturers who use its products in export business. Presumably it secured the "drawback," like others. 54. On the sugar refining trust, see above, chapter viii, pp. 100-114. 55. In 1898, and thereafter, virtually all the imported tin plate was reëxported under drawback. Part III, Chapter XIII 56. The exports of certain kinds of iron and steel implements are given below for selected years. The figures are taken from the Statistical Reports of the American Iron and Steel Association, and are for calendar (not fiscal) years. The figures are not given with regularity in the Reports, nor in much detail for the earlier period; hence the apparently arbitrary selection of years. They stand for millions of dollars (3.2 = $3,200,000).
58. The total production of machine tools in the United States was in 1909 about $40,000,000 in value, the exports $4,500,000, the imports $200,000. (Senate Hearings of 1912, p. 128.) In these same Hearings, the manufacturer who spoke for the machine tool makers remarked: "The American engineer, with his inventive ability, supported by the progressive and aggressive spirit and enterprise of American capital, was the pioneer in bringing the modern machine tool to its present high productive capacity. He not only gave to American industry in all its forms, but also to the industries of the world, the instruments by means of which the cost of all manufacturing has been greatly reduced.... As one characteristic of the American tool builder, he is constantly inventing and perfecting new machinery, to his credit; he takes the lead in the world along the line of creating new machinery." (P. 177.) And yet he presently said (p. 182): "We are claiming that our exports to Europe are largely confined to highly specialized and highly organized machines, such as are not as yet made to compete with the German machine; that the Europeans are making excellent machines of the kind and type that we shipped over there ten years ago; that they are manufacturing those machines today at a cost very much under ours, and the removal of the tariff would not bring into this country immediately the highly organized machines, because they are not making them over there, but it would bring into this country a type of machine which probably seventy-five per cent of this trade is engaged today in making." See also the instructive testimony of the manufacturers of printing presses concerning the imitation of exported American presses, with the usual jeremiads about the disasters to be expected when these should be made with foreign cheap labor; ibid., pp. 271, 273. 59. An American manufacturer of sewing machines, testifying before a tariff committee in 1912, remarked that the Singer Sewing Machine Company had been compelled (by German duties on American machines) to manufacture in Germany, but found it could not do so as cheaply there as in the United States. "The plant may be the same and the machinery the same and the buildings the same, but the conditions in each country are not the same." (Hearings before the Senate Committee on Finance, 1912, pp. 352-355.) Similarly the International Harvester Company was induced by German and Russian duties on its American-made agricultural implements to establish factories for making these same implements in Germany and Russia, yet found it impossible to make them as cheaply in these countries of lower wages. I have been assured of this by officials of the Company. 60. The same manufacturer (just referred to): "I can see, by examining the [German] machine, the handwork, the parts that had been filed, and the fact that they do not go so far with interchangeable construction as we do in this country." Hearings, p. 355. 61. See the testimony of the one American manufacturer of the full-fashioned machine, Senate Tariff Hearings of 1912, pp. 919 seq. 62. The anvil situation has been thus explained to me by persons engaged in the trade. 63. Professor Lloyd, writing of the English file industry in his excellent book on The Cutlery Trade (1913), remarks at p. 59 that "hand cutting [of files] is likely to survive for small work and miscellaneous orders; but while the older process still claims to produce a superior article, it cannot be maintained that the method possesses any important advantages, whether technological or commercial." An American file manufacturer who exported a quarter of his output to all parts of the world exhibited to a congressional committee a file of which there were considerable imports; and, as might be expected, this was a "high grade file... on which there is very much labor." Senate Hearings of 1912, pp. 481, 482. 64. See my Tariff History of the United States, pp. 343 seq. 65. See Professor Lloyd's book, just referred to, on The Cutlery Trades, pp. 55, 208, 387, on the many patterns of pocket knives and the consequent difficulty of applying machine methods. Cf. pp. 40-41, 394, on table knives. Here again I am indebted for confirmatory information to persons engaged in the trade. 66. The following are the figures for 1904-13 of the exports by the Steel Products Co. (i.e., the Steel Corporation), compared with the total exports of iron and steel.
See the figures given before the Stanley Committee (Report, p. 2749), and those given in the government suit against the Steel Corporation (Defendants' Exhibit, ii, p. 38). The two sets of figures agree, except for 1905, for which I have taken the second-named source of information. 67. For an account of the Canadian legislation see a paper by Professor A. Shortt, Quarterly Journal of Economics, vol. xx, p. 250. 68. I quote again from the paper cited at p. 155, above. 69. Thus a member of Lister & Co., a great British silk manufacturing firm, admitted occasional sales for export at lower than home prices, but said "this class of business has many objectionable sides," "causes irregular work," tends to spoil reputation because quality and costs are cut keenly, and so on. See Report of the (Chamberlain) Tariff Commission, ii, Part 6, paragraph 3326. Similarly, the President of the U.S. Steel Corporation spoke of this sort of dumping as a "sporadic business," "an uneconomic practice, and one that does not develop continuous business." (Testimony of the Government suit against the Steel Corporation, 1913, x, p. 3843.) 70. See, e.g., Taussig, Principles of Economics, ch. 15, §§ 4, 5. 71. The Steel Corporation built the first steel structure in Buenos Ayres in 1905, and from that date until 1913 built every steel structure in the city. The European steel makers offered lower prices per ton, but "we were endeavoring to get a higher ton price by giving a lighter structure that will answer for a greater amount of work." (President Farrell of the Steel Corporation, testifying in the Government Suit against the Corporation, Evidence, x, p. 3795.) This is the sort of steel work which has been most skilfully developed by American engineers and steel makers; in other words, in which they manifest a comparative advantage. 72. See the interesting account of the growth of the Steel Corporation's export business given by Mr. Farrell, in his testimony (just cited) in the Government Suit, pp. 3783 seq. Cf. his testimony before the Stanley Committee, Report, pp. 3748 seq. Mr. Farrell had been organizer and president of the Steel Products Co. (the export subsidiary), before being made president of the Steel Corporation itself. Among the documents introduced by the Steel Corporation in the Government Suit (Defendant's Exhibits, ii, no. 41) is a tabular statement showing for a large list of articles whether export prices were more or less than the domestic. For a considerable number the export prices were not less, but more,—there was no dumping; such were finished structural work, spring steel, steel piling, axles. As a rule export prices were lower. The figures, however, are to be used with caution, since they state merely prices realized f.o.b. at the works, and give no indication whether expenses of transportation to destination were borne by the Steel Corporation (directly or indirectly) or by the purchasers. Part IV, Chapter XIV
The figures of product are taken from the Census Reports, and refer in each case to the year preceding; thus, the census enumeration of 1910 gives the facts for the industry as it stood in 1909. The imports are given for the fiscal years ending in the census year; thus, the figure for 1910 is that of the fiscal year 1909-10. The census figures for the earlier years can make no pretensions to statistical exactness. Beginning with 1890 they can be used with reasonable confidence in their accuracy. They are taken from the Census Bulletin of 1910, Statistics of Silk Manufacture. 2. The comparison would stand thus; the first column giving the "net" domestic product, with deduction for duplication due to increased specialization, i.e., column 2 of the previous table; the second column giving the imports supplemented by 60 per cent, i.e., the figures in column 4 of the preceding table, with 60 per cent added.
This comparison, needless to say, can make not the slightest pretence to statistical accuracy; but it shows the general trend, and is more accurate than would be one based on the bare Treasury figure for imports. How far the imports, when compared with the domestic product, should be enlarged by adding the duties, raises some nice questions. Evidently they should be thus weighted if we wish to compare what is paid by consumers for the domestic supply with what is paid by consumers for the imports. It is not so clear that the same correction should be made if we wish merely to compare the quantities supplied. If the prices of domestic goods are raised to the same extent as those of imported goods,—by the full amount of the duties,—the correction must be applied in the same way and to the same extent as in comparing consumers' payments. If the prices of domestic goods are quite unaffected by the duties, then no weighting or correction at all would seem to be called for. Neither extreme,—complete effect of the duties in raising price of the entire domestic output, or complete absence of any effect at all,—is likely to appear in fact. Hence a comparison of the quantitative relation of the imported and domestic quotas can rarely be deduced from the statistics of the money value of the two. 3. Those who may be interested in this little-known episode will find a full account in a volume on Silk Culture in the United States, New York, 1844. 4. The efforts of the Department extended through two periods, one from 1884 to 1891, and another, more important, from 1902 to 1908. They were on a considerable scale; large quantities of cocoons were raised, and thousands of mulberry seedlings planted. See the Yearbook of the Department for 1903, and also an article by Dr. L. O. Howard, in the Cyclopaedia of American Agriculture, iii, p. 641. 5. In Lombardy "the wives of the peasants engage in the business, as the wives of American farmers in their domestic work"; in Japan it is "usually an auxiliary industry of the farmers"; in China, "the vast mass of silk produced comes from China houses where all members of the family take part in the work." I quote from Sericulture in Italy, Japan and China, published by the Silk Association of America (1905), pp. 5, 11, 18. In France, as is well known, bounties have been given since 1892 on raw silk; a compromise between the demands of the producers in the south for protection and those of the manufacturers for cheap material. Because of the method by which it was allotted, the bounty seems to have stood in the way of technical advance in the industry; at all events, the output of raw silk has barely held its own. The bounty was extended in 1909, without change of method, for a twenty-year period, i.e., till 1929. Hungary has also encouraged raw silk production, by supplying eggs gratis, buying and distributing cocoons, and building filatures which are let to reelers on cheap terms. See Antonelli, in Revue Economique Internationale, March, 1910. In Switzerland the production of raw silk has steadily declined since 1870 and now maintains itself only in the Italian cantons. Reichesberg, Handwörterbuch d. Schweiz. Volkswirtschaft, p. 962. I have no doubt the explanation is the same as for the American situation: the industry lacks a comparative advantage in Switzerland also. 6. See the discussion of beet growing, chapter vii, p. 88 and passim. 7. "Spinning" would seem here to be a misnomer; the term is not usually applied to the process of unwinding from the cocoons, nor even (see p. 228, below) to the subsequent preparation of the raw silk for weaving. 9. The Grant reel, which originated in the well-known Cheney mills. Cf. Mason, The Silk Industry, p. 12. The reels are not manufactured in the United States; the design is simple, and the reels are made in various parts of the world, wherever used. 10. See the passages from Wyckoff quoted by me in the Quarterly Journal of Economics, iii, pp. 271-273 (1889); also in my Tariff History of the United States, 4th edition, pp. 381 seq. 11. Quarterly Journal of Economics, iii (1889), pp. 273-276. 12. Silk throwing in Italy and France was long carried on in small quasi-handicraft establishments with the aid of water-power; hence called in France "moulinage." It is still in France an industry on a very small scale; petty factories with an average of less than 2,000 spindles, working universally on orders from the manufacturers. Beauquis, Histoire économique de la soie, p. 150. In England, though silk throwing has ceased, the Silkthrowsters' Company, established in 1629, still maintains a nominal existence among the Livery Companies of London. 13. See below, pp. 270, 273 on the automatic loom and ring spinning. In the Census of 1900, it is stated in the Report on Silks (p. 218) that the cost of converting one pound of raw silk into organzine was lowered from $4.50 in 1870 to 60 @ 75 cents in 1900. On the employment of women and children, see ibid., p. 209. 14. Allen, Silk Industry of the World, p. 29. 16. The much-discussed strike of 1913 among the Paterson silk operatives, in which the Industrial Workers of the World (I.W.W.) took so active a part, began among the broad silk weavers, in opposition to the introduction of a three loom and four loom weaving system. 17. The Silk Association Reports show that new looms were installed in the United States as follows:
The extraordinarily rapid growth between 1900 and 1905 is shown by the following census figures:—
18. The following figures state the number of hand and power looms in the two branches of the industry.
Allen, Silk Industry of the World, p. 31. The comparatively slow increase in the number of looms for narrow goods between 1890 and 1905 is to be interpreted in the light of the circumstance that each individual loom became larger, quicker, more automatic. The longer persistence of hand looms in this branch of the industry (1,334 such looms as late as 1890) is more apparent than real. These looms were used in 1890 mainly for trimmings, a special and limited branch of the narrow goods trade,—one which proved a decadent part of the silk manufacture. See below, p. 247. 19. On labor conditions, see Mason, Silk Industry, pp. 50 seq.; and the Federal Report on Woman and Child Wage-Earners, 1912, iv; summarized in the Survey, May 18, 1912. In Pennsylvania only 9 per cent of those employed in the silk mills of the state are men; 67.8 per cent are women, 23.2 per cent are children. 20. See on this subject the account in Mason, Silk Industry, pp. 15 seq. On the continued endeavors of the American manufacturers to improve the quality of Chinese raw silk, see Thirty-eighth Report of the Silk Association, pp. 24, 25. "A great proportion of the Canton silks cannot be economically handled by the American manufacturer on account of defective reeling.... We suggest that the system which has improved the working qualities of Japan silks, i.e., re-reeling the skeins, if used in Canton, would so vastly enhance the value of Canton filatures that the American buyers would gladly pay such additional price as to more than compensate the reelers." L. Duran, in his trade book on Raw Silk (1913), writes: "It is gratifying to see the Japanese reelers doing their utmost to improve the quality of their silks" (p. 114). Part IV, Chapter XV 21. The descriptions of European conditions which follow rest on scattered notes gathered from various sources, and make no pretense of exhaustiveness. So far as I know, this interesting phase of recent industrial history has received scant attention. 22. Allen, Silk Industry of the World, p. 41. The figures for Germany are not for the whole of that country, but only for the district of Crefeld, the chief manufacturing center. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||