Some Aspects of the Tariff Question

Taussig, Frank William
(1859-1940)
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1915
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Part III, Chapter XII

Protection and Combinations. Steel Rails; Tin Plate

III.XII.1

We return now to the iron and steel industry, and take up the question of the connection between the tariff and the trusts. The growth and influence of combination have been no less conspicuous in the iron and steel industry than in sugar refining. Here also it is to be asked whether the protective system promoted combination and monopoly, or increased the profits of combination.

III.XII.2

So far as the Steel Corporation itself is concerned, it can hardly be said that combination was promoted by the tariff. In this regard the case is different from sugar refining, where there is tenable ground for maintaining that the very formation of the trust was fostered by the sugar differential. The Steel Corporation was not formed until after the period when the tariff was of vital consequence for the iron and steel industry. It came after the depression of the closing years of the nineteenth century, when prices had fallen almost dramatically and when the independence of the American industry had become an accomplished fact. It was proximately the result of competition, feared to be of ruinous effect, among the domestic producers themselves. The great consolidation was expected not only to obviate such competition, but to carry still further the economies in production which had already been secured by the constituent integrated enterprises. Though the tariff may have been the mother of the sugar trust, it had no such relation to the steel trust.

III.XII.3

A different question is whether the tariff increased the profits of the consolidated industry; and still different is the question whether among the constituent corporations united in the Steel Corporation there may not have been incitements to combination, as well as increased profits, from the tariff. Two typical cases will serve to show what answers can be given to these questions: that of steel rails, already considered in its bearing on the young industries argument; and that of tin plate. The latter, as it happens, suggests in its turn the young industries problem: was it nurtured to success through tariff aid?

III.XII.4

In the steel rail branch of the industry, pools and price agreements were common during the earlier period, from 1870 to about 1900. They had the same checkered history as pooling arrangements in manufacturing industries at large. They were held intact with comparative ease in years of activity and rising demand, but collapsed in times of depression.

III.XII.5

A formal pool (the Steel Rail Association) was established early and was maintained until 1893, though with breaks and with the quarrels over allotments which always appear under such combinations. In 1893 it went to pieces, but was shortly reëstablished, and kept in working effect until 1897. Then, under the cumulative influence of long-continued depression, it broke down completely. A couple of years of fierce cut-throat competition followed, prices collapsing beyond precedent. But in 1899 the pool was again set up, and was maintained until 1901, when the Steel Corporation was formed and the new stage was reached by the iron and steel industry at large.*36

III.XII.6

Hence the decline in the price of steel rails which has been already considered did not take place by gradual steps spread over a considerable period; in other words, did not take place in the manner to be expected in case of a commodity produced under continuously competitive conditions. It came through a series of sudden drops, following the collapses of the successive pools. For years at a time, the price was kept by combination at figures extremely profitable. It is not to be doubted that the retention of a duty heavy enough to keep out foreign competitors invited and aided combination. It thus served to swell the profits of the rail makers, and especially of those among them who were foremost in organization and technical advance. The decade from 1880 to 1890 was the golden period for the leading iron and steel manufacturers. Profits all around were high; those in rail making were enormous. All this is part of the price which the public had to pay for the gains, real or supposed, from protection to the young industry. The free trader is justified in saying that the initial burden, serious even if tempered by domestic competition (as is implied in the young industries argument), was made needlessly and indefensibly high by monopolistic combination.

III.XII.7

With the opening of the twentieth century, however, and the advent of the Steel Corporation, the situation changed. Some effect of combination on the price of steel rails persisted; but did not appear in the same way as before. The influence of the tariff in raising prices and fostering combination virtually ceased.

III.XII.8

As our price chart*37 indicates, steel rails were sold after 1902 at the unchanging price of $28.00 a ton. No sensible person will believe that the price could be held at this precise figure, without a variation from month to month or from year to year, except through the abrogation of competitive bidding. For several years after the formation of the Steel Corporation, there was a firmly organized pool, with allotted percentages of output and with money payments to offset variations from those percentages.*38 As tine went on, this close-knit form of combination was given up; doubtless in pursuance of the avowed and sincere desire of the Corporation to "be good" and to conform to the federal statute. A loose understanding was substituted, probably not such as to constitute a violation of the Sherman act, but sufficient to maintain the same unvarying price.*39

III.XII.9

The steady price maintained under these conditions*40 was not, however, higher than the foreign price. So much is shown on the chart: the two series went to virtually the same level, and remained, on the whole, in the same relative positions. British prices of rails were more irregular than American prices, and therein showed the effect of the higgling of the market; but they were, as a rule, no lower. The price in the United States may have been an unduly high one,—high, that is, compared with domestic cost of production and with the price that would have ruled under free competition. On this point there is some evidence, presently to be considered, from the fact that rails were sold for export at lower prices than those paid by domestic consumers.*41 But such discrimination has nothing to do with the immediate tariff question,—the relation between foreign and domestic prices. If the domestic price is as low as the foreign, the tariff has ceased to be an operative cause. The stage where it ceased to be operative was reached, so far as steel rails are concerned, by the opening years of the century.

III.XII.10

It is not within the scope of the present volume to consider the problems of combination; but a word may be said on one aspect, suggested by the even course of the steel rail price since 1902. Beyond question the influence of the Steel Corporation was exerted toward maintaining the unvarying price, and beyond question this was part of a large general policy. The guiding spirits of the Corporation endeavored deliberately to lessen the ups and downs of the iron and steel trade; to prevent prices from soaring in times of active demand and from sinking abruptly in the ensuing periods of depression. That policy was sought to be applied to all the forms of crude iron and steel, and showed its effects in a comparative steadiness of the prices of all these articles during the years before and after the crisis of 1907,—a steadiness in sharp contrast with the advance and recession of prices which had been the concomitants of similar industrial cycles during the nineteenth century. It happened that steel rails, being not only produced by a comparatively small knot of large-scale establishments, but usually sold in large blocks to the railways, offered specially favorable conditions for carrying on the policy without deviation. For other products that policy was more difficult to hold; and toward the end of the period of depression its maintenance proved impossible. Prices of steel billets and the like fell sharply in 1911. Nevertheless, looking at this period of expansion and contraction as a whole, a general steadying influence still appears. That it appears as regards prices, does not prove that it is to be found in output and employment also; fluctuations in these continued; yet even here it might be said with some show of reason that a moderating influence was exerted.*42

III.XII.11

These are matters on which, as indeed on so many of the phenomena of concentration and combination, further evidence must be awaited before judgment can be passed. It remains to be seen whether combination, with its almost inevitable concomitant of prices above the competitive rates, tends to mitigate the fluctuations of industry. Such is a common opinion among German investigators. It may be that this gain will prove impossible to secure at all; or, if secured, may be outweighed by the shackling of progress, the accentuated inequality of distribution, and other possible evils of monopoly. But these ulterior questions go quite beyond the range of the protective controversy.


III.XII.12

Questions somewhat similar arise in the case of tin plate: a curious episode in tariff history, much debated and much misunderstood.*43

III.XII.13

Until 1890, tin plate had been left outside the pale of the protective system. The duty was so low that no tin plate was produced within the country, and the total supply was secured by importation. This exceptional treatment was long the cause of protest on the part of the protectionists. It was said to have arisen from a wrong construction by the Treasury Department of a clause in one of the earlier tariff acts, whose language was such as to be held to impose a low ad valorem duty,—one much lower than Congress may have intended to levy. At all events the duty, as unequivocally fixed in a series of acts preceding that of 1890, was a moderate one, and operated as a strictly revenue duty; therein being in marked contrast to the highly protective duties on other iron and steel products. This anomaly was put an end to when the McKinley tariff act, with its emphatic protectionist intent, was passed in 1890. The duty was raised to the level of the others in the iron and steel schedule. The increased rate, however, did not remain in effect long; a sharp reduction was made in the Wilson act of 1894. After a slight advance in 1897 (by no means to the figure of 1890), the duty was again lowered in 1909 to the precise rate of 1894. The salient fact in all these changes is that in 1890 a high duty was applied, but was maintained for only four years, the later duties being comparatively moderate.*44

III.XII.14

The development of the industry under this short-lived application of high protection was extraordinary; so extraordinary as to surprise friends no less than foes. The act of 1890 had provided that the duty imposed by it should not remain in effect after 1897 unless the domestic production in some one year before July 1, 1897, should amount to one-third of the importations. In other words, the maintenance of the high duty had been made contingent on a considerable development in the domestic output, and the legislators evidently were not sure that this development would take place. It happened that not only the amount called for under the act was produced at home, but very much more. The domestic production advanced by leaps and bounds, and within three years*45 the required quota of one-third was supplied. All the provisions of the act of 1890 were of course swept away in 1894, and the duty, as just noted, was almost cut in half. The advance of the domestic tin plate industry, however, went on without a halt, while imports steadily declined. By the close of the decade the domestic product had entirely superseded the foreign. Some imports continued after 1900, but they were only nominal. Almost all the tin plate that continued to be brought in from England was reëxported under drawback, chiefly by the Standard Oil Company, the imported plate being made up into the large square tin cans which this Company's export trade has made ubiquitous in the tropics and the orient. So far as domestic consumption was concerned, imports were completely superseded. The districts in Wales from which tin plate had previously come, and which indeed had previously been almost the sole producers for the whole world, were hard hit, and went through a long and trying period of depression, which was observed by the American protectionists with a satisfaction but little concealed.*46

III.XII.15

Before the decade was completely ended, however, another event occurred, most unwelcome to the protectionists, and received with a jubilant "we told you so" by the other side. In 1898, in the course of the veritable mania for combinations which characterized this era in the United States, the American Tin Plate Company was formed, including virtually all the producers of tin plate. The protective tariff became the mother of a trust, and that trust exploited the possibilities of protected monopoly. Not long after, in 1901, the great Steel Corporation absorbed the Tin Plate Company as one of its constituents; the great trust succeeded the smaller trust. The protectionists were put on the defensive when the free traders alleged that this sort of thing was the natural consequence of a protective tariff.

III.XII.16

So much on the conspicuous aspects of the case. A more detailed examination, however, is necessary, in order to make clear the effect of protection both on the establishment of the industry within the country and on the development of monopoly conditions.

III.XII.17

Tin plates are thin sheets of iron or steel coated with tin (in former times, iron sheets were used, since the revolution in steel making, always steel). Their production involves two distinct operations: the making of the steel sheets or so-called black plates, and their tinning. The former of these operations, the more important, divides itself again into two; the making of the crude steel in the form of suitable bars, and the rolling of these bars into thin sheets suitable for tinning. Of the cost of a given quantity of tin plates, something like two-thirds is the cost of the black plates or steel sheets; and of the cost of the black plates again, 60 per cent is the cost of the steel bars (known in the trade as sheet bars).*47 The making of the fundamental raw material, crude steel in the form of bars,—has been subject to the general influences described in the preceding survey of the steel industry at large. The production of the black plates by rolling from the bars, and the coating of these sheets with tin, involve operations of a more special kind.

III.XII.18

The unexpected growth of the tin plate industry after 1890 was due chiefly to the cheapening of the fundamental raw material,—sheet bars. The decade after 1890, it will be remembered, was the period in which the American steel industry reached the stage of independence. For some years after the crisis of 1893, crude steel was considerably cheaper in the United States than in England; and though this extreme situation did not endure after the ensuing revival of trade, differences between domestic and foreign prices became negligible and remained so. The American maker of sheets and tin plates was no longer at a disadvantage in the price of his bars. Before 1890 he had been at such a disadvantage; and the continued importation of tin plate was to all intents and purposes the importation of bars in this form. It was the changed situation as regards the raw material which explains the unchecked progress of the tin plate industry in face of the reduction of duty in 1894. A duty on tin plate of 1.2 or 1.5 cents a pound (the rates of 1894 and 1897), was a very different matter according as the material was or was not as cheap as in Great Britain. With that material equally cheap, the duty of 1.2 cents was no less effective for protection in 1894 than the duty of 2.2 cents had been in 1890. The main cause of the rapid growth of the tin plate industry in 1890-1900 was the lowered price of crude steel; it was one among the consequences of the general revolution in the iron and steel industry.

III.XII.19

Both for this earlier period, and for the later stage which set in with the formation of the Steel Corporation in 1901, the relation between domestic and foreign prices of tin plate is instructive. The chart on page 180 shows this relation for the entire period 1890-1913. It indicates that immediately after 1890, American prices exceeded foreign by the full amount of the duty. During the years in which the McKinley duty was in effect (1891-94) there was what may be called the normal effect of protection: domestic prices were raised by the full amount of the duty. Toward the middle of the decade, however, imports ceased; prices were not higher in the United States even by the amount of the lowered duty of 1894. Some difference in price remained, chargeable to the duty, but held in check by competition among the domestic producers, and apparently in process of continuous reduction,—a reduction made possible chiefly by the decline in the price of crude steel.

Chart IV. Click to enlarge in new window.

III.XII.20

Then came in 1898 the spectacular episode of the American Tin Plate Company, and the exploitation of tariff possibilities by the newly-formed monopoly. Attempts at pooling and price agreement had been made by the scattered tin plate producers in 1896-98, with the usual instability of these looser forms of combination. Finally, one of the arch promoters in this promoting period, Mr. W. H. Moore, was enlisted, and succeeded in bringing about a tight organization. The Tin Plate Company bought out once for all the various competing concerns, in part with cash, chiefly by the issue of its own common and preferred stock. With the meteoric financial operations that ensued the present inquiry is not concerned. The stock was liberally watered, its par value being four or five times the price in cash which would have sufficed to purchase all the plants; and it became an active speculative stock. This was one of the most profitable among the many profitable speculations of that extraordinary time. So far as the price of tin plate was concerned, the effect was unmistakable. The American price advanced at once, and advanced as compared with the British price. It was raised to the full limit permitted by the tariff (now that of 1897, with a duty of 1.5 cents a pound).*48

III.XII.21

For two or three years, this situation was maintained with no great modification. The price of tin plate was kept, if not quite up to the foreign price plus duty, much above the price which would have prevailed under competition. The Tin Plate Company paid dividends on its common stock as well as on its preferred. It was a profitable property when absorbed by the Steel Corporation in 1901, and that absorption was doubtless expected to strengthen the command of the tin plate industry by the great combination.*49

III.XII.22

After 1901, however, the situation changed in several respects. In the first place, the Steel Corporation's command of the industry became less, not greater. Some competition had sprung up even before 1901. The Tin Plate Company's operations had been too profitable not to invite competition, notwithstanding endeavors to shut out interlopers by exclusive contracts with the makers of tin plate machinery. When the company was formed, in 1898, it controlled 95 per cent of the country's output. In 1901 its successor, the Steel Corporation, found it still in control of nearly three-quarters of the output. The proportion, however, declined almost steadily after 1901, until by 1911 and 1912 the Steel Corporation produced no more than 60 per cent of the total. The independent manufacturers, some of them large-scale producers, had a very substantial part.

III.XII.23

Not only in control of the output, but in the course of prices also, is there evidence of changed conditions. As the chart shows, the domestic price continued for many years to range higher than the foreign; yet with a tendency toward a lessening of the difference. At no time after 1901 was there such an exploitation of the tariff as in the year immediately after the Tin Plate Company was formed. The domestic price, though higher than the foreign, was by no means higher by the full amount of the duty. Imports quite ceased; the duty was prohibitory; but the domestic consumer paid a tribute less than the amount of the duty. Gradually that tribute became still less; the domestic price approached the foreign; until finally, by 1911, almost all difference had disappeared. The price within the country became virtually as low as without. The protectionist, surveying the whole course of development, might maintain, for this branch of the steel trade as for others, that notwithstanding regrettable aberrations there had been ultimate gain from the nurture of the nascent industry.

III.XII.24

Considering first the years from 1901 to say 1910, when prices were still higher within the country than without, we may inquire what degree of influence was exerted by the Steel Corporation, and to what extent the prices and the profits can be called monopolistic. Control of 60 or 70 per cent of the output is not complete monopoly, but it gives necessarily a commanding position. The independent manufacturers, though no doubt really independent, were yet in awe of the one great producer. Prices were not fixed by combination or agreement; there was a studious effort to do nothing that would constitute a violation of the anti-trust law; but there were conferences and understandings, and friendly pressure for the maintenance of prices. The fact that most of the independents had to procure their material—the sheet bars—from the Corporation, contributed not a little toward its influence throughout the tin plate trade. Here, as elsewhere, the policy of the Steel Corporation was to maintain steadiness, preventing fluctuations in prices and if possible in output. Though not so eminently successful as in the case of steel rails, its policy did serve to minimize fluctuations. The steadied prices were doubtless somewhat higher than unrestricted competitive prices would have been, and in so far were the source of some quasi-monopolistic gains,—gains shared by the independents, or at least by those among them who could produce as cheaply as the Steel Corporation itself.

III.XII.25

One important factor throughout this period, not in the United States only, but the world over, was the constant increase in the demand for tin plate. The total output and the total consumption rose rapidly and without halt. The Steel Corporation's own output, though it fell relatively to the whole, rose absolutely. The use of prepared food, conserved in tins, spread more and more, and the ever-increasing quantities of tin plate found a ready market. It was this increase of demand which proved the saving of the tin plate makers of Wales. The long stage of depression through which the Welsh industry had to pass came to an end as other markets gradually enlarged,—in South America, the East, and the Continent. The Welsh product rose not only to its former dimensions, but even above. This upward swing led to a stiffening of British prices, which in turn contributed to wiping out the difference between them and American prices. Some technical changes also took place in Wales as well as in the United States; of these, more presently.

III.XII.26

A significant phase of the course of events after 1901 was the development of an export trade from the United States: not merely the export under drawback of imported tin plate (in the form of tin cases), but the export of tin plate of domestic manufacture. These exports began, as is shown in the table appended to the present chapter, shortly after the formation of the Steel Corporation, and reached substantial dimensions by 1905 In 1911 and 1912 they increased markedly, and in the latter year were near five million dollars' worth. At first they went almost exclusively to Canada, for whose market the Steel Corporation had geographical advantages. But in the very recent period (1911 and 1912) large quantities were sent to South America and Asia. Virtually all were exported by the Steel Corporation. Not only this; they were "dumped" by the Corporation. Prices to foreigners were steadily lower than to purchasers in the United States. The policy of selling at lower prices abroad was extended also to American buyers who used tin plate in an export trade of canned goods. Such buyers were given a rebate or drawback, similar to that which the government grants on the export of goods in which imported materials have been used.

III.XII.27

Systematic dumping of this kind suggests monopoly price, or something closely akin to it. The general reasoning which points to this conclusion is stated below.*50 Suffice it here to say that the practice of selling abroad various products at lowered prices,—not tin plate only, but others as well,—adds to the evidence going to show that the prices of many forms of iron and steel were fixed under conditions different from those of unfettered competition. Even though the Steel Corporation possessed no monopoly in any strict sense of that term, and even though its control of prices therefore was restricted and precarious, the general situation was that of a combination price, not a strictly competitive price. A preponderant control of output,—sixty per cent or something of the kind,—suffices to bring about, not indeed complete control of price, but an overshadowing influence. It is possible that, as the advocates of combination assert, the conditions, though somewhat different from those of competition, are not worse, but better. They may be conditions of greater stability, and yet not of prices "unreasonably" high. Without entering on the moot questions thus raised, we may accept this part of the evidence as indicating the continuance under the Steel Corporation of some degree of monopolistic control of the tin plate industry.

III.XII.28

But quasi-monopoly and its corollary, discrimination in favor of foreign purchasers, was not the only factor, perhaps not the main factor, in the tin plate exports. After all, there was not complete monopoly, but only some approach to monopolistic conditions; profits doubtless above the competitive rate, but not profits so high as to leave a great margin for reductions in favor of one or another buyer. Though some shaving in price, some acceptance of profits lower than those got at home, might facilitate exports, cost of production and minimum price must have been brought within the neighborhood of the cost and of the prices of those rival producers who must be met in the foreign markets. Tin plate, or anything else, would not be sold abroad at a loss; if it could be sold abroad at low prices, it must be produced at low cost. Such must be the situation if the dumping is continuous, not sporadic. Was the cost of tin plate lowered within the country? Were improvements in production made, of a kind not found elsewhere? Did the American industry progress, not merely in volume, but in technical efficiency as well?

III.XII.29

These questions, already considered with regard to the cruder forms of iron and steel, arise also for the two processes by which bars are converted into sheets and then coated with tin,—rolling and tinning. Both had been, through the nineteenth century, largely of a handicraft character. Though the bars were passed through rolls under power, more hand labor seems to have been involved in tending and operating the rolls than in other parts of the iron and steel industry. Tinning was even more distinctly a handicraft operation; the sheets were hand-dipped. When the McKinley Act was passed in 1890, the tin plate mills first established in the United States were copied from the Welsh. Sometimes the whole equipment,—rolls, shears, pots,—was imported, and then was operated by Welshmen also brought over. This sort of literal transmigration of industry has not infrequently taken place after our imposition of heavy import duties. And when it happens, and so long as there is mere transmigration, the need for protection persists. There is then no comparative advantage; the thing is done no better in the United States than abroad; and, wages being higher here, the expenses of production are also higher, and the American manufacturer cannot hold his own without protection. It is the next stage that is of more concern to the economist. The industry feels the influence of new surroundings. Machinery, labor-saving devices, inventions and short cuts, are in the air. Some changes from the old-world methods will not fail to be made. The question is whether these changes will be great enough really to transform the industry, and bring it up to the same level of effectiveness as the dominant American industries. Possibly it too will come to have a comparative advantage; and the object of protection to young industries will then have been attained.

III.XII.30

The evidence on this subject is not easily interpreted. It is difficult to make out whether a real transformation followed the transmigration of the tin plate manufacturer. If English writers, technical and non-technical, are to be believed, the Welsh industry had fallen into ruts, and remained so for some time even after the shock from the loss of the American market; whereas the Americans promptly went ahead with new machines, larger plants, better organization of labor. Allowance must be made, when reading all such British jeremiads, for the desire to stir up John Bull, the tendency to overpraise the foreigner as a means of arousing the man at home. It must be admitted, too, that engineers and employers lay stress on all bad things in the labor unions, and sometimes arouse suspicion in their insistence on the opposition of the Welsh workman to labor-saving devices. But there remains a solid basis of fact for these allegations. In the Welsh tin plate industry the union long encouraged, and the workmen maintained, the policy of restricting output; and they opposed labor-saving devices. It would seem clear that the employers also, established as they had long been in apparently secure possession of the tin plate trade, fell into a certain stolid conservatism. Something like stagnation set in.*51

III.XII.31

In interpreting the evidence from the other side,—that of the American manufacturers and engineers,—there is also need of caution. These witnesses blow hot and cold. At one moment patriotic pride and a wish to prove how deserving is their industry lead them to descant on the improvements they have introduced and on the superiority of their ways over the foreigners'. In the next breath—when the tariff is mentioned—they will assert that they have no superiority at all, that their machines and processes are quite the same as in Wales, that their wages are twice as high, and that they will infallibly be ruined by a cut in the duties.

III.XII.32

It would seem beyond question that some considerable improvements were made by the American tin plate makers. Welsh implements and methods, though copied slavishly at the outset, were not long retained without change. Gradually the tin plate mills were made more efficient. For example, the rolls were increased in size (width) from 18 inches to 28 inches. Overhead cranes operated by electric power were introduced for handling the material. Machine pots (for tinning), with some automatic appliances, took the place of hand pots; though the plates, it is said, still continued to be fed through singly by hand. In charging the annealing furnaces, however, the hand method was superseded by charging machinery. Certain of these changes were in time copied by the Welsh makers; sometimes doubtless with the same labor-saving results as in the United States, but in other cases (and these perhaps typical) with less success than in the originating country.

III.XII.33

The spokesmen for the American manufacturers, though they admit the introduction of considerable improvements, maintain that in the main rolling and tinning are still handicraft operations. If this is true; if the industry has not been developed much beyond the handicraft stage; if it is carried on mainly by specially skilled workmen, with comparatively little use of machinery and labor-saving devices,—then it is presumably not up to the American industrial standard. It remains under a comparative disadvantage, and the young industry has not been nurtured with success. The evidence from the general economic situation, however, strengthens the impression that these expert witnesses understate their own case. It seems to be beyond question that the lead has been taken in the United States, at least for parts of the industry, and that American devices and improvements have been copied in Wales; always an indication not only of progress on the part of the Americans, but of probable sustained superiority.*52 There is the evidence, further, from the considerable and growing exports, and the parallel evidence from the approach of the American domestic price to the foreign level. Of this last-named change there is striking corroboration in the circumstance that the Standard Oil Company finally gave up the purchase of imported tin plate, on which it had so long taken the government's drawback when exporting the case-oil. This shrewdly managed concern at last bought its tin plate from the domestic makers, i.e., from the Steel Corporation: proof conclusive that the price was as low as that of the foreign plate.*53

III.XII.34

On the whole, the verdict is not unfavorable to the protectionist. It is so, that is, on the question of real success in bringing the new industry to the stage of complete independence; from which follows the further conclusion, not at all welcome to the protectionists, that the occasion for retaining the duty quite ceased. Ultimate independence was achieved, and achieved through domestic improvements. No doubt other factors coöperated: the cheapening of the raw material and the world-wide increase in the demand for tin plate. The unrelenting free trader may indeed maintain that these factors would have led in any case to the same outcome. American invention and improvement, he may say, exercised their influence in every direction, and would have done so in the tin plate industry under any circumstances. It is no more possible to disprove the free trader's contention than it is to prove beyond cavil that of the protectionist. The difficulties in the way of exact proof remain for this inquiry, as they do for almost every concrete investigation in the economic field. But the protectionist has a strong case.

III.XII.35

On the other question also, that of the development of trusts under protection, the free traders have often overstated their case. Surveying the course of events in the three industries for which the connection between protection and combination has been considered,—steel rails, tin plate, and sugar refining,*54 —the outcome cannot be said to confirm the doctrine that the tariff nurtures monopolies permanently. Protective duties high enough to shut out foreign competition do tempt to the formation of a combination; and they do make it easier for the combination, when formed, to raise prices and secure abnormal profits. This happened conspicuously in the cases of refined sugar and of tin plate; it happened, less conspicuously, in the earlier stages of the steel rail industry. There is here no small charge in the debit account against protection. But in the long run the situation did alter: no one of the combinations was able to maintain indefinitely a price raised by the full extent of the duty. Domestic competition did set in, and brought the profits and prices much below the level which full exploitation of the tariff would have caused. This domestic competition was no doubt a halting and restricted one. A combination price, somewhat akin to a monopoly price, was long maintained. Yet even this price was subject to the influences of domestic cost, and to the indirect action of competition as well as to its direct. Gradually the effect of the protective tariff in supporting combination melted away, and the trust problem presented itself unveiled and bare. Such is likely to be the general drift. The industrial influence of the protective tariff tends to become less and less; but the march of great-scale production proceeds apace. Whether or not the tariff system is radically altered, the economic and political problems of the future will be much the same,—great social problems, that will dominate the public life of the country for generations to come.

III.XII.36

STATISTICS ON TIN PLATE
Domestic Product
(in 1,000 tons)
Imports
(1,000 tons)
Exports of Domestic Tin Plate
(1,000 tons)
Proportion of Product by
Steel Corporation
(Per cent)

1890 . . . . 329.0
1891 1 327.9
1892 18.8 268.5
1893 55.2 253.1
1894 74.3 215.0
1895 113.7 219.5
1896 160.4 119.2
1897 256.6 83.8
1898 326.9 67.2*55
1899 360.9 58.9
1900 302.7 60.4
1901 399.3 77.4 .. 73.1
1902 360.0 60.1 1 71.4
1903 480.0 47.4 1 76.4
1904 461.1 70.6 4 71.4
1905 493.5 65.7 11 71.3
1906 577.6 57.0 12 73.5
1907 514.8 57.7 20 72.6
1908 537.1 58.5 17 71.1
1909 612.0 62.6 5 61.9
1910 722.8 66.6 13 61.1
1911 784.0 14.1 35 60.0
1912 963.0 2.0 76 60.0

III.XII.37

These figures are for calendar years; they are taken from the Statistical Reports of the American Iron and Steel Association. They include terne plate as well as tin plate proper. The tons are gross tons (2,240 lbs.).


Notes for this chapter


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).
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:

1862 25 per cent ad valorem
1872 15 "
1875 1.1cents per lb. (equivalent to 20 per cent)
1883 1 " " 30 "
1890 2.2 " " 70 "
1894 1.2 "
1897 1.5 "
1909 1.2 "
1913 15 per cent ad valorem

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:

Sheet bars (including freight, wastage, and the like) $31.00
Cost of Rolling $20.00
Cost of Tinning $25.00
$76.00

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:

U.S. Steel Corporation
For every $100 of Preferred Stock Common Stock
Tin Plate Preferred Stock 125 ...
" Common " 20 125

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.

End of Notes


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