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Home -> Merlin Harold Hunter -> Outlines of public finance -> Chapter 9 continue

Outlines of public finance - Chapter 9 continue

1. Preface

2. Chapter 1

3. Chapter 1 continue

4. Chapter 2

5. Chapter 2 continue

6. Chapter 3

7. Chapter 3 continue

8. Chapter 3 continue

9. Chapter 4

10. Chapter 4 continue

11. Chapter 4 continue

12. Chapter 5

13. Chapter 5 continue

14. Chapter 5 continue

15. Chapter 6

16. Chapter 6 continue

17. Chapter 7

18. Chapter 7 continue

19. Chapter 7

20. Chapter 7 continue

21. Chapter 9

22. Chapter 9 continue

23. Chapter 10

24. Chapter 10 continue

25. Chapter 10 continue

26. Chapter 11

27. Chapter 11 continue

28. Chapter 11 continue

29. Chapter 12

30. Chapter 12 continue

31. Chapter 13

32. Chapter 13 continue

33. Chapter 13 continue

34. Chapter 14

35. Chapter 14 continue

36. Chapter 14 continue

37. Chapter 15

38. Chapter 15 continue

39. Chapter 15 continue

40. Chapter 16

41. Chapter 16 continue

42. Chapter 17

43. Chapter 17 continue

44. Chapter 17 continue

45. Chapter 18

46. Chapter 18 continue

47. Chapter 18 continue

48. Chapter 19

49. Chapter 19 continue

50. Chapter 19 continue

51. Chapter 19 continue

52. Chapter 20

53. Chapter 20 continue

54. Chapter 20 continue

55. Chapter 20 continue

While these rates do not give evidence of a very strong
protectionist feeling, yet the preamble to the bill would
indicate that this was an important consideration. It
states that, " Whereas, it is necessary . . . and for the en-
couragement and protection of manufacture, that duties
be laid." It appears that thus, in the very beginning, the
tariff legislation was not to be confined to merely fiscal
purposes. The Act was to remain for seven years, yet
many minor details along with some rates were changed
as need arose.

107. The War of 1812 Increased the Sentiment for
Protection. The War of 1812, because of the dangers im-
posed upon shipping, and because of the various regula-
tions which were placed upon trade, greatly disturbed the
foreign commerce of the United States. Revenue de-
creased with the diminution of imports, but with the close
of war, when Europe began to unload her accumulated
stocks of goods upon our markets, the values of imports

reached an unprecedented figure, with a corresponding
increase in revenue.

In this stimulated importation, however, was sensed
the destruction of many of the American industries which
had sprung up from necessity and under difficulty during
the war. The clamor naturally arose for succor. Presi-
dent Madison was an advocate of some kind of relief and
urged protection to these growing enterprises. The final
result was the tariff bill, which became a law April 27,
1816. The tariff imposed by this Act has often been desig-
nated as the first protective tariff of the United States.

Tariff of 1816. The policy of protection unquestion-
ably superseded any fiscal considerations in the tariff of
1816. Little opposition was registered except in the South
and Southwest, and even here nearly as many votes were
in favor of the measure as were cast against it. The in-
dustrial emergency was clearly recognized, and the coun-
try as a whole showed its willingness to come to the rescue.
It was not until later that sectional feelings were strongly
evidenced. The rates provided were both specific and
ad valorem, and were highest upon textiles, leather, glass,
and paper, and ranged from 25 to 35 per cent. An inter-
esting feature of this measure was the introduction of the
minimum principle in regard to cotton cloth. All kinds of
cloth which had ordinarily cost less than twenty-five cents
a yard should be considered under the application of the
law as having cost that much, and the tariff would be
levied accordingly.

For decades following the passage of this law the tariff
became the center of discussion from the standpoint of
both revenue and industry. Fiscal officials were interested
in it because internal revenues were not used from 1817
until the Civil War, and hence import duties were the
principal source of revenue. It became important to
industry because of what particular individuals and sec-
tions of the country expected to accomplish by either
inaugurating or abandoning certain tariff policies,

The tariff of 1816 had scarcely gone into action when
dissatisfaction arose from interests which considered that
the protection granted to them was not strong enough.
The producers of iron were the first to register extensive
protest because they felt the textile industries were
afforded better protection than those who were engaged
in iron production. The agitation was so effective that
the duties upon iron were increased in 1820.

Tariffs of 1824 and 1828. The falling off in revenues
due to the industrial depression of 1819 led the fiscal
officials to ask a further extension of tariff duties. Those
engaged in industry were not backward in asking for
further protection, while many saw in this kind of legisla-
tion a method for enticing foreign capital to invest in the
United States. So effective was the demand from the
various quarters that a law was enacted in 1824 which
greatly extended and increased the duties. The demand
for such legislation, however, was much more sectional
than was that for protection in 1816. The commercial
interests of New England, as well as the solid South, were
opposed, so that the bill secured a bare majority of votes
in the House of Representatives.

The effect of the legislation was to increase the protec-
tion afforded to manufacturers of textiles, iron, glass, and
cutlery. The mrnimum valuation on cotton goods was
raised, and this principle was also applied to woolens. An
important feature, which was destined to be the source
of much difficulty hi the future, was the introduction of a
tariff on raw wool. The difficulty which this inaugurated
was in the securing of a woolen schedule which would be
satisfactory to both wool producers and manufacturers of
woolen materials.

Even though the duties now in force were highly pro-
tective, and apparently satisfactory to some industries,
representatives of other industries, particularly the
woolen, sought to seize upon the existing protectionist
sentiment to secure still greater increases in rates. The

political trickery and intrigue which resulted, the outcome
of which was the tariff of 1828, need not be reviewed here.
The protection on woolens was increased to such a degree
that the law has frequently been called the " Woolen
Tariff." The tariff, as a matter of fact, was unpopular in
all sections, and has been generally called the " Tariff of
Abominations." Many rates were excessive, and particu-
lar sections were favored at the expense of others. The
South was particularly hostile, and the Act added new fuel
to the nullification flame which the tariff had already
helped to kindle.

The general dissatisfaction, with its accompanying pro-
tests to Congress, together with the fact that a large sur-
plus of revenue was accumulating, led many to believe
that reductions might be expected. Some attempts were
made in 1830, but nothing of importance was accomplished
and the agitation continued. The necessity of modifying
some of the more objectional features of the tariff of 1828
was becoming obvious. Much difficulty was encountered,
however, in agreeing on what the modifications should be.
A bill was finally passed in 1832 which, while it did not
eliminate the protective features, did lower some of the
excessive rates. The protectionists now hoped that the
measure was in a form that would not call forth such
hostile objection.

1 08. The High Tariffs Were Followed by Reduced
Rates. -The hopes which the protectionist branch held
for the tariff of 1832 proved to be ill founded. While a
part of the South appeared satisfied, yet the people of
South Carolina were too much incensed to be appeased by
such slight amendments as the law offered. The legisla-
ture was not long in passing what is known as the Nulli-
fication Act the tariff law, so far as it applied to South
Carolina, was null and void.

Compromise Tariff. The Nullification Act was the sig-
nal for Congress to do something, and a bill providing for
extreme reductions was submitted so extreme that little

hope could be entertained for its passage. Henry Clay
came to the rescue with a compromise bill, which was
passed in 1833, and which is generally known as the Com-
promise Tariff. The important features were the enlarge-
ment of the free list, and a gradual reduction of duties, so
that industries would have a chance to readjust them-
selves. All duties that exceeded 20 per cent were to be
gradually reduced. Every two years between 1834 and
1842 one tenth of the excess above 20 per cent was to be
taken off. On January 1, 1842, one half of the remaining
excess was to be removed, and on July 1 the remainder.
The final result, then, was to be a tariff of 20 per cent
rates or less.

Whether the law of 1833 tied the hands of Congress on
tariff legislation until 1842 is beyond our province to
decide. At any rate there was a marked lull in tariff dis-
cussion. The great falling off in revenue, due to the panic
of 1837, led some to suggest that the succeeding biennial
reductions should be canceled. No legislation was
effected, however, until 1842, when the Whigs, a party
with the protectionist viewpoint, were in power. The law
which was passed was a radical departure from the pre-
vious trend and much higher rates were imposed.

Some opposition of course arose, but this was kept to
a minimum because the treasury was actually in need of
increased funds. The South did not seriously press its
claim of breach of faith on the part of Congress. As pros-
perity increased, however, the tariff again became a vital
question and entered extensively into the presidential
campaign of 1844. The result of it all was the Walker
tariff of 1846.

Walker Tariff. Under the Walker tariff rates in gen-
eral were greatly reduced, and while it was not a free
trade measure, it has frequently been designated as such.
The system of arranging the articles under particular
schedules was inaugurated, and the change was made
from specific to ad valorem duties. The system of pro-

viding warehouses, which has been continued to the pres-
ent time, was inaugurated under this Act. These were
built, and importers permitted to store goods in them, the
duty to be paid when the goods were removed. In 1857
the rates provided for under the Walker tariff were mate-
rially reduced, with no strenuous opposition, and it seemed
the country was drifting to a free trade, or at least a
revenue basis, for its tariff.

109. The Panic of 1857 and the Civil War Changed the
Course of Tariff Rates. The tariff of 1857 had been a
law but a few months when a panic swept the country
with its business failures and consequent treasury deficits.
The protectionists realized this as a psychological time to
increase duties, yet the sentiment for low tariffs was still
too strong to warrant the attempt of any radical increases.
Many suggestions were made, but the bill which was ap-
proved was one drawn by Representative Morrill, and is
known as the Morrill tariff. It finally became a law in
1861. Ad valorem rates were raised to about the level of
the Walker tariff, and many specific duties were substi-
tuted for former ad valorem ones. This Act also intro-
duced the compensating feature, which continued to play
an important part in tariff legislation. The increase in the
duty on raw wool was met with a corresponding increase
in the duty on manufactured woolens.

The advent of the Civil War, with its demands upon the
treasury, increased the interest in tariff rates. Some
slight modifications were made in 1862, but primarily to
compensate manufacturers for the burdens which the
newly inaugurated excise tax had thrust upon them.
Again in 1864 a hasty revision was made, by which rates
were greatly increased, partly in the hope of increasing
revenues, and partly to compensate for the increased bur-
dens of the internal revenues. After the war some at-
tempts were made to revise the tariff in both directions,
but practically nothing was accomplished. In 1872 a flat
reduction of 10 per cent was secured, and duties were re-


moved from tea and coffee. The panic of 1873 was re-
sponsible for the addition, in 1875, of the 10 per cent
which had been removed in 1872.

It was not long, however, before revenues were again
excessive, and it became generally recognized that some
tariff changes were needed. The appointment of a com-
mission representing varied interests, in 1882, by Presi-
dent Arthur, was met with general approval. Despite the
protectionist flavor which was to be found in the commis-
sion, it recommended an average reduction in the tariff
of from 20 to 25 per cent. Congress proceeded to disre-
gard the views of the commission, and passed a tariff law
in 1883 which, if anything, still more firmly intrenched
the principle of protection.

The McKinley Tariff. The sessions of Congress which
followed were the scenes of many tariff debates. The two
parties were becoming more united in their stands the
Republican for protection, and the Democratic for low
tariffs. The Democrats attempted many reductions, but
were unsuccessful. The first real change in the tariff
after 1883 was the McKinley Act, which became a law in

The McKiniey tariff was a Republican measure, yet it
purported to reduce revenues. This it attempted in two
ways, by raising some duties so high as to make them pro-
hibitive, and reducing others. The reductions were on cer-
tain iron and steel products, while raw sugar and some steel
were put on the free list. The net result, however, was a
greater intrenchment of the protective policy because of
the large number of commodities upon which duties were
increased. Bounties were granted on sugar produced in
the United States, while the President was given power to
levy duties upon sugar, coffee, tea, and some other articles
in retaliation to any country which was unfavorable to
the United States with her tariff laws.

Gorman-Wilson Tariff. The McKinley tariff proved
Very unpopular and the tariff became the leading issue in


the Presidential campaign of 1892. The Democratic suc-
cesses augured for the adoption of tariff revision down-
ward, and this attempt was made in the Gorman- Wilson
law of 1894. This represented the first real lull in the
steady march of protection since the Civil War. The
changes, however, were much less than is generally sup-
posed the reduction of rates was so slight as to leave the
principle of protection unscathed. It was such an un-
satisfactory attempt to redeem pledges that President
Cleveland refused to sign the bill, and allowed it auto-
matically to become a law.

High Tariffs. Much blame was attached to the Demo-
cratic administration and its tariff legislation for the in-
dustrial conditions following 1893. When the Republicans
regained power in 1897 the passage of high tariff schedules
was comparatively easy. This was accomplished in the
Dingley tariff of 1897, the net result of which was the
highest wall of protection the country had yet known.
For a number of years little tariff discussion appeared,
but a feeling gradually arose that the tariff was partly
responsible for some of the increased costs of living, and
that a downward revision was needed. The Republicans
pledged themselves to this program, and offered the
Payne- Aldrich Act in 1909 as the fulfillment of this pledge.
Some rates were lowered while others were raised, so that
the net result represented, as a whole, a revision upward
rather than downward.

Lower Tariffs. The election of a Democratic adminis-
tration in 1912, pledged to lower tariffs, was looked upon
as an indication of real reduction. The result was the
Underwood-Simmons Act of 1913. The rates in every
schedule were reduced, yet the measure came far from
inaugurating a tariff for revenue only. Large additions
were made to the free list, and the average rate of duty
was materially decreased. The provisions of the bill are
so complicated that they lack the clearness which tariff
measures should possess. Provision was also made for an


expert tariff commission to investigate and report upon
tariff needs. The Great War, unfortunately, interfered
with any results, whether good or bad, which might have
resulted from this legislation, and consequently no judg-
ment can be given as to the success of its trial.

Recent Legislation. It was expected that the Republi-
can successes in the election of 1920 would result in tariff
modifications. The rapid decline in the prices of agricul-
tural products, followed by the demand of the farmers for
some form of relief, hastened the attempts to modify the
tariff. Before the close of the Wilson administration
Congress passed the Fordney emergency tariff bill, which
the President vetoed, and which failed to pass over his
veto. The subcommittees of the Ways and Means Com-
mittee of the House at once began to recast the bill for
presentation to the Sixty-seventh Congress.

The emergency tariff bill, as it is called, was passed by
Congress and signed by President Harding in May, 1921.
The provisions of the bill are much the same as the one
vetoed by President Wilson. It is not designed to produce
revenue, but primarily to afford protection to the agri-
cultural interests. Comparatively high duties are placed
upon a large number of agricultural products. Some aid
is extended to Eastern manufacturers through the anti-
dumping provisions of the bill. This emergency tariff is
presumably but temporary legislation, and Congress has
promised a thorough revision of the tariff at a later date.
It is difficult to predict just what this will be, but it is
likely that some increase in tariff rates may be expected.

Import duties have always been an important source of
revenue, but it must be concluded from the foregoing sur-
vey that the fiscal aspects have very seldom had control-
ling interest in the formulation of our tariff laws. Indi-
vidual and sectional interests have always been reckoned
with, and have shown their influence in the legislation.
Nor can the tariff controversy be considered as settled,
for the problems of reconstruction have only increased the


importance of the tariff in fiscal and political discussions.
The situation calls to mind a statement which the author
remembers his great-grandfather to have made. He re-
marked that the first thing he expected to hear discussed
when he awoke in the next world was the tariff.

no. Revenue Is Given First Consideration in English
Tariffs. The tariff schedule of England is an outstanding
example of a system in which entire consideration is given
to the fiscal aspects. This result was achieved, however,
only after a long process of evolution. England was one
of the first countries to use the tariff as a form of revenue,
and developed it extensively during the seventeenth cen-
tury. The growth of the mercantile doctrines had a
strong influence during the eighteenth century. Import
duties were generally increased, some to rates which were

The Revolutionary War and the French wars caused
further increases in many of the duties until, at the close
of the War of 1812, most of the rates were excessively high,
and applied to a large number of commodities. During
this long course of development little objection developed
to the gradual expansion of the duties, and the list of goods
to which they were to apply. Only two periods of reaction
were noticed, and these were so brief and ineffective as
to be relatively unimportant.

Early in the eighteenth century, when the continually
increasing rates were accompanied by a falling off in
revenues, many began to question the efficacy of the tariff
system then in force. The agitation which arose soon
began to produce results, and about 1820 duties were re-
moved to some extent from raw materials and food prod-
ucts. Again, in the early 'forties, rapid strides were made
hi the reduction of duties, and the final work was com-
pleted by 1860. Since that time attention has been
directed to the fiscal considerations, with the result of
securing practically as much revenue as before the reduc-
tion of duties, The list of taxed objects is small, and the


system works in coordination with the excise taxes by
which duties are levied upon materials which are also of
domestic production. Import duties are levied upon a
few other commodities which are not produced at home,
such as tea, coffee, raisins, wine, and tobacco. The ma-
jority of the revenue is secured from liquors and tobacco.
As a whole, the system is simple and productive, and has
received but a small amount of criticism.

in. Other Countries Have Used Tariffs for Industrial
and Fiscal Purposes. The use of some form of customs
duties is almost universal. In scarcely any countiy, how-
ever, is such undivided attention paid to the fiscal results
as in England. In France the list of articles taxed is large,
and the intention is to secure results other than fiscal.
Food products, raw materials, and manufactured products
are taxed, on some of which the rates are so high as to
give practically absolute protection. The bulk of the
revenue has come from comparatively few commodities,
as coffee, sugar, corn, petroleum, and wines. There is no
attempt to correlate the customs duties with the internal
revenue duties, as is done in England. The present system
really dates back to 1791, for it is that law, with modifi-
cations, usually for political or industrial rather than fiscal
purposes, that is the basis of modern French tariffs.

The Italian duties, with a history much shorter than
that of France or England, are nevertheless strongly de-
veloped. Duties upon articles of necessary use form the
central part of the system, consequently the burden falls
heavily upon the poorer classes. The German system
represents a growth from the customs union which was
formed before the political union of the German states.
The system is characterized by a strong protectionist
sentiment which has been directed toward such a diversi-
fication of industry so as to make the country self-sup-
porting. A majority of the revenue which is received
comes from comparatively few commodities, such as corn,
coffee, wine, and tobacco.
If other countries were reviewed the same situation
would be found the use of a tariff system which seeks to
combine fiscal, industrial, and political ends. In all the
countries export duties, which in the earlier development
occupied a comparatively important place, have been
practically abandoned.

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