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Popular Science Monthly/Volume 74/May 1909/Tariff Revision from the Manufacturer's Standpoint I

TARIFF REVISION FROM THE MANUFACTURER'S STANDPOINT[1]
By Dr. A. B. FARQUHAR,

YORK, PA.

My experience as a manufacturer for more than half a century, an exporter and writer upon economic questions for about forty years, enables me to unite practise with science in demonstrating the truth of what I shall say to you.

The manufacturer's occupation, in common with most other occupations, has for its object to make money. As a social factor, his function is the elaboration of material, to meet the increasingly complex needs of a continually advancing civilization; but that and all else has to be subordinated, from a business man's point of view, to the endless task of investing smaller quantities of money and realizing larger; the difference of those two sets of quantities measuring his success or failure. He is a constructor incidentally—essentially he ia a merchant. His great study is how to buy cheapest and sell dearest.

The tariff, considered as protective, is contrived and constructed with the single purpose of aiding the producer to sell dear. That aid is extended in part to production of mere raw material, but mainly to that of more elaborated articles, and the manufacturer has accordingly been always regarded as its chief beneficiary. Nor can manufacturers in general be fairly charged with ingratitude for the assistance it so graciously accords them in holding the hands of their customer while they rifle his pockets. But this grateful sentiment, though general, has never been quite universal; and the discordant voices, in the prevalent harmony, have of late grown more numerous than ever. The reasons for this—why the manufacturer is coming more and more to regard the tariff as not quite the most precious friend he has in this cold world—are, after all, very simple indeed. First, he comes to find, as his skill and facilities for production increase, that there is more profit in the greater number of sales to be had at a moderate price than in the smaller number at a high price, so that the ability to advance the price of his goods is, beyond a certain limit, no favor to him. A second and more important reason is that his interest is as much involved in buying cheap as in selling dear, and his "raw material" is always the finished product of some other producer, whose profits the tariff in creases, just as it increases his, by adding to the price of the article sold. Thus the same agency that helps him at one end hinders him at the other, and the hindering is usually greater than the helping. Why? Not because the tariff rates are proportionately greater on the material he buys than on the wares he sells, for they are in most cases less; but because an}i:hing that forces him to charge a higher price for his products in order to get the same profit from the manufacture and sale of each, must at the same time diminish the number he can sell. The wise manufacturer, like other sellers, looks for "small profits and quick returns," but returns are not quick when even a small profit necessitates a high price.

There are additional reasons, worthy of consideration, why the tariff is no such aid to manufacturers in general as it was designed and is claimed to be. It is not possible to depend for success on the favor of any government, autocratic or popular, and at the same time lead as vigorous and normal a career as when independent. One eye must be kept all the time on the business, and the other eye on the seat of authority—St. Petersburg or Washington. Part of the savings must be spent in keeping friends at court, or a lobby in the national capitol; or a subsidized press. Every congressional election must bring a fresh expense—a "frying of fat," as one United States senator termed it. But besides this waste of power, the cause in which it is incurred must suffer to an incalculable extent from the corruption which often attends (and is always suspected, whether discovered or not) the enactment of legislation from which individuals may derive a profit. Any deterioration of political morality tends to lower the self-respect of every citizen, and hurts business by lowering the public credit on which it is based. There is no proof that revisions of the tariff have been undertaken for the sake of the rewards that might be secured by those in charge of them, from the "favored industries" whose fortunes they are so powerful to make or mar; and probably there have been no such strokes of legislative enterprise in our history. But it is interesting to observe that the "friends" of the tariff, in whose hands we are so often exhorted to leave the entire office of amending it, have actually made a great many more revisions, generally upward—done many times more "tariff tinkering"—than ever have the friends of the mass of the people who bear the tariff's cost. The next revision will also be of the same character—by the friends of the system.

It is dangerous to invade the citizen's natural rights. The privilege enjoyed by some producers, of having all others taxed for their profit, delightful though this privilege may be to the possessor, is not a natural right, nor can years of undisturbed possession make it so. But the right to buy wherever one wishes to buy at the least attainable cost is one of the natural rights. The question of liberty of purchase is the same as of liberty of any other kind. There are the same excuses for restricting it, the same motives for maintaining it. To be sure, there is something better than any liberty in an unquestioning submission to a higher guidance; greater than being our own master is unshaken loyalty to God as our master. Yet in practise, all attempts that have been made to find a ruler of a state, whose government could be in like manner better and greater than free citizens, government of themselves, have proved failures, and personal liberty remains a natural right—not because "the voice of the people is the voice of God," but only because of the imperfection of every accessible substitute. Perfect wisdom, we may readily admit, would easily guide us to purchase more wisely, and make a better selection of persons to purchase from, than is possible to our free choice; but it is absurd to look to the authors of tariff laws for such perfect wisdom, and our natural right remains. The country's defense occasionally calls upon its citizens for sacrifices of personal liberty, and may call sometimes for sacrifices of the liberty of purchase as well as other liberty. But to make the rare occasions when sacrifices are needed for defense an excsue for a perpetual infringement of this natural right—liberty of purchase—is preposterous. To maintain an oppressive tariff for such a purpose would be ridiculous, if it were not tyrannical. The only difference between this liberty and other liberty—an adventitious and not essential difference—is the facility with which the argument from patriotism may be applied against it. Yet in every such application we must see a confusion of thought, or exhibition of ignorance, unless we leave out of view the necessary reciprocity of international trade. Imported merchandise must about equal exported merchandise in value, unless there is an exceptional demand for specie in the country trading, or in some country trading with it, or unless the payment is made in service instead of merchandise in value, unless there is an exceptional demand for specie in the country trading, or in some country trading with it, or unless the payment is made in service instead of merchandise. The British, for example, always import a large excess of merchandise because they have a large credit balance abroad, from their services in ocean carriage, yielding five hundred millions annually, and even more from interest on foreign loans. Our own country, on the other hand, having "protected" its ocean merchant-marine to death, must export an excess of merchandise to pay for carriage both ways, and must also pay a heavy interest bill to foreign investors. The important point is that there is always a practical equality which our import taxation system can not disturb. Hence it follows that the so-called encouragement to foreign labor and enterprise in buying an article made abroad, is at the same time an equal encouragement to labor and enterprise at home required to produce the merchandise that is to go abroad to pay for it. It follows, also, that if we make ourselves, as is alleged, dependent on some foreign country by buying from it something that may be needed by us in warfare, we make some foreign country dependent on us in the same act, for the commodity we must send abroad to effect the purchase.

Perhaps the most important condition of prosperity, to manufacturing and all mercantile business, is "Peace among ourselves and with all nations." There can be no reasonable doubt that continually shaping our policy with a view to possible war has a tendency to provoke war, among nations as among individual citizens; while the endeavor to increase the interdependence of nations, as of citizens, is a potent agency for peace. Free trade is thus a long step on the way toward universal peace, and as such it accords with the interests of mercantile business, as with the aspirations of all who believe in the Sermon on the Mount.

The question of the true interest of the manual laborer, too important to pass without a mention, is also too wide for adequate treatment within the limits here permissible. All other considerations might be banished from the problem, when once we convince ourselves which way the interests of the toiling millions point. If their interests demand a high protective rate of import duties, we might feel justified in adopting that policy, however objectionable it appeared on other grounds. But there is no real reason for separating the interests of the manufacturing operatives from those of their employers, and every business which would draw larger profits from cheaper raw materials and greater sales of cheaper finished products, would be sure to have more to pay its laboring men. As to the many times larger number of laborers in occupations not protected, because not subject to foreign competition or because able to meet it on its own ground by exjx>rting, it is difficult to see anything but clear gain in the reduction of tariff duties for them. The most important of such occupations is the agricultural. Free trade is clearly to the advantage of the farmer, and whatever helps him will help those he employs. Every workman, in whatever calling, must be benefited by increasing the purchasing power of his wages, and the demand for labor in general must be increased by opening new markets abroad.

Some people pretend to believe, and some others may really believe, that free trade between countries having different wage-rates per day will tend to equalize those daily rates; but that is a fancy that finds no support in the realm of fact. It might be so if a day's work were everywhere under similar conditions and equally effective in production; but that has never been the rule, and with the increase of machinery it is becoming less and less the rule. The great difference in wage-scales prevailing in different sections of our union have established themselves and grown wider in the face of complete free trade throughout; the higher wages paid in Great Britain, with lower average cost of necessaries of life, as compared with all other countries of Europe, accompany a policy of free trade, and have advanced with it; the protective system of the republic of Mexico or the continent of Europe has had no effect in improving the condition of laborers there; and—no end of instances could be brought to show that the supposed tendency does not exist. The only way to make out that it may exist is to ignore every test by facts. Wages are high in this country, for several good reasons; but a protective policy is not among them. Yet men even so intelligent as the manufacturers who appeared before the Ways and Means Committee, joined in protesting that they could only maintain their business, in the event of lower duties, by lowering their rate of wages. Unquestionably a lower price for the product, unless accompanied by considerably larger sales, argues either a lower total profit or a reduced cost of production; but why should these manufacturers look for their saving only to the payroll? Would they have us believe they are now paying their workmen more than the competition of other employers compels them? Or is their first thought always, in case of a business loss, to take it out of their men? As has been shown, they could not if they would.

There are positive reasons, moreover, for believing that a stronger demand for the services of the laboring man would naturally follow when we put our trade and industries into a more normal condition. It would be a benefit, surely, to cease to discourage the higher grades of industry by making their raw materials dearer. Even the protective nations of Europe—Germany and France and Italy—as well as Great Britain, adopt the expedient which Alexander Hamilton emphatically recommended as an encouragement to manufacture, admission of the raw material free of duty. Such a piece of barbarous stupidity as taxing the importation of raw wool, for instance, never occurs to European nations, although they raise many sheep. Nor do they put a penalty on shoe wearing by a tax on hides, or a premium on forest waste by barring out lumber. Again, we learn from the experience of Germany that lowering the duties on food is followed not only by a reduction in the laborers' cost of living, but by an increase in the government's revenues, and by increased merchandise exports, thus conferring a triple benefit. For another instance, we see the two Australian colonies. New South Wales and Victoria, characterized until 1901 by a difference in fiscal policy, adopted some thirty years before, and we find the free-trade colony, at first in the rear, now taking the lead in amounts manufactured and in income per capita. Once more, we are reminded by a prominent member of the British Parliament that in the twenty-eight years following 1879, when the Cobden treaty with France expired and when Germany definitely adopted a protective system, exports of British merchandise not only increased, but increased by a much greater amount, than during the thirty years that preceded; thus proving that free trade encourages exports, not only when other countries reduce duties at the same time, but also when the whole world appears arrayed against it. The reason of this tendency of free trade to advance industry, as I pointed out, in an address before the International Free Trade Congress in London last summer, is "that every agency for reducing and obstructing importations must at the same time, a little less directly but precisely as powerfully, obstruct and reduce exportations."

It is altogether fallacious to treat the interest of the manual laborer as if it were something apart from that of the people as a whole—as if it were not practically identical with that of the consumer generally. Yet it seems peculiarly absurd to sunder the two in this case, because the main interest of the consumer, in cheaper and more abundant production, is one that necessarily and especially involves a great and steady increase in the demand for labor. That helps us to understand what so puzzled our great-grandfathers, the tendency of labor-saving machinery to bring prosperity instead of ruin to the working people. Free trade, now feared on exactly the same grounds as our ancestors feared labor-saving machines, will be sure to work the same way, as is proved by the last half century of English history.

A pretended connection of low-tariff legislation with panics and hard times has again and again been brought forward to befog the people's minds. It might be thought that the example seen a year and a half ago, of a business crisis occurring under the untrammeled sway of unmitigated Dingleyism, would cure any such notion. But since custom seems to devolve upon the tariff reformer the duty of accounting for all financial crises, it is worth while to say that the best explanation of that of 1907 appears to be the unnatural stimulus to protected industries given by the Dingley tariff, resulting in overproduction and a consequent glut, with which the inelastic currency system still surviving to curse our country was powerless to cope. But we must limit this degree of connection: if people are diligently enough taught to regard anything—no matter what—as the cause of panics, the appearance of that thing will produce a panic as the direct effect of the teaching. There is hardly even that connection between political economy and political boundary lines. It is everywhere conceded, probably, that a free exchange of goods is a benefit to our citizens throughout our northern territory, as far as the Canadian border. But why should there be an abrupt change across that artificial line, where conditions—except the color of bunting floating from buildings—are all the same? This reminds me of an old story of a German who lived, or thought he lived, in Pennsylvania, before the boundary was settled by Mason and Dixon. The border line, which he had believed to be just south of his house, was finally fixed a few lines north, and Hans was told that he now lived in Maryland. He replied: "I'm very glad of it, for I am told it is warmer in Maryland than in Pennsylvania."

The tariff, like national questions generally, ought to be settled on the broad ground of principle. Fundamentally illogical, it is clumsy as a means of raising revenue, incurably inequitable in its application to the business of the country, corrupt and demoralizing in the way it is made into law, in the relation it forms between the government and the citizen, and in its creation of vested rights that too soon become vested wrongs. Hence arises a natural difficulty in discussing such a subject. Tariff revision? The only suitable revision is to revise it out of existence, except upon luxuries and articles coming under internal revenue taxation. It is difficult, also, to give serious attention to a complicated scheme of what Bastiat has so happily called "negative railways"—duties whose sole object is to increase the "friction of exchange," to heap up obstacles to commerce in the place of those which railways, steamship lines and good roads are provided and constructed to remove.

Considerably more force might be given to this general discussion by taking up some individual articles, such as iron and steel, or borax, or lumber, or wool, or hides, and applying the argument to it alone. Or a particular manufacturing business might be taken, as agricultural implements, or shoes, or carpets, and the effect of protecting its raw material be individually considered. Although the general principle applies throughout, it is quite natural that its illustrations should be easier to draw, and clearer to see, in some lines than others. Particular cases have been the theme of the weeks recently spent, and pages on pages printed, in the investigation by the Ways and Means Committee of Congress. With a general impression that that committee is likely to do as little as it can, it may nevertheless be fairly complimented on the interesting body of testimony it has heard and published.

Since the problem of tariff revision, here and now, is largely one of psychotherapy—how to "minister to a mind diseased"—since the only evil in tariff reduction is a direct result of the expectation of evil from it, just as panics result from a disappearance of confidence—the Ways and Means Committee method of looking for a solution may not be so hopelessly bad, after all. It is of vital concern to escape the general panic that might follow from the conviction of many men that lower duties would play havoc with them; and it is therefore proper enough to see and hear those men, and thus ascertain how delicately cases like theirs must be treated. Individually, no doubt, minds of this type are as little significant as the separate organisms that are collectively the cause of trichinosis, or typhoid, or cholera; but, like the same weak or undeveloped organisms, their number may be enough to give them a grave importance. Among the things that were with certainty predicted of this Ways and Means inquiry was that it would not recommend or introduce any measure that would reduce the percentage of protection to the excess of labor-cost of production in the United States over that in Europe. This certainty comes from two sources: first, the difference in a large number of cases, even of high-protected articles, is the other way. The foolish assumption that a difference in wages per day means a precisely similar difference in labor-cost of articles produced, deserves hardly the honor of a refutation; for a real index of the fact, we can not do better than note, as did Mr. Carnegie, who is probably the best living authority on the subject, the confessed profits of the U. S. Steel Corporation: $133,000,000 net in 1907, on 10,000,000 tons of steel. They thus cleared $13.50 per ton, which, deducted from the selling price, leaves a cost-price lower than can be equalled in any country in the world. Every penny of that $13.50, above the "reasonable profit" that the world's competition would allow, is obviously a gratuitous bestowal of the people's money upon the trust; but our present concern with it is as a conclusive demonstration of lower labor-costs here than in Europe. The same is true, to a less striking extent, in the case of every product which is freely exported from this country. A second reason why we know that the committee will not apply this difference-in-labor-cost criterion is found in the absurdity of the principle itself. The little boy in the story, whose sympathies, in viewing a picture of Daniel in the den of lions, were especially called out by "that poor little lion in the corner, that was not going to get any of Daniel," seems particularly absurd when we first hear of him; but he was quite a master in protectionist logic. This criterion of labor-cost shows a very nice regard for the equities among the lions who are to feed on Daniel, and no regard for the prophet himself.

It would be interesting, also, to discuss the tariff before a scientific audience, as a purely scientific question, in a scientific way. This would involve, probably, an examination of the evolution of a national policy from a community policy, showing how each development on the larger scale had been long preceded by a similar development on the smaller. The question of division of labor, among members of a tribe, was probably as hotly discussed in its day as is the question of promotion or suppression of foreign trade in this; and quite possibly the arguments then made, on the one side and on the other, were very similar to those we now hear. The reason why no record of this ancient debate remains for us is doubtless that the decision was so complete and conclusive that it passed in a short time beyond the field of controversy; and so we may hope for the question of to-day—when the present pleas for industrial independence of nations shall have gone to join the old time pleas for industrial independence of families, just as we expect national wars and war preparations and war policies to follow into obsolescence the continual tribal wars and hostile proceedings of the past.

  1. This and the following papers on tariff revision were presented before Section L—Social and Economic Science—at the recent Baltimore meeting of the American Association for the Advancement of Science.