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MODERN TARIFF HISTORY
GERMANY UNITED STATES FRANCE
MODEEN TAEIFF HISTOEY
GERMANY-UNITED STATES-FRANCE
BY PERCY ASHLEY, M.A.
WITH A PREFACE BY
THE RT. HON. R. B. HALDANE, LL.D., K.C., M.P.
AUTHOR OF "THE PATH WAV TO REALITY," ETC.
LONDON
JOHN MURRAY, ALBEMARLE STREET
1904
LIBRARY
UNIVERSITY OF CALIFORNIA
SAiNTA BARBARA
CONTENTS
PART I
GERMANY
CHAPTER PAGE
I. THE FORMATION OF THE ZOLLVEREIN . . 3
II. THE BEGINNINGS OF PROTECTION AND THE FIRST
CRISIS . . ... 20
III. THE SECOND CRISIS AND THE COMMERCIAL
TREATIES . . . 35
IV. THE ZOLLVEREIN AFTER THE TREATIES THE
COMPLETION OF FREE TRADE AND THE RE-
ACTION . . . 48
V. THE ATTITUDE OF THE ECONOMISTS . . 63
VI. GERMAN COMMERCIAL POLICY TO 1894 . . 78
VII. THE REVIVAL OF THE PROTECTIONIST MOVE-
MENT, AND THE NEW TARIFF . . .100
VIII. RECENT ECONOMIC DISCUSSION IN GERMANY . 113
A BRIEF BIBLIOGRAPHY . . . 137
PART II
THE UNITED STATES
I. THE ORIGINS OF AMERICAN COMMERCIAL POLICY 141
II. THE GROWTH OF PROTECTION AND THE COMPRO-
MISE OF 1833 . . . i 60
III. COMPROMISE, PROTECTION, AND REACTION ECO-
NOMIC DEVELOPMENT OF THE UNITED STATES
TO 1860 . . ... 175
IV. WAR TAXATION AND ITS RETENTION FOR PRO-
TECTIVE PURPOSES . . . 193
vi CONTENTS
CHAPTER PAGE
V. POLITICAL PARTIES AND THE TARIFF ECONOMIC
PROGRESS OF THE UNITED STATES TO 1890 . 212
VI. THE NEW THEORY OF PROTECTION AND THE
McKiNLEY TARIFF . . . .225
VII. THE WILSON AND DINGLEY TARIFFS . . 239
VIII. RECIPROCITY UNDER THE AMERICAN TARIFF
CONCLUSION . . . . . 252
A BRIEF BIBLIOGRAPHY . . . 263
PART III
FRANCE
I. FRENCH COMMERCIAL POLICY FROM 1789 TO 1830 267
II. THE MONARCHY OF JULY . ... 284
III. THE SECOND REPUBLIC AND THE SECOND EMPIRE
THE COMMERCIAL TREATIES . . . 296
IV. COMMERCIAL POLICY, 1870-81 . . . 313
V. THE MOVEMENT TOWARDS PROTECTION FOR AGRI-
CULTURE THE FRANCO-ITALIAN TARIFF WAR. 327
VI. THE TARIFF OF 1892 AND SUBSEQUENT DEVELOP-
MENTS THE FRANCO-SWISS TARIFF WAR
CONCLUSION . . ...
A BRIEF BIBLIOGRAPHY . ...
INDEX . . . ... 361
PREFACE
THE year 1903 will be a memorable one in the
history of British politics. After a period notable
mainly for its lack of interest a stirring controversy
arose. Sides were taken violently, and families
were divided. The line of party cleavage was
destroyed. There was as much bitterness within
the ranks of the Conservative party as there had
been, seventeen years before, within the ranks of
Liberalism about Home Rule. And yet, as in the
latter case, the split was over no novel topic. In
both its economic and its Imperial aspects the
proposition which convulsed politicians and dis-
tracted statesmen had been made many times
before. What was fresh was only this, that a
protagonist of the first order had come on the
scene, a minister of commanding personality and
great energy. He declared himself converted to
the necessity of the new policy, and it was not
long before he found at least half the Unionist
party at his back. It is not Mr. Chamberlain's
way to do things by halves, and in an incredibly
short time he had founded a powerful organisation
to support and develop his idea. There were
viii PREFACE
meetings everywhere, and people could talk of
nothing but the fiscal question and its bear-
ing on colonial policy. The British public took its
usual course. It delights in the spectacle of a
strong man fighting, and it showed its pleasure
in rounds of applause. But this could not con-
tinue. In its heart the public hates everything
sudden, especially when it takes the shape of an
abstract proposition. What was put before the
country, the eloquence and energy of the pro-
tagonist notwithstanding, was propounded both
suddenly and in an abstract form. People began
to ask about the cost, and then to grow suspicious
and sulky. The by-elections became ominous, and
even London club enthusiasm flattened. At first
the prejudice had been unduly for the policy.
Later on it became markedly against it.
The final opinion of the nation still remains for
delivery ; the time for judgment has not yet come.
Speculation as to what that judgment will be
when the British mind has mastered the argument
on both sides lies beyond the purpose and scope
of these pages. One thing is, however, certain.
Much good has arisen from the fact that men and
women have been forced to bend their minds on a
topic of momentous importance, and to think as
closely as they are capable of doing. We are
inclined by our national character to avoid sharply
defined issues, and to evade them by middle
courses. Here, protestations to the contrary not-
withstanding, it quickly appeared that no middle
PREFACE ix
course could be anything but a hollow makeshift.
Then there came about another good thing. The
public began to feel that platitudes were of little
weight on either side of the argument. In the
early stage of the controversy they were as
abundant as is usual in such discussions. Presently
the necessity of precision in reasoning and of
accuracy in figures and in materials became ap-
parent. The expert rose in the popular estimation,
and even the political economist assumed an heroic
aspect. The works of Adam Smith, of Friedrich
List, and of other great students, began to be
displayed in the booksellers' windows. Then
there were signs of something further. The public
grew discontented with arguments and conclu-
sions, however eminent their authors, which be-
longed to days that were past. There arose an
almost feverish desire for a more modern presenta-
tion of the case on both sides, a presentation that
should bring it up to date. People began to
realise that the conditions of commercial and indus-
trial competition had become vastly developed.
They grew dimly aware that the controversy was
of dimensions even further reaching than they had
surmised. They learned that the problem had for
a century past been occupying the attention of
acute minds abroad, with the most varying and
far-reaching results to national policy. They
began to see that political as well as economic
aspects had been and must be taken into account.
In other words, the problem for Great Britain
x PREFACE
began to display itself as highly complex and full
of ramifications, a problem on which the analogy
of other countries with different political and geo-
graphical conditions could at best throw a very
dim light. It became apparent that the most
careful scrutiny and weighing were at every point
essential. The difficulty of counting the cost of a
sweeping change in economic policy became every
day more obvious. And yet it was equally ap-
parent that the problem of how to bring the
machinery of the Empire up to date was a real
problem. How to make up his mind grew for the
man in the street a question of much greater diffi-
culty than he had at first thought. Yet there
remained, and remains, the irony of the situation.
He has got to make up his mind, and to say
" aye " or " no " to those who have presented to
him the question for decision.
Such seems to be the nature of the present
situation. Fortunately there is no hurry. It
would be disastrous were it otherwise. The
public is showing that it means to have full
materials before it finally pronounces. It is be-
ginning to give a preliminary indication that it
regards the question as a twofold one : first, is
change necessary? second, ought it, if necessary,
to assume the form of renunciation of the freedom
which we have to-day of buying where we please
at the cheapest rate, and selling where we can
in ever - increasing markets? For the necessity
of bartering goods for goods in growing quan-
PREFACE xi
titles is, on balance, ever causing the markets to
grow, Protective duties notwithstanding. More-
over, logically at least, an alternative is possible.
The needed reform of the machinery of the Empire
may be capable of being effected in an altogether
different fashion. Such seem to be the alter-
natives in the end of the year 1904. To discuss
them fully would be outside the purpose of this
book. I have referred to them only in order to
show in what relation the book itself stands to
them. As I have already reminded the reader,
our problem in this country is original neither on
its economic nor on its political side. Germany,
the United States, and France have all considered
it. The analogy of their cases can help, regard
being had to their differing geographical and other
conditions, but to a limited amount our judgment
about the British case. But there is much that
is in the highest degree instructive in the other
cases, if they are examined by an adequate method.
That method can be one only the historical
method. By the historical method I mean the
plan of examining the state of things that has
to be inquired into in connection with its past,
and in the light of all materials which can show
why and by what steps it has come about. Such
a method has become familiar in this country ;
for example, in the study of the constitution,
which we all agree can be understood and esti-
mated adequately only by the aid of its history,
Sir Henry Maine and other writers have applied
xii PREFACE
the method with conspicuous success to institu-
tions of a different kind, mainly juridical. In
Germany the method has, however, been applied
to the study of economics with a thoroughness
that has not been attained here. The result has
been great reluctance on the part of German
thinkers to treat the question between Free Trade
and Protection as an abstract one a reluctance
which has its parallel in that which makes English-
men refuse to regard such questions as those that
have been raised over the monarchy, or the theo-
retical perfection of our unwritten constitution as
practical questions. These are before us as insti-
tutions which have grown up, and are likely to
be altered only by a process of growth. Can the
economic tradition of the last half -century be
regarded as open to reconsideration by Great
Britain more readily than modern German econo-
mists, such as those of the school of Schmoller,
allow the corresponding fiscal condition of Germany
to be open to reconsideration ? Must we not regard
it as incumbent on us to take a very wide survey
of the past as well as the present before we jump
at conclusions as regards the future ? Is the
problem, or is it not, conditioned by considerations
of policy and of geographical position, as much
as the problem has been thought to be by foreign
statesmen who have had to deal with a past and
a present differing from ours in material respects,
and with people whose genius is different from
ours?
PREFACE xiii
These questions and others of a kindred nature
arose in my mind a year ago, when I had to try to
make as unprejudiced a reconsideration of the fiscal
question as a politician is capable of. I wanted
to examine the new political issue in this spirit,
and I was so fortunate as to have the co-operation
of the author of this book. Mr. Percy Ashley
had been working as an economist at kindred
problems ; he was in a more detached position
than myself. After twelve months of discussion
and joint reading we found we had collected a
mass of material a fragment, no doubt, of the
whole, but enough to make us feel that we knew
better than at the outset where we stood. I sug-
gested to Mr. Ashley, who had already con-
templated lecturing on these subjects in the
London School of Economics, that he should write
an introduction to the study of this problem, as
it had arisen in Germany, in America, and in
France, based on a strict application of the his-
torical method. He made the suggestion that
I should write something by way of introduction
to his introduction. As we had been working
continuously together, I agreed, not because I felt
I could add much, but because the outcome of
our joint studies had made me feel that we were
of one mind, and had got materials together which
were worthy of a little attention. Such essays as
this abound in Germany. Here there are distin-
guished economists who have done similar work,
but there has been little encouragement given to
xiv PREFACE
them to throw the results of their labours into
a popular form.
I have stated the origin of the investigation
which is recorded in the pages which follow, and
have described the spirit in which the endeavour
was made to conduct it. The book is, of course,
no more than an elementary one. It should, how-
ever, serve to show people that there are three
large fields of historical study which cannot be
safely neglected by anyone who wishes to arrive
at conclusions of any value about the wider
aspects of the new policy. The essay should also
serve to remind the public how vain it is to jump
at conclusions based on current opinion in foreign
countries. As well might we draw the inference
that we should substitute for our own constitution
that of the United States or Germany because
they are prosperous under their political arrange-
ments. Their histories and their needs and the
conditions of their development are not as ours.
If we look at the economic past of these coun-
tries in detail, the danger of rash inference becomes
obvious. The German Empire has been developed
out of a mass of small states, each possessing its
own tariff arrangements. Unity had to be bought
at a price. That unity was largely based on
internal free trade given in exchange for external
protection. An immense army had to be provided
for the defence of a land with extensive frontiers,
a land which had France on one side and Russia on
the other. Internal sources had to be maintained
PREFACE xv
from which could be drawn a race of strong
soldiers, and an adequate home food-supply in
case of war. This meant that agriculture had to
be artificially fostered and protected. The alterna-
tive of command of the sea could be no alternative
for Germany. The spirit of militarism, if it was
necessary that it should continue to be dominant,
must largely affect both the form of the constitu-
tion of the German Empire and the fiscal and
industrial policy of her rulers. Yet the course has
not been a plain one. The ominous growth of the
Social Democratic party, and the division of
opinion among German statesmen and economists
in recent years as to which of two kinds of evil it
was better to accept in the interests of national
safety, has caused much uneasiness. To-day a
majority of their economists remind us, at times
impatiently, that they too have studied Adam
Smith, and know the argument for Free Trade in
England. But they add that England is not Ger-
many, and that for Germany other considerations
have to be taken into account besides those of how
wealth may be best produced and distributed.
Readers of the essays by prominent writers which
are published from year to year in Professor
Schmoller's Jahrbuch know how often irritation
is shown over the advice which we are so fond
of giving to our foreign neighbours. But not less
striking is the recognition that protective duties
are dangerous instruments, and the opinion, very
generally expressed, that we have been lucky in
xvi PREFACE
being able, by our position as a sea power, to be
rid of them. Even List declared such duties to
be of a merely temporary value, and looked forward
to a time when Germany might be as able as
England to be free of them. It was to the self-
confidence of Cobden, rather than to his principles,
that List took exception. When writers like
Professor Wagner point out that British commerce
shows signs of stagnation, they are careful to insist
that this has little or nothing to do with Free
Trade, and that the same symptoms will inevitably
develop themselves in German commerce when
it reaches a similar state of development. The
world is producing for itself now, and no nation can
hope to keep a monopolist position. That is one
of the lessons which the historical method teaches,
and a Protectionist writer like Wagner frankly
tells us that it is not on the ground of commercial
advantage, but despite commercial disadvantage,
that he wishes to put restrictions on trade liberty
in order to keep agriculture in Germany pros-
perous in the interest of the safety of the empire.
In one conclusion, however, the majority of German
writers seem to concur. They declare that the
system of duties in Germany is in danger of being
abused through the undue influence of the manu-
facturers. Protection may be, they think, a useful
servant, but it is a very bad master. It leads
to officials being subjected to pressure from the
capitalists.
Much as we may have to learn from Germany
PREFACE xvii
in other spheres, we seem to have nothing to envy
here. At best she bears her burden cheerfully in
the interest of what she considers her own safety,
with the aim of being, as far as she can be, self-
sufficing. But she is under no illusion about the
fact that she has had a price to pay, and that a
growing political party is grumbling about that
price. What we have to admire is the wonderful
faculty of organisation which has enabled the
nation, by the application of science to its indus-
tries and by such steps as the taking control of its
railway system, to reduce its difficulties to a mini-
mum. The story of the protective movement in
Germany is summarised in the eighth chapter of
the first part of this book. Anyone who wishes to
find the strongest statement of the case for Pro-
tection from its German champions cannot do
better, after going through the first part, than to
read through the short treatise lately published by
Professor Wagner under the title, Agrar- und
Industriestaat. But how far the conclusions of
that treatise are from receiving general acceptance
he will speedily discover if he turns to the writings
even of those German economists who favour a
tariff for " big revolver " purposes. And if he
goes still further and looks into the arguments of
yet another group, he will find that they look on
the " big revolver " as not only a dubious posses-
sion in point of utility, but as a drawback to its
possessors in matters that are of vital importance.
The story of the tariff movement in the United
xviii PREFACE
States is a wholly different one. Considerations of
national defence have, of course, had no place in it,
at all events for a long time past. But the protec-
tionist traditions which arose in the end of the
eighteenth century under the influence of Hamil-
ton have retained a deep hold. The reasons are
not difficult to discern. The United States possess
an enormous and still growing home market, which
diminishes the importance for the Republic of
foreign commerce. The country produces its own
food in abundance. The tariff question in Ameri-
can politics has not, like the tariff question with
us, been dwarfed in importance by other topics.
On the contrary, it has been throughout one of the
most important issues with which Congress has
been called on to deal. The result of this has
been that the manufacturers have brought influ-
ence to bear in a fashion which has no parallel
in this country. To the manufacturers Protection
has undoubtedly afforded facilities which they
could not have had without it. By means of the
tariffs they have been enabled to develop the
trust system to an extent which would have been
impossible in the face of free competition. Of the
effect of this on the public mind in the United
States it is not easy for a foreigner to judge. But
there are indications that the very independent and
practical mind of the nation is becoming disposed
to inquire into the utility of these huge monopolist
organisations more closely than before. It would
probably be very difficult to bring the mind of the
PREFACE xix
American people strongly on the side of Free
Trade. They have not had occasion to feel the
want of it. Yet it would probably be still more
difficult to get that people to agree in stating the
principle on which the defence of their protec-
tionist system rests. The impression one gathers
from the study of such books as Taussig's Tariff
History is that the United States have gained, at
all events in recent times, nothing at all by Pro-
tection, and that they would be just as well off
to-day had their system been a Free Trade one.
Apart from the disturbing effect on the individual
manufacturer of the trust, the cost of production
has been greatly raised under the American tariff
system, to the serious detriment of certain great
industries, such as shipbuilding. What is clear
is that in the case of America also no analogy
presents itself which could be usefully followed by
Great Britain from an economic standpoint.
France presents to the eye of the student of
finance a spectacle which is by no means satisfac-
tory. The inference which a study of her economic
history suggests is that she has suffered so severely
from want of liberty to buy when her people best
could, that but for an exceptionally fertile soil
she would have been to-day in a very serious
position. The story is told by Mr. Ashley in the
last part of this volume, and I shall not try to
summarise it. Unlike Germany, and like our own
country, she has a great seaboard, and might have
had a great foreign trade, with a consequent
32
xx PREFACE
development of her home industries. She has not
been hampered by the geographical conditions
which have played their part in determining the
rulers of Germany to subordinate considerations of
economic development to those of national defence.
She has throughout been able to look to sea power,
in large measure, at all events, for the protection
of her avenues of food-supply on north, on west,
and on south. So far as a foreigner may presume
to form an opinion, she would have been better off
throughout under a Free Trade system. Her
people possess great intelligence, industry, and
adaptability, and she has large supplies of raw
materials. But the class influence of the manu-
facturers on her politics has been immense, and she
has had to pay for this. Her history is a striking
illustration of the tendency of a protective system
to get the upper hand, and, having got it, to
keep it.
I come back to the case of Great Britain. Are
we, then, it will be asked, satisfied that we live and
compete under the best of all possible conditions ?
Do you say that there is nothing which remains to
be done ? My answer is in the negative. To me
it seems that what has emerged from the discussion
which has been raging for more than a year is that
there is much room for reform. But in the case of
a small island with a great seaboard, and with a great
national capacity for command of the sea, protective
remedies seem to me to be no remedies. I do not
lose sight of the considerations that weigh on the
PREFACE xxi
minds of many thoughtful people. The burden of
the Empire and of its defence is growing, and
must in time outstrip our resources. We cannot
hope, unless aided by the over-sea dominions of
the Crown, to be able permanently and adequately
to watch over their safety.
We have no longer the monopoly of days gone
by. Foreign countries have developed not only
their manufactures, but their fleets and armies.
Great as has been the growth of our national
wealth, our comparatively small home population
has, so far as capacity for manufacture is concerned,
probably got near to saturation point. But can we
infer that it is possible to bring the subjects of the
Empire within an economic ring-fence, such as the
geographical conditions of Germany and the United
States have made possible ? Our loose-jointed
Empire, loose-jointed in area and in constitution
alike, does not seem to admit of this. Its history
reminds us that its cohesion has rested on just this
looseness of jointing ; never on mechanical devices,
but always upon the simple co-existence of
common purpose and sentiment with the most
complete local liberty. What is has not been put
together from without. It is the result of a pro-
cess of growth. When I consider two things the
first, the extreme difficulty of avoiding the friction
arising from the want of local liberty which every
tariff system tends to bring with it ; the second,
the impossibility of counting, for a country so
peculiarly conditioned as is ours, the economic
xxii PREFACE
price which must be paid if we part with the exist-
ing liberty of buying and selling I feel misgiving
about the new policy. Its risk is tremendous, and
what is risked is nothing short of the cohesion of
the Empire. Surely the burden of proof rests
heavily on those who invite us to leap with them.
Vestigia nulla retrorsum !
There seems to be another way along which one
can see further. For the sake of the Empire, as
well as for our own sakes, we must seek to develop
the wealth of the islands which form the centre of
the Empire, and to expand their commerce. In
days gone by it was the production of the best
quality of goods that gave us a monopolist posi-
tion. We cannot again hope for a monopolist
position. But with the development of the im-
port trade of the world larger markets than ever
are open to our people for competition. That this
must be so the theory of exchange on which
foreign trade rests shows. That it is so the statistics
demonstrate. If we would remain ahead of our
rivals, we must continue to be ahead of them in
quality of what we make. No tariff can keep out
that quality which is the key to quantity. On
this side I hope and believe that the recent con-
troversy has wakened up the nation, and made it
see that alike on the side of economic as of social
and imperial questions the key to progress is
method and the education in the widest sense of
our people.
In the distant parts of the King's dominions
PREFACE xxiii
there is reproducing itself rapidly among those of
our own race the unwritten and developing con-
stitution under which we ourselves live. Its basis
is liberty government of the people by the people
for the people. But such liberty, as experience
has shown, makes for and does not exclude the
common ends and ties of feeling which are the real
basis on which rests the unity of the subjects of
the Crown. Is it beyond the capacity of a suffi-
ciently broad-minded statesmanship to turn its
attention to these vital matters, steadily keeping
in view that bargains and written rules and what-
ever restricts complete freedom are perilous to
them ? Such a statesmanship might find real work
to do in bringing the machinery of the Empire
into the shape which would allow of the greatest
liberty of development alike at home and across
the seas. The way may be difficult, but the
histories of foreign nations can hardly be relied on
to point us to any other.
R. B. HALDANE.
CLOANDEN, AUCHTERARDER,
1st September, 1904.
NOTE
THE present volume is based chiefly on lectures
delivered at the London School of Economics in
the Lent and Summer Terms of 1904. They
were an attempt to provide students with a brief
and, so far as possible, unpartisan sketch of the
development of tariff policy in those states which
are most frequently compared with the United
Kingdom ; and of the forces, political and eco-
nomic, which have determined that development.
The writer does not profess to offer the results of
much original research ; the bibliographies and
footnotes will, it is hoped, sufficiently indicate the
extent of his indebtedness to others.
P. A.
August, 1904.
PART I
GERMANY
MODEKN TAEIFF HISTOKY
CHAPTER I
THE FORMATION OF THE
ZOLLVEREIN
AT the close of the Napoleonic wars Germany
was in a state of the utmost political and economic
confusion, and the Congress of Vienna did little
to remedy the evil. It gave the new Germanic
Confederation a constitution vague and impractic-
able, and it offered no effective means of dealing
with the most pressing problem, that of economic
reorganisation. One of the worst results of Ger-
man particularism was the existence of a separate
customs system in each of the thirty-nine states,
many of them very small, which composed the
Confederation ; and, moreover, commerce was ham-
pered in every conceivable way, not merely within
Germany, but also within the larger states, such as
Prussia. In that kingdom there were nearly sixty
different local tariffs with a total of nearly two
4 THE FORMATION OF THE ZOLLVEREIN
thousand eight hundred classes of goods ; l in
some of its provinces, particularly in the western
part of the monarchy, the importation of foreign
manufactures and products was allowed free or
on payment of only moderate duties, in others
it was either absolutely prohibited or subject to
extremely heavy duties.
The first reforms came in Prussia by the Tariff
Act of 1818. Its authors Biilow, the Minister of
Finances, and Maassen, who was responsible for
the details of the tariff were greatly influenced
by the economic ideas of Adam Smith, which
were at that time making their way in Germany ;
the internal customs were abolished, and the whole
tariff policy reformed in the direction of the estab-
lishment of greater liberty of trade and commerce.
Under the new system the importation of raw
materials was to be free ; an average duty of 10
per cent, was imposed on manufactured goods ;
" colonial produce " was to pay up to 20 per cent. ;
and there were to be moderate duties on the
transit of goods passing through Prussia to other
states. There was also to be an excise levied
on the consumption of certain goods in Prussia
itself. The tariff so adopted was more liberal
than any continental tariff of the time, and in
some ways the new policy was more advanced
than that even of Great Britain. Germany par-
ticularly the northern part was predominantly
agrarian, and exported considerable quantities of
1 Zimmermann, i. 1.
THE PRUSSIAN TARIFF OF 1818 5
agricultural produce to foreign markets. The
landowners in Prussia were interested in Free
Trade, and so were the coast towns on the Baltic
with their extensive carrying trade. Manufac-
tures were developing slowly ; they had received
some stimulus from the "continental system" of
Napoleon, but the new tariff gave only a moderate
protection to the home manufacturers, who were
by no means satisfied with it ; and it contained no
prohibitions of import except in regard to salt and
playing cards, which were Government monopolies.
It had one peculiarity the new duties were not
levied on the value of the imported goods, but
consisted of a fixed charge on a given weight
or measure of each commodity. These " specific "
duties were on the average at first about 10 per
cent, on the estimated value of the goods, and
remained not at the same percentage, but at the
same actual amount, whatever changes came over
the value. This procedure had the advantage of
simplicity ; it was not necessary to provide a staff
of expert valuers at all the customs stations. On
the other hand, there was the distinct disadvantage,
which later was severely felt, that there came
to be no particular relation between the value
of the commodity and the duty ; if the value of
the given quantity of a particular article declined
for any reason, the old duty might become ex-
tremely heavy ; whilst on the other hand, if the
quality improved, and with it the value, the duty
became proportionately so much smaller. So that
6 THE FORMATION OF THE ZOLLVEREIN
the duties tended to become much more protective
for goods of inferior quality than for the better
class of commodities. 1
The new tariff came into force on January 1st,
1819, and in the same year a policy was inaugurated
which was destined to have the most far-reaching
results. In the kingdom of Prussia there were no
less than thirteen " enclaves," petty states or parts
of states completely surrounded by Prussian terri-
tory. All of these attempted to maintain customs
systems of their own, and as a result came into
sharp conflict with Prussia, whose new tariff and
its vigorous enforcement against them roused con-
siderable indignation in Germany. It was, how-
ever, impossible for them permanently to resist
the pressure, and in 1819 the little principality
of Schwarzburg-Sondershausen accepted Prussia's
offer to take over the administration of its customs,
and in return to give it the right of trading with
1 la the report of Dr. (afterwards Sir John) Bowring, who visited
Germany to report on the Zollverein to the British Government in
1840, it is stated that the effect of the fall in prices since 1818 and of
some increases of duty had been to make the duties on some kinds
of manufactured goods anything from 20 to 80 per cent., so that
in some cases they became absolutely prohibitive. These duties had
come to be higher on goods of coarse quality than on fine qualities ;
the actual duty on woollen goods varied from 3 to 120 per cent.
Friedrich List welcomed this effect of the Tariff, because it gave pro-
tection to ' ' articles of common use, which every land can best manu-
facture for itself, and of which the home manufacture, on account
of its great amount, is most important for the country" (Schippel,
p. 86). This system has been commonly adhered to throughout
German tariff legislation, as in Great Britain since the middle of
last century, mainly because of its superior administrative advantages.
For an account and criticism of the alternative method of ad valorem
duties, see pp. 168 n., and 236-8.
PROPOSALS OF NEBENIUS 7
Prussia free from all restrictions, and a proportion
of the total joint customs revenue. But there was
much indignation in particularist circles, and it
was only very slowly that the other enclaves
followed the example ; in fact, the next instance
was not till 1822.
The policy of Prussia, as exemplified in the
agreement with Schwarzburg-Sondershausen, was
to take the absolute control of any union which
might be formed ; but it was quite evident that
whatever the small states might do, the larger
states would not agree to any such system. All
clung to their independence ; the small states
would not subordinate themselves to the larger,
save under compulsion, and scarcely any state was
willing to consider the economic interests of the
whole Confederation as superior to its own private
aims ; there was, in fact, an incessant commercial
and industrial war. But already there were signs
that the people were becoming weary of these con-
ditions. Early in 1819, Nebenius, an official of
Baden, issued on behalf of his Government a
memorandum on the economic condition of
Germany. He pointed out that, though that
country suffered from the tariff system of its
neighbours, it suffered still more from the com-
mercial policy of its own component states. The
only real remedy was the formation of a league
of the German states, the abandonment of their
protective policy against each other, and the adop-
tion of a common tariff against foreign countries.
8 THE FORMATION OF THE ZOLLVEREIN
At the same time, it would be necessary for the
German states to bring their system of internal
taxation into something approaching uniformity.
It is this memorandum which has given Nebenius
the credit of being the father of the idea of the
later Zollverein, but the idea was not confined to
him. In April, 1819, a deputation of manufacturers
and others, chiefly from the South German states,
appeared at the Federal Diet to urge the adoption
of a similar policy : that deputation represented
a commercial and trade union, which had been
formed two or three years before, largely under
the leadership of Friedrich List, and, unlike
Nebenius, it was avowedly protectionist in the
interests of German industry. Unfortunately the
Federal Diet was hopelessly weak, and exercised
practically no influence on the policy of the various
states ; it could do nothing in the direction pro-
posed, and reform had to come in another way.
The southern states set to work to attain the
desired end by treaties among themselves ; it was
absolutely necessary for them to do something,
since they were harassed in the north by the
growing Prussian Union and in the south by
Austria both with their transit duties. So there
began a series of conferences between the southern
states at Darmstadt between 1820 and 1823 on
schemes to resist Prussia, and to combine on a
common tariff policy conferences which had no
practical result, but at their close " offered foreign
countries a new and pitiable picture of German
UNION OF BAVARIA AND WURTTEMBURG 9
confusion, and of the triumph of petty particular-
ist interests over the common good." 1 The failure
of the conferences was followed by a new tariff
war in Southern Germany, and such a condition
of affairs could not long continue. Wiirttemberg
in particular was untiring in its efforts to improve
the situation ; it called a fresh conference at
Stuttgart (1823 to 1825), which was again unsatis-
factory and produced no immediate result. Re-
course was then had to separate treaties. Already
in 1824 an agreement had been made between
Baden and Hesse-Darmstadt, and also one between
Wiirttemberg and the Hohenzollern principalities
in its midst. Early in 1825 Wurttemberg and
Bavaria had agreed on a scheme of Customs Union
under joint administration, and they now tried to
get Baden, Hesse, Electoral Hesse and Nassau
to join them. These negotiations failed, but in
April, 1827, a provisional agreement, confirmed and
completed in January of the following year,
established a Union of Bavaria and Wurttemberg
on the basis of a common tariff, abolition of duties
on commodities passing between the two contract-
ing countries, joint administration of the customs,
and division of the net proceeds of the duties
according to population.
Prussia had not failed to follow the course of
these negotiations, or to learn the lesson which
they taught. Until this time, it seems that the
Prussian statesmen had not thought of a larger
1 Weber, p. 34.
10 THE FORMATION OF THE ZOLLVEREIN
union, except in the form of a customs system
under the direction of themselves alone. They
had treated the other enclaves, which had united
with them - - Schwarzburg - Rudolstadt, Saxe -
Weimar, Lippe, Mecklenburg -Schwerin just as
Schwarzburg-Sondershausen ; the small states were
given no share in the management of the Union.
" In the south, on the other hand, Bavaria and
Wurttemberg had fully realised the idea of a
union with equal rights to all its members, with
independent administration and complete reserva-
tion of all individual rights, without prejudice to
the necessary unity of the whole and to the
common end in view. Clearly this system must
commend itself to the Governments of the minor
states rather than the Prussian plan, which in-
volved some loss of independence." 1 The Prussian
rulers saw the danger, and changed their policy.
In February, 1825, less than a month after the
completion of the treaty between Bavaria and
Wurttemberg, and largely because of that treaty, 2
an agreement was made between Prussia and
Hesse-Darmstadt, which laid the foundation of
the later Zollverein. No changes were to be made
without mutual consent, and Hesse kept control
of the customs administration within its own area.
Events now moved rapidly. In August, 1828,
1 Weber, p. 61.
2 "The political purpose had triumphed over the fears of the
Prussian financiers, for, shortly before, on the 18th of January,
Bavaria and Wurttemberg had finally completed their Customs
Union" (Zimmermaun, i. p. 53).
THE FINAL NEGOTIATIONS 11
some of the minor states, including Hanover,
Brunswick, and the two Hanse towns, Hamburg
and Bremen, formed a Middle German Commercial
Union, under the leadership of Saxony, chiefly to
resist the pressure of the two existing unions.
But the new organisation was inchoate and short-
lived ; it had no definite policy or purpose beyond
that of resistance, and found no means of recon-
ciling the interests of its constituent members. In
fact, the small states were in an impossible posi-
tion, and their difficulties were intensified when in
May, 1829, an agreement was made between the
Prussian Union and Bavaria and Wiirttemberg,
on the basis of reciprocal reduction of duties to
the extent of 20 to 50 per cent, on many com-
modities, the approximation of the two customs
systems to a common form, and yearly conferences.
The Middle German Union was breaking down ;
its members were showing an inclination to draw
near to the Prussian Union or the Southern Union,
as suited them best, and in 1830 Saxony intimated
to Prussia its desire to enter into negotiations for
its entry into the Prussian Union. The collapse
was completed when Electoral Hesse joined Prussia
in 1831 an event of considerable importance, since
the geographical position of that state between
the western provinces of Prussia and Hesse-Darm-
stadt could establish or prevent the real effective-
ness of the commercial alliance of these two. The
Northern and Southern Unions now drew together,
and the final negotiations commenced. They were
12 THE FORMATION OF THE ZOLLVEREIN
most delicate and difficult, for there were many
diverse interests to be reconciled. In Prussia
itself, the sea-towns and the agricultural provinces
were favourable to freedom of trade, and the
manufacturers desired protection ; the former, how-
ever, had the upper hand. The northern states
of Germany, and especially the Hanse towns,
supported the liberal policy ; and so did the great
commercial centre of Frankfurt - on - Main. In
Saxony, the traders of Leipzig inclined towards
union with Prussia since they sympathised with
the ideas which underlay her tariff; the manu-
facturers who wanted protection were hostile. The
southern states were divided in the same way.
Moreover, the manufacturers of Prussia felt that
they would be seriously menaced by the free com-
petition, from the industries of Saxony for example,
which must follow a complete union. The divisions
to be made of the proceeds of the tariff were also
a difficult matter, for the consumption of " colonial
produce" per head was much greater in Prussia
than in the south ; and further, some of the smaller
states were strongly averse to the surrender of any
sovereign rights. 1 The Prussian ministers were by
1 It is curious to observe how indifferent Austria was to these
negotiations ; Metternich and his colleagues did not regard them as
dangerous, and did not believe that they could be successful. They
might possibly have drawn the southern states towards Austria by
commercial treaties, but the efforts which they made in this direction
were scarcely serious, and altogether ineffective. Great Britain, on
the other hand, was fully alive to the danger which threatened her
position in the German market, and attempted to check the formation
of a great German customs area by treaties with various small German
ORGANISATION AND POLICY 13
no means optimistic, but the negotiations were
carried to a successful issue, partly because of
economic considerations, and partly because of
political motives on the part of Prussia these
latter were in fact the determining consideration. 1
The work was done by Maassen, now Minister of
Finance in Prussia, and Von Mieg, who represented
Bavaria and Wiirttemberg. On the 22nd of March,
1833, Bavaria and Wiirttemberg joined the Prussian
Union, and the example was immediately followed
by Saxony. Negotiations had meanwhile been
going on with Hesse- Cassel and the Thuringian
states, and in May of the same year they also
gave their adhesion.
The Zollverein, so formed by a series of
treaties, and including seventeen states with a
population of some twenty-three millions, came
into force on January 1st, 1834. Policy was to be
determined from time to time by an annual meet-
ing of representatives of the constituent states, but
any change required unanimous approval ; this
(though probably unavoidable in view of the
tenacity with which the several states clung to
their independence) was one of the weak points of
the organisation a proposal, approved by all the
states. The treaty completed with the free city of Frankfurt did for
some time prevent that city from joining the Zollverein. France made
a number of attempts to detach the smaller states, especially those
along the Rhine, by the offer of special tariff treatment, but without
success (Weber, p. 105).
1 " The anxiety of the economist had been forced to yield to the
hopes of the statesman " (Von Treitschke).
14 THE FORMATION OF THE ZOLLVEREIN
states chiefly concerned, might be vetoed by one
of the least important members of the Union. A
common tariff (based in the main on the rates in
force in Prussia) against all states outside the
Union, and the abolition of all duties on goods
passing between the various members, were the
fundamental principles ; but each state kept its
own commercial code, its own patent laws (with
the right to tax commodities, coming from other
members, which would infringe patents) and its
own Government monopolies. The proceeds of the
customs duties were to be divided amongst the
states in proportion to population. The tariff rates
imposed moderate duties on manufactured articles,
duties for revenue on colonial produce, and gave
freedom of import for raw materials and some
manufactured articles required for industry. Much
still remained to be done before the Zollverein
became a unified commercial and industrial organi-
sation, but the foundations were firmly laid.
Many important states still stood aloof, particu-
larly the northern states Hanover, Brunswick,
Oldenburg, Holstein, the two Mecklenburgs, the
three Hanse towns and Luxemburg with Baden
and the important commercial city of Frankfurt.
Some of these did not long remain outside the
Union ; the accession of the isolated Grand -Duchy
of Baden, realised by its Government to be inevit-
able after the breakdown of the Middle German
Union, was delayed only till May, 1835, by the
hostility to Prussia of some of its political parties.
FOREIGN RELATIONS 15
In the same year Nassau joined the Zollverein,
and the example was followed by Frankfurt after
long and difficult negotiations at the beginning of
1836. In the next five years a number of small
and not very important territories such as Wai-
deck, Pyrmont, and Lippe-Detmold were in-
cluded in the Zollverein without receiving the
rights of independent members. Most of the
larger states which persisted in their independence
continued to act separately, but in May, 1834,
Hanover, Oldenburg, and Brunswick, whose in-
terests were nearly identical, formed a union of
their own, called the Steuerverein.
Almost immediately after the completion of the
work of organisation, attempts were made to place
the relations of the Zollverein with the neighbour-
ing states on a more satisfactory footing. The
diplomatic representation was entrusted to Prussia,
but the first efforts were by no means successful.
The negotiations with Russia, which pursued an
almost prohibitive policy, failed completely, as did
those with Austria ; * whilst the Zollverein was
distinctly worsted in a conflict with the Govern-
ment of Louis Philippe in France. 2 The chief
treaties actually completed were with Holland and
Great Britain. In the former case there was some-
thing like a short customs war ; the Dutch
Government desired a commercial treaty, and to
enforce its desire, and partly also to protect Dutch
1 The details of these negotiations can be read in Zimmermann, i.
pp. 138-52. 2 Ibid., p. 162.
16 THE FORMATION OF THE ZOLLVEREIN
agriculture against German competition, it im-
posed higher duties on grain in October, 1835.
The Zollverein replied by the imposition of higher
duties on Dutch sugar, and by the abolition of
privileges enjoyed by Dutch vessels on the Rhine.
Negotiations for a treaty then began, but broke
down over the sugar question, since the growing
sugar industry in Germany was strongly hostile to
any concessions to Holland in this matter. So at
first it was only possible to make an agreement in
1837 in regard to shipping, which put the vessels
of the two nations on an equality. Negotiations
continued, however, and in the beginning of 1839
a further treaty was completed, which reduced a
number of duties on Dutch produce. But it was
speedily felt in the Zollverein that the concessions
made to Holland were too great, and certainly
there is in this case no sign of the skill which sub-
sequently characterised the conduct of German
commercial negotiations. Consequently the treaty
was denounced by the Zollverein less than two
years later. The treaty with Great Britain, com-
pleted in March, 1841, was also limited to the
matter of shipping ; it exempted Prussia from
many of the restrictions contained in the English
Navigation Acts, and on the whole was of some
benefit to Germany, whilst Great Britain, in return,
got the same reduction in the duties on sugar and
rice as had been granted to Holland. The treaty
was not popular, in the southern states particularly,
and came to an end in 1848.
FIRST RENEWAL OF THE ZOLLVEREIN 17
In 1841 the formal renewal of the Zollverein
took place. It was perfectly clear that its institution
had been of the utmost benefit to the constituent
states ; industrial and commercial development had
been greatly stimulated ; many of the causes of
inter-state disputes had been removed, and Govern-
ments and people were on the whole alike well
satisfied. The only difficulty at the renewal was
caused by Prussia, for the financial arrangements of
the Union had benefited the smaller states, but had
reduced the revenues of Prussia, and her statesmen
were somewhat dissatisfied, though they recognised
fully the advantages which they had gained. 1 But
the difficulty was not insuperable, for no one was
anxious to break up the Union ; certain additional
financial arrangements were made, not quite satis-
factory to Prussia, but accepted by her, and the
Zollverein was renewed on May 8th, 1841, for
twelve years. Immediately afterwards there came
fresh additions of territory. Brunswick was dis-
contented with the action of Hanover in the Steuer-
verein, and quitted that organisation in 1842 ; in
the same year it entered the Zollverein. So did
Lippe-Detmold and Schaumburg, and, much more
important still, Luxemburg, which, though in
personal union with the kingdom of Holland, was
1 " Although Prussia does not fail to recognise that its subjects
have shared in the general advantageous results of the Union, yet the
position is altogether different when viewed from the financial stand-
point" (Circular of the Prussian Government, 1839 ; quoted in Weber,
p. 185). It would have been inadvisable to refer to the political
advantages accruing to Prussia,
Q
18 THE FORMATION OF THE ZOLLVEREIN
itself a member of the Germanic Confederation.
In the last case special arrangements had to be
made to prevent the Dutch Government making
use of the position of Luxemburg to influence the
policy of the Zollverein, and so the representation
of the Duchy in the Councils of the Union was
entrusted to Prussia.
One other important event of this period, which
it will be convenient to notice here, was the treaty
with Belgium. It was desirable that the relations
between that country and the Zollverein should be
as amicable as possible, since a great part of the
German import and export trade passed over the
Belgian railways and through Belgian ports. For
the purposes of negotiations, then, the Belgian
Government was in a strong position owing to this
fact, and also because its geographical situation
enabled it to play off France against Germany.
The result was the treaty of 1844, by which the
Zollverein gave a reduction of duties on com-
modities coming from Belgium, and on some articles
of Belgian origin (particularly iron) ; whilst Belgium,
on its side, guaranteed the existing freedom of
transit for goods coming from or going to the
Zollverein, and established certain preferences for
German products. The shipping of the two nations
was put on an equal footing. Weber holds that
the treaty chiefly benefited Belgium, since she
gained easier access to German markets with her
iron, whilst the Zollverein got no new concession
of importance ; and he adds that Prussia would
NEGOTIATIONS WITH BELGIUM 19
never have yielded so much but for the fear of
Belgian alliance with France 1 ; but the Zollverein
had secured freedom of transit for its goods through
Belgium, and the establishment of an entrepot at
Antwerp, and these were matters of no small im-
portance. 2
1 Weber, pp. 213, 214.
2 Zimmermann, i. p. 278.
CHAPTER II
THE BEGINNINGS OF PROTECTION
AND THE FIRST CRISIS
DURING the early years of the Zollverein there had
been only a few increases in the customs duties, 1
but after 1840 there was a marked upward tendency
in the tariff rates, due to a distinct movement
towards Protection, which found its scientific ex-
pression in the writings of Friedrich List, and
particularly in his System of National Economy,
published in 1841. His doctrine, that protection is
necessary to enable a nation to pass from the purely
agricultural condition of society to a higher stage
of combined industry and agriculture, 2 that the en-
couragement of " production " was less immediately
important than the development of "productive
powers," and that if Germany was to make economic
1 On cotton and woollen yarn from six to eight thaler per centner,
and on the finer qualities of bar iron from one thaler to three thaler.
2 " In short, history and statistics alike prove the correctness of
the dictum expressed by the ministers of George I. : that nations are
richer and more powerful the more they export manufactured goods
and import the means of subsistence and raw materials. In fact, it
may be proved that entire nations have been ruined merely because
they have exported only means of subsistence and raw materials, and
have imported only manufactured goods " (List, System of Political
Economy, trans. Lloyd, p. 218).
20
A MOVEMENT TOWARDS PROTECTION 21
progress in the face of the overwhelming industrial
supremacy of Great Britain, a reasoned policy of
Protection was essential rthis doctrine found ready
acceptance in the industrial circles of the Zollverein.
List pointed always to the example of Great Britain,
whose long-continued policy, he held, had been to
secure the home market for its manufacturers, to
encourage the increase of " productive powers " by
the free admission, not of foreign goods, but of
foreign workmen, and to bear a temporary loss for
the sake of an ultimate gain. This policy had laid
the foundation of Great Britain's industrial power,
and he called on Germany to follow the example. 1
The practical demand for the application of
List's doctrine came from the manufacturers of
iron and the cotton-spinners, and over this proposal
there arose, between 1841 and 1850, the first real
struggle between the rival policies of Free Trade
and Protection. In the case of the iron producers,
the call for increased duties was due largely to the
over-production in England and the consequent
reduction of the prices of English iron in the
1 " If any nation whatever is qualified for the establishment of a
national manufacturing power, it is Germany. ... If any nation what-
ever has a right to anticipate rich results from a protective system
adapted to her circumstances, for the progress of her home manu-
factures, for the increase of her foreign trade and her navigation, for
the perfecting of her internal means of transport, for the prosperity of
her agriculture, as also for the maintenance of her independence and
the increase of her power abroad, it is Germany. Yes, we venture to
assert, that on the development of the German protective system
depend the existence, the independence, and the future of the German
nationality " (List, System of Political Economy, trans. Lloyd, p. 425).
For a general statement of List's view see below, pp. 65 aeq., and 72.
22 THE BEGINNINGS OF PROTECTION
foreign market to a point at which continental
manufacturers could not compete with them.
There was a great increase in the importation of
iron into Germany, from 0*9 million centner in
1839 to 2-6 million in 1842, and 4'2 million in
1843. In 1839 the German iron works produced
78 per cent, of the total amount consumed in
Germany, whilst by 1843 their share had fallen to
45 per cent. 1 The cotton-spinning industry had
been growing rapidly in Prussia, Saxony, and the
south-western states since the establishment of the
Zollverein, but it was not yet firmly established,
and in 1842 the import of cotton was more than
double the home production. The request for
protection for these two industries naturally led to
a sharp conflict of interests between the producers
and the consumers of the two commodities. There
was a growing demand for industrial machinery,
and the manufacturers were opposed to any policy
likely to increase its cost ; and to the producers of
cotton goods (an industry which had made rapid
progress of recent years, and supplied one of the
chief exports of the Zollverein) an ample supply
of British cotton was an absolute necessity. The
division over the question was also territorial. On
the whole the north was in favour of Free Trade.
The attitude of the Prussian Government was de-
termined in the main by the agricultural and com-
mercial interests. Large quantities of agricultural
1 Seriug, Geschichte der preussischdeutschen Eisenzolle von 1818 bis
zur Gegenwart (1882).
THE FREE TRADE FORCES 23
produce, chiefly grain and timber, were exported,
especially to Great Britain after the repeal of the
Corn Laws : and on the other hand, the landowners
needed agricultural machinery and feared an in-
crease in its price as a result of the proposed higher
duties ; so that the Prussian Conservatives, whose
strength lay in the agricultural districts, were,
unlike their English contemporaries, strong advo-
cates of freer trade. The Baltic ports Dantzig,
Stettin, Elbing, Konigsberg, and others were
engaged in the export of grain and timber, and
were opposed to anything which might tend to
restrict trade. 1 These influences were strong enough
to overcome any inclination on the part of the
Prussian Government to accede to the demands of
the iron producers of the Rhine province. The
two great Hanse towns (Hamburg and Bremen)
took the same line ; both had a large trade with
Great Britain and America, exporting linen, timber,
minerals, woollens, glassware, and wines, and im-
porting manufactured goods, tobacco, and colonial
produce generally. Frankfurt, which was the
great entrepot for British trade, also stood firmly
on the Free Trade side. Saxony was carried the
same way by the influence of the traders of Leipzig
and the weavers, whose industry far exceeded in
importance that of the spinners. The Thuringian
states followed the lead of Prussia and Saxony.
1 Schippel points out that in the absence of a well-organised railway
system the sea made foreign markets nearer to the lands along the
Baltic than the inland territories of the Zollverein.
24 THE BEGINNINGS OF PROTECTION
Brunswick and Nassau supported Prussia largely
because the financial results of the Zollverein had
been for them so favourable that they were un-
willing to break with her.
The southern states, on the other hand, were
distinctly inclined to Protection. Bavaria wavered ;
it was difficult for its Government to decide between
the rival spinning and weaving industries, but it
was carried into the protectionist movement by the
personal authority of King Ludwig I., who seems
to have been influenced chiefly by political con-
siderations. Wiirttemberg and Baden, on the other
hand, were anxious for the protection of the cotton-
spinning industry, which had been most successful
in those territories ; and they were supported by
Hesse.
The conflict continued for several years and
was particularly keen at the annual conferences.
After the Karlsruhe Conference in 1845 feeling
was so strong that Prussia was accused of being
unduly under the influence of Great Britain. On
the other hand, the Prussian Government had
declared, as early as 1842, that the southern
Governments took too narrow a view of the eco-
nomic interests of Germany, and were swayed
by the cotton-spinners, who were suffering from
bad organisation and the over-hasty development of
their industry. 1 Both sides gave way somewhat,
and by 1850 the duties had been considerably
increased. In 1843 the duty on certain kinds
1 Zimniermanu, pp. 190 and 200.
INCREASE OF DUTIES 25
of cotton yarn was increased by 50 per cent. ;
in 1844 a small duty was imposed on pig-iron,
hitherto admitted free, and there were slight in-
creases on iron bars and rails. In the same year
the duties on various kinds of woollen goods were
increased 33 per cent., and those on gold and
silver articles and leather gloves were doubled.
In 1846 there were still further increases on all
kinds of cotton yarn, linen yarn and twist, and
various other commodities. On the other hand,
however, there were reductions on a number of
raw materials, and in the transit dues in 1850. It
must be remembered also that the changes in the
price of commodities (and there had been a very
marked fall during this period) had not been
followed by any corresponding change in the
amount of the duties which, as already pointed
out, had been fixed according to the value thirty
years before of a particular quantity of each com-
modity. The result was that duties, which had
been quite moderate originally, had now come
to be in some cases almost prohibitive. 1 It is
impossible to say how much further the movement
towards Protection would have gone had it not
been for political considerations, and particularly
the problem of the relation of Austria to the
Zollverein.
The Austrian Government, under Prince Met-
ternich, had paid little attention to the negotiations
1 Michaelis, Kommissionsbericht fiber den premsischfranzosinchen
Handelsvertrugentwurf, quoted in tichippel, pp. 135-7 ; cf. note oil p. 6.
26 THE BEGINNINGS OF PROTECTION
for the formation of the Zollverein ; its attempts
to interfere had been unimportant, and its whole
action in the matter had been marked by that
complete indifference to economic questions which
was its peculiar characteristic amongst the Govern-
ments of Europe. Its own tariff policy was pro-
tectionist, or rather in many cases prohibitive.
But after 1833 even Metternich awoke to the
danger which threatened Austrian authority in
the Germanic Confederation from the growing
influence of Prussia, and, as time went on, he
realised that the economic leadership of that state
in the Zollverein might easily be extended to
political action also. In 1841 the Austrian minis-
ters began to consider the possibility of the ad-
hesion of the Austrian Empire to the Zollverein,
but came to the conclusion that for the time being,
at any rate, it was impracticable, partly owing
to the supposed impossibility of abandoning the
policy of high Protection, and partly because of
the peculiar position of Hungary, which was not in
economic union with the rest of the empire. 1 But
from that time onward the problem was always
under consideration, and the discussion became
vigorous after the renewal of the Zollverein. In
Austria itself the manufacturers clung to the pro-
tective policy, but in the community as a whole
there was considerable dissatisfaction with it ; and,
further, the Austrian statesmen were more and
more impressed by the political necessity of check-
1 Weber, p. 244.
AUSTRIA AND THE ZOLLVEREIN 27
ing the Prussian advance. Consequently, the
Austrian efforts were now directed towards forcing
an entrance into the Zollverein, or, as a less prefer-
able alternative, towards destroying it. These
efforts became much more vigorous after the
events of the revolutionary years 1848 and 1849.
For one thing, the action of the National Assembly
at Frankfurt, in offering to Frederick William IV.
of Prussia the Imperial Crown of a Germany from
which Austria was excluded, had brought home to
the Austrian statesmen the extreme weakness of
their position ; and further, Metternich had been
succeeded by one of the ablest and strongest min-
isters Austria has ever had, Prince Schwarzenberg. 1
Moreover, the conditions in the Zollverein were
not unfavourable. It has already been pointed
out that difficulties had arisen between Prussia
and her colleagues in 1841 over the division of the
customs revenue, and the dissatisfaction then
created in the southern states had been increased
by the growing preponderance of Prussia. They
were, therefore, not unwilling to admit Austria,
partly to keep Prussia in check thus adopting
in the Zollverein that policy of " balance " which
had reduced the Confederation to impotence and
partly because they desired support for their pro-
tectionist schemes. They were, however, ham-
pered by the knowledge that with the compara-
1 Prussian diplomacy had received its severest blow in the Treaty
of Olmutz in November, 1850, on the questions of the Elbe Duchies
and Hesse-Cassel.
28 THE BEGINNINGS OF PROTECTION
lively small consumption of imported goods in
Austria any division of the customs revenues on
the old lines would seriously reduce their revenues. 1
In 1849 the Austrian Government began to put
forward proposals for the complete economic union
of Germany and the non-German territories of the
Austrian monarchy. It proposed, that is to say,
the establishment of a complete industrial state,
including a large part of Middle Europe and a
population of over seventy millions ; in this state
neither the commercial, nor the industrial, nor the
agricultural class would be predominant, but a
tariff policy was to be adopted which would
equally guard all three.
The Prussian Government from the first realised
the political effect of an acceptance of the Austrian
proposals, and set itself resolutely to oppose her
admission. The most striking manifestation of this
was its action in regard to Hanover. It has already
been mentioned that in 1834 Hanover had formed,
particularly with Oldenburg and Brunswick, a
Steuerverein in the north. Since then there had
been constant disputes with Prussia, which con-
tinued even after the adhesion of Brunswick to the
Zollverein, an event destructive of the effective-
ness of the Northern Union, and seriously crippling
Hanover by cutting her territory in two. Negotia-
tions had been going on for years between Prussia
1 Thus in October, 1851, Beust declared that, for financial and
economic reasons, Saxony could not leave the Zollverein ; and Bavaria
and Wiirttemberg requested Austria to guarantee the maintenance of
their existing revenues (Ziminermauu, p. 358).
AGREEMENT BETWEEN PRUSSIA AND HANOVER 29
and Hanover, but without success, owing to the
excessive demands made by the latter ; but now
suddenly Prussia gave way, and concluded in
September, 1851, a treaty in which she accepted
most of the conditions which she had hitherto
decisively rejected. Hanover received permission
to import iron rails free of duty, and a guarantee
of a larger share of the customs revenue than she
would have received on the basis of population.
The treaty was advantageous to Hanover in many
ways, since it was clearly impossible for her much
longer to maintain her economic isolation ; and for
Prussia also the results were of great importance.
For, in the first place, the alliance with Hanover
secured the connection of her territories, even if
the Zollverein should break up; and secondly, it
strengthened the Free Trade party, as did the
treaty between Prussia and Oldenburg early in
the following year. 1 But the treaty was with
Prussia not with the Zollverein ; it was therefore
necessary for Prussia either to force the other
states to accept the treaty, or to break up the
Zollverein and throw herself into union with the
northern states. 2
Negotiations for the renewal of the Zollverein
had already begun under the terms of the treaty
of 1841, and they were complicated by the simul-
taneous discussions with Austria. In form, the
controversy arose over the procedure to be
1 Neither Hanover nor Oldenburg had any industries to protect.
2 Weber, pp. 294, 297.
30 THE BEGINNINGS OF PROTECTION '
adopted. Prussia insisted that the renewal of the
Zollverein, with the acceptance of the treaty with
Hanover and the various modifications of the
tariff required by that, or considered necessary
after the experiences of recent years, must precede
any treaty with Austria. The southern states,
on the other hand, wished the negotiations with
Austria to be completed before the settlement of
the future constitution of the Zollverein, since
those negotiations might mean the admission of
Austria. It is not necessary to follow in detail the
course of the extremely involved proceedings of
the various conferences which agitated Germany
from September, 1851, to April, 1853. Whilst
endeavouring to secure the treaty with the
Zollverein as a whole, Austria was secretly pre-
paring the way for the formation of a union to
include herself and the South German states, in
the event of Prussia refusing to give way and
breaking up the Zollverein. 1 The Prussian states-
men, on the other hand, as we have seen, were
preparing for this and planning a new union in the
north. Neither side was anxious to take the
decisive step ; but the current ran strongly against
Prussia, partly because of the distrust inspired by
her unyielding attitude, and partly owing to the
1 The conferences between Austria and the Zollverein states began
in January, 1852, at Vienna. Prussia and the Thuringian states were
not represented ; the public negotiations were in regard to the
Zollverein treaty with Austria, but at the same time there were
private conferences for the formation of a union without Prussia
(Zimmermann, i. p. 371).
THE AUSTRIAN PROBLEM 31
superior statesmanship of Schwarzenberg, until the
death of that statesman in April, 1852 ; after that
date the action of Prussia became more decided.
At the first conference of all the states of the
Union at Berlin in the same month, Manteuffel,
the Prussian Minister President, declared uncom-
promisingly the determination of his state to settle
the question of the new constitution of the
Zollverein before making any treaty with Austria.
In May the Prussian Ministry published a note,
in which it asserted that Prussia had not sought
in the Zollverein any financial or political advan-
tage, but simply the promotion of the economic
progress of Germany, and expressed its willingness
to negotiate with Austria for an extension of
that system, but repeated that it was absolutely
necessary to determine the area and policy of the
Zollverein before any useful action could be taken in
that direction. It condemned strongly the methods
of the southern states in entering into secret rela-
tions with Austria, and lamented the bad impression
which the sight of the internal discord of Germany
must make on foreign nations. But neither the
southern states nor Austria were convinced of the
sincerity of the Prussian declarations, and as they
persisted in their policy, the Prussian Government
thought itself compelled to play its last card by its
announcement of September, 1852, that it con-
sidered the general negotiations for the renewal of
the Zollverein at an end, and henceforward would
only discuss treaties with separate states. But by
32 THE BEGINNINGS OF PROTECTION
this time both parties were prepared to give way.
On the one side, Prussia was not anxious to carry
out its threat, and was beginning to realise that
its obstinacy had been carried too far ; whatever
her statesmen might say, they could not fail to
recognise the political advantages which the
Zollverein had given them, and they could not
afford to run the risk of a union between Austria
and the southern states. Further, it was doubtful
whether Hanover was prepared to go the whole
way with Prussia, who was more dependent than
she cared to admit on the action of that state. On
the other hand, Von Beust and Von den Pfordten,
the Ministers of Saxony and Bavaria and the
leaders of the policy of the south, had become
aware that the commercial and industrial classes
of their states were doubtful as to the advantages
to be gained by union with Austria alone, and
were not prepared to sacrifice the economic benefits
of the Zollverein for the sake of the political aims
of the Governments. The conferences with Austria
had been by no means satisfactory ; the attempts
to find a basis of agreement for the rival interests
had so far failed. A more conciliatory attitude
was adopted on all sides, and Prussia entered into
direct relations with Austria without waiting for
the settlement of the problem of the Zollverein.
Progress then became rapid, and in February, 1853,
a treaty between Prussia and Austria was signed
for twelve years. The entrance of Austria to the
Zollverein was postponed, but it was agreed that
THE AUSTRO-PRUSSIAN TREATY 33
in 1860 a joint commission should be appointed
to consider plans for her complete admission.
Meanwhile, the two contracting parties undertook
reciprocal favoured treatment of each other. Many
commodities, chiefly raw and semi-manufactured
goods and manufactures of small value, were to
pass between the two contracting states free from
any duty ; and the duties on such articles as cotton
yarn and goods, chemicals, iron and metal goods
of all kinds except machinery, glass, agricultural
produce, linen yarn, woollen and silk goods, and
many other manufactured commodities were re-
duced 25 per cent. The terms of the treaty were
to extend to all states in customs union with
Prussia, and the Italian possessions of Austria. 1
The treaty was a compromise favourable to
Austria, for it was the kind of arrangement usually
made to prepare the way for a complete union.
But Prussia had gained time, and she had secured
the renewal of the Zollverein ; therefore the treaty
on the whole gave general satisfaction in Germany. 2
In the following April the Zollverein was renewed
by a series of treaties which made various modifi-
cations and rearrangements, but in the main
continued the old conditions, and Hanover was
1 In the treaty there was a clause which hampered Germany for
some time. By Art. iv., if one of the two contracting parties reduced
the duty on a commodity coming from a third state, not in receipt of
favoured treatment at the date of the treaty, then the other party could
impose a duty equivalent to the reduction on all goods of that kind
coming from the state which had made that reduction.
2 Weber, p. 335.
D
34 THE BEGINNINGS OF PROTECTION
included. The years from 1853 to 1860 have been
described as the period of the stagnation of the
Zollverein. The protectionist movement was satis-
fied for a time ; l the treaty with Austria did not
greatly develop trade between the two countries, 2
but there was a considerable growth of German
industry ; and the temporary defeat of Prussia
seemed to put an end to any danger of the adop-
tion of the policy of Free Trade which that state
was supposed to represent. The mutual distrust
inspired by the conflict left its effects, and in spite
of numerous attempts at the annual conferences
from various sides, no serious changes were made
in the policy or administration of the Zollverein.
But by 1860 the political and economic conditions
had alike changed ; it was necessary for Prussia to
take decisive action if Austria was to be kept out
of the Zollverein. The new commercial policy of
the western states rendered a reconsideration of
Germany's own policy inevitable, and furnished
Prussia with her most effective weapon against
her rival.
1 Schippel, p. 138.
2 The export of raw materials from Austria to the territories of the
Zollverein increased somewhat ; the export of manufactured goods
remained almost stationary. The increased exports from the Zollverein
to Austria were chiefly cotton and woollen yarn, iron and metal goods.
CHAPTER III
THE SECOND CRISIS AND THE
COMMERCIAL TREATIES
THE years 1861 to 1864 are filled by the second
great crisis in the history of the Zollverein, and in
many respects the phenomena of the former crisis
were repeated. Economic and political considera-
tions were again involved, and political aims to a
large extent again determined commercial policy.
The treaty with Austria had provided for the
commencement, about the year 1860, of negotiations
for the admission of that state to the Zollverein.
But in order that there might be any real prospect
of those negotiations being brought to a successful
issue, it was necessary on the one side that the
finances of the Austrian Empire should be brought
into order, so that when the time for negotiations
came she might have a free hand, and that her
protective policy should be to some extent modified ;
and on the other side, that the Zollverein should
not follow a policy so liberal as to frighten Austria
away. 1 None of these conditions were realised ;
for the war of 1859 and the loss of Lombardy had
1 Lotz, i. p. 10.
35
36 THE COMMERCIAL TREATIES
again brought Austrian finances into disorder, and,
moreover, between 1853 and 1862, the protectionist
party had regained strength, and practically none
of the reforms contemplated in the treaty of 1853
with the Zollverein had been carried out. 1
From a purely economic point of view the Zoll-
verein, in its endeavour to secure a large market
for its agricultural and industrial products, might
adopt either one of two policies. It might adopt
the plan put forward long before by Brack, of
forming a large area with Austria with Free Trade
within and a strong policy of Protection against
all outside. In this way a large home market
would be secured and a self-sufficing economic
state created. Or alternatively, the Zollverein
might adopt a more liberal tariff policy, and estab-
lish closer commercial relations with the western
states of Europe.
The first of these alternatives was supported by
the high Protectionists in the Zollverein that is,
by a considerable number of the manufacturers,
especially in the iron industries, and by some of the
South German states, particularly Bavaria and
Wiirttemberg, which had always advocated union
with Austria, and represented to some extent in
politics that " Greater Germany " party whose ideal
was the establishment of a German Empire which
should include all the possessions of Austria, even
though many of them were inhabited by peoples
not of German stock. There were great difficulties
1 Weber, p. 399.
THE FREE TRADE MOVEMENT 37
in the way of the realisation of this ideal, and the
Austrian Government seems about 1860 to have
lost much of its earlier interest in the matter ; in
1861 it admitted that for the time the obstacles
were almost insuperable. 1 The second alternative
was supported by the Free Traders, or rather by
those classes who desired the lessened restriction
of foreign trade, and by the anti- Austrian poli-
ticians of Prussia.
In the late fifties there was something approach-
ing to a real agitation for Free Trade in Northern
Germany. It found its theoretical expression in
the writings of Prince-Smith, to whose energy and
influence was due the foundation of the German
Economic Congress, which gathered together after
1858 all the reforming forces. There was an
admitted need for the amendment of the tariff;
no readjustment of the specific duties had been
made to bring them into a more satisfactory rela-
tion to values. But the reformers desired to go
further than this ; they wished the amendments to
be made deliberately in the direction of greater
freedom of trade. Much of their political strength
continued to depend on the support given to their
ideas by the landowners, who wanted cheaper
machinery, and also the extension of the English
market for their grain. Germany was still an
overwhelmingly agricultural country at the be-
ginning of the second half of the century two-
thirds of her population were engaged in agricul-
1 Ibid., p. 383.
38 THE COMMERCIAL TREATIES
ture, 1 and the proportion declined only slowly up
to 1870 ; much grain was exported from the north,
especially to Great Britain. 2 The Free Trade
movement took its rise therefore in the agricul-
tural eastern provinces of Prussia, but it was sup-
ported also by the weavers, who wanted cheap
English yarn, by the middle class and small officials,
to whom the cheapness of many commodities was
a matter of very great importance, and by the
commercial classes and the seaports. On the other
side, many of the manufacturers were beginning
to feel that they were strong enough to do without
much of the protection they had hitherto enjoyed ;
some of them were already largely exporting (for
example, one-quarter of the produce of the woollen
industry was sent abroad), and they were anxious
to get rid of anything which in any way hampered
their relations with foreign markets. 3 Political
circumstances in Prussia itself were changing ; the
moderate Liberals were becoming predominant in
the Parliament, and though vigorously opposing
them on the question of the reorganisation of the
army, the Government was quite ready to use
their support for its anti- Austrian programme, and
was therefore favourably inclined towards a com-
mercial policy which commended itself to them,
and would repel Austria. 4 It found its opportunity
1 Voigt, in Handels- und Machtpolitik, vol. i, p. 141.
2 The average value of the surplus of grain exported over that im-
ported was estimated for 1860-4 at 35 mill. mks. (Lotz, i. p. 11).
3 Weber, 389. In 1859 manufactured goods amounted, so far as
values were concerned, to 4 of the total export (Lotz, i. p. 52).
4 Cf. Lotz, i. pp. 28-30.
THE FRENCH TREATY SYSTEM 39
i
in the necessity of dealing with the situation
^
created by the change which had come over the
economic policy of the states of western Europe,
and by the altered attitude of France.
It has already been remarked that the trade
relations between the Zollverein and France under
the Monarchy of July had been greatly strained.
A long commercial struggle had now been going
on for nearly twenty years. 1 After the failure
of negotiations in 1839, the July Monarchy had
imposed very high duties on German goods ; the
Zollverein had replied in 1843 with retaliatory
duties increases on gloves, brandy, etc. and most
of these were still in force. Negotiations up to
1851 had failed, and fresh attempts after 1853 had
been equally unsuccessful. In 1860 Napoleon III.,
by his own personal will and in spite of strong and
general opposition in France, had broken with
French traditional policy and made a commercial
treaty with Great Britain, which " ranks with the
treaty which founded the Zollverein, as perhaps
the most important international event of the
century in the sphere of economics."' By the
treaty France undertook to impose on an agreed
number of British products no duties higher than
30 per cent., and after October, 1864, 24 per cent.,
1 Zimmermann, i. pp. 161-2., 263-5, 393-5.
2 Weber, 368. It is interesting to notice the failure of this his-
torian's prophecy in the following sentence, written in 1871. "The
impetus which this treaty gave to the customs policy of all European
countries is still far from ended, is rather becoming stronger, and in
all probability will end only by a complete change of the whole
customs legislation."
40 THE COMMERCIAL TREATIES
ad valorem ; and Great Britain, on her side, under-
took to abandon some duties and to reduce those
on French wines. And further, both sides bound
themselves to reciprocal "most favoured nation"
treatment, that is to say, any tariff advantage
granted by one of the contracting parties to any
other state was, ipso facto, to extend to the other
contracting party also. 1 The British treaty in-
augurated a series which covered Western Europe
like a net. Treaties were made by France with
Belgium, Italy, Holland, Switzerland, Sweden,
Norway, and other countries, and of these, the
Belgian treaty, with its reciprocal reductions and
provision for mutual " most favoured nation " treat-
ment, became the model for all the others. The
net result was that France had one general or
"autonomous" tariff, which applied to all countries
with which special arrangements had not been
made ; and a treaty or " conventional " tariff, with
rates of duty settled by treaty with any one country
and then extended to all other treaty countries by
the action of the " most favoured nation " clause.
Most of the nations which entered into the system
were influenced partly by the desire not to let
1 "English industry had long reached a point where it had no
further need of protection against foreign competition ; in fact, the
existing protection was rather a burden. Already it was necessary for
it to fight in the great world markets with similar products of the
great industrial states, and it could therefore easily face their com-
petition in its own country, where all the conditions were favourable
to it. It was to be anticipated that this impulse would drive other
states to a reform of their strict customs systems, and in this the
English industry would assuredly find its benefit. The justice of this
calculation has since then been completely established " (Weber, p. 370).
FRANCO-GERMAN RELATIONS 41
Great Britain secure greater advantages in France
than they themselves enjoyed, and partly by the
anxiety to do something to compensate for the loss
of part of the American market, owing to the
United States' high protective tariff of 1861.
It became absolutely necessary for the Zollverein
to take action. Great Britain generalised all the
reductions which she had made in the French
treaty, she extended them to the products of all
countries ; but France only gave reductions to the
treaty states. Consequently the British and Belgian
manufacturers enjoyed an immense advantage over
the Germans, 1 and the trade of Germany with
France was at the best only small, for, whilst it
imported from that country goods to the value of
154,000,000 francs, it sent her goods worth only
82,000,000 francs. 2 The German manufacturers
hoped that by a treaty they would secure a greatly
developed market in France for their iron and
steel, textiles, leather goods, etc., many of which
were prohibited by the French " autonomous " as
distinct from the "conventional" or treaty tariff.
France, on the other hand, communicated early in
1861 her willingness to negotiate with Prussia,
which was entrusted with the diplomatic representa-
tion of the Zollverein, and Prussia readily accepted
the invitation.
1 e.g. " Edged tools from treaty states paid a duty into France
of 18 francs per 100 kilo., but from the Zollverein 160 francs ; the
duties on paper were respectively 10 and 160 francs, on iron tools 12
and 60 francs " (Schippel, p. 171).
2 Lotz, i. p. 37.
42 THE COMMERCIAL TREATIES
It was clear, however, that the treaty proposed
must have much wider effects than the mere de-
velopment of the trade with France. It must
involve a readjustment of the whole Zollverein
tariff, and to that there was no particular opposi-
tion ; in fact, the work of reform had commenced
already in March, 1861, the transit duties were
abolished, and also a considerable number of the
export duties. But of far greater importance was
the probable influence of the contemplated treaty
on the relations to Austria. The Prussian states-
men realised at once that the grant of reduction
of duties to France, and the establishment of
" most favoured nation " terms with that country
would render impossible the continuance of the
special relations, under the treaty of 1853, with
Austria, and would put an end to the idea of a
union between Austria and the Zollverein. 1 Free
Trade was to be the most potent weapon employed
by Prussia in her effort to exclude Austria from
the future German Empire. 2 The other states of
the Zollverein realised this, and at once a struggle
began.
It was, in fact, a repetition of the events of ten
years before. The time for the renewal of the
Zollverein was drawing near, and, just as on the
previous occasion, Prussia had made a treaty with
Hanover and insisted on its acceptance as a condition
of the renewal of the union, whilst the southern
states had striven to make the admission of Austria
1 Weber, p. 373. 2 Schippel, p. 172.
CONFLICT OVER THE FRENCH TREATY 43
the basis of negotiation, so now Prussia pushed on
the completion of the treaty with France in order
to repel Austria. And again she insisted that the
new treaty should be accepted by the other states
if the Zollverein were to be continued. The treaty
between Prussia and France was hastened ad-
mittedly for political reasons, 1 and was completed
on 29th March, 1862, though the actual signing
did not take place till the following August, after
approval had been given by the Prussian Parliament.
It was communicated immediately to the other
Governments for their acceptance, and was speedily
rejected by Wiirttemberg, Hanover, Nassau, and
Hesse-Darmstadt ; Saxony alone, abandoning her
old policy, now threw herself on the Prussian side.
The attitude of the opposition was undoubtedly
influenced by the proposal put forward in July by
Austria for a complete union with the Zollverein,
the preliminary condition, of course, being the
postponement of any arrangement with France till
after that event. To this Prussia would not accede,
declaring herself bound, for her own part, to carry
out the treaty. The southern states attempted, at
the end of 1862, to open direct negotiations with
France, but were rejected. 2 Meanwhile conferences
on the renewal of the Zollverein were going on,
but the difficulties were great. In November,
1862, the Prussian Government had declared
definitely that it took the rejection of the French
1 Weber, p. 386.
3 Schippel, p. 175, quoting Bismarck's speech on 26th December,
1862.
44 THE COMMERCIAL TREATIES
treaty by the southern states to mean their intention
not to continue the Zollverein. After the confer-
ences of the first half of 1863 on the Austrian
question and the renewal of the Zollverein had
produced no satisfactory result, the Bavarian
Government suggested the formation of a separate
union from which Prussia and her allies should be
excluded, and which should come to terms with
Austria on the basis of the treaty of 1853. But
it soon became apparent that only Bavaria and
Wurttemberg were prepared to go so far, and even
in those states the Governments were not sure of
the support of the whole of their population. After
further complicated discussions, in which both sides
attempted to justify themselves before public
opinion, but the Prussian Government was handi-
capped by the impossibility of stating its real aims,
Prussia, on the 17th December, 1863, gave formal
notice of the termination of the Zollverein. The
other states now yielded, particularly as Austria
was now less inclined to push her proposals. The
conferences were renewed in February, 1864, and
at the same time Prussia began negotiations for a
simple treaty with Austria. After some delay, on
the llth April, 1865, a treaty, containing not much
more than the guarantee of simple " most favoured
nation " treatment, was made with Austria, and in
May, after the acceptance in the previous year by
the southern states of the French treaty, the Zoll-
verein was formally renewed. 1 In the same year
1 Its practical renewal dates from October in the previous year.
CHANGES IN THE TARIFF 45
treaties similiar to the one with Austria were made
with Belgium, Great Britain (including her colonial
possessions), and Italy, and the treaty with France,
so long under discussion, at last came into force.
The Zollverein had followed the example of the
last-named country in its adoption of the system
of " autonomous " and " conventional " tariffs.
The series of treaties thus completed brought of
necessity sweeping changes in the customs tariff
of the Zollverein. Already, whilst the negotiations
with France were in progress, but without particular
reference to them, the transit duties had been abol-
ished, and all the parties to the treaties now bound
themselves to maintain this policy for the future.
Further, there had been a growing inclination to
abandon the idea of helping those industries for
which the raw materials were produced at home
by prohibiting or limiting the export of the latter.
In no case was the method very effective, and in
some instances, such as the leather and woollen
industries, it could be shown to be harmful. 1 Most
export duties were now abolished ; some remained,
but were reduced, as, for example, those on materials
requisite for paper-making. All the contracting
parties reserved to themselves the right to prohibit
exports, but under strong French pressure the
Zollverein agreed not to make use of this power in
regard to coal.
Much more important was the reduction of
duties on imports, and this [presented the greatest
1 Lotz, i.^p. 43.
46 THE COMMERCIAL TREATIES
difficulties. For the insertion in most of the treaties
of the " most favoured nation " clause meant that
any reduction granted by the Zollverein to one
power would have to be extended to all the others.
So the Zollverein in granting reductions to France
had to consider, not simply their effect on the
imports from that country, but how far the neces-
sary extension to other lands, for instance, Great
Britain and Belgium, would encourage the attack
by their manufacturers on the German home
market. The reductions made under these con-
ditions represented a deliberate policy of Free
Trade, in that they were inspired by the desire not
only to promote trade relations with the contract-
ing states, but also to improve the tariff by the
removal of anomalies, and by abolishing protection
wherever it seemed no longer required. So the
tariff was disencumbered of duties which had no
protective or financial results (as that on zinc, of
which the Zollverein exported none and imported
much) ; the duties introduced for retaliatory pur-
poses (usually without effect) and no longer im-
portant as the surtaxes on French goods imposed
in 1842 and the duty on Russian tallow were
abolished ; and all the raw and semi-manufactured
materials of industry were admitted free. 1
On none of these things was there much differ-
ence of opinion, but the case was different in regard
to manufactured commodities ; some of the in-
dustries, such as the iron trades and the cotton
1 Lotz, i. pp. 42-4.
REDUCED DUTIES ON MANUFACTURES 47
spinners, still clung to Protection, and had strongly
opposed the treaties for that reason. But their
resistance was overcome, and a great number of
reductions were made the treaty with France
alone had provided for 161 changes in the tariff,
mostly in regard to manufactured goods. Thus
the duty on cotton goods was reduced 40-80 per
cent., on silk 50 per cent., on silk goods 45 per
cent., on pig-iron 25 per cent., on leather 60 per
cent., on leather goods 50 per cent., on sewing
needles 80 per cent., on woollen cloth 60-80 per
cent., on fine iron goods 80 per cent., on pressed
glass 33 per cent. 1 These changes, however, were
not made on any definite plan the tariff had
never yet undergone a complete and systematic
revision ; that might have followed, but the
rapidity of the subsequent movement towards
Free Trade rendered any rearrangement of the
tariff unnecessary, by almost destroying it.
1 Weber, pp. 441-3.
CHAPTER IV
THE ZOLLVEREIN AFTER THE
TREATIES THE COMPLETION OF
FREE TRADE AND THE REACTION
IT is a striking testimony to the strength of the
Zollverein and its hold upon Germany that during
the war of 1866, when the constituent states were
fighting each other, the joint customs administra-
tion went on without interruption. 1 After the
speedy termination of the struggle and the destruc-
tion of all prospect of Austrian predominance in
Germany, there came a reform of the constitution
of the Zollverein by the treaty of 1867 between
the North German Confederation on the one side,
and Bavaria, Wiirttemberg, Baden, and Hesse on
the other. 2 The system of a union of independent
states, each possessing the right to veto any pro-
posal, was replaced by an organisation in which
matters were decided by a majority of votes a
change generally felt to be necessary on account of
1 Weber, pp. 462-3.
2 It should be noted that Hanover, Electoral Hesse, Nassau, and
Frankfurt, hitherto independent states of the Zollverein, had become
part of the Prussian Kingdom ; and the Zollverein area was extended
by the inclusion of Schleswig-Holstein. also added to Prussia.
48 '
FORMATION OF THE EMPIRE 49
the innumerable difficulties and delays which the
old method had called forth. The Zollverein,
thus reconstituted, now included all the German
states except Hamburg and Bremen. The Cus-
toms Union Council (Zollbundesrath) consisted of
fifty-eight members, of whom Prussia had seven-
teen, and represented the old general conference ;
but to it was added a Customs Parliament (Zoll-
parlement) composed of members of the North
German Parliament and representatives of the
South German states. 1 The position was some-
what peculiar, for many of the states were largely
dependent on the customs revenue, and this was
controlled by the Customs Parliament. Con-
sequently, while each separate state could fix its
expenditure at whatever it pleased, it could not
control the chief part of its revenue a fact which
gave great impetus to the movement for complete
union.
In 1871 the Franco-German War, and the pat-
riotic enthusiasm it evoked, brought the establish-
ment of the Empire, and at last political as well as
economic union was attained. 2 In the Empire,
legislation concerning customs and trade was to be
a matter for the Imperial Parliament ; the proceeds
of the customs duties were to go to the imperial
exchequer, and not to be divided between the
state exchequers as before ; the duties were to be
1 Weber, p. 467.
s There were some slight modifications to this Hamburg and
Bremen were in the empire, but not in the Customs Union ; Luxemburg
is still in the Union, but not in the Empire.
50 THE ZOLLVEREIN AFTER THE TREATIES
collected by officials of the separate states, but
under the control of the Emperor as executive
official of the Empire. The new machinery speedily
showed itself to be effective, and the old wearisome
negotiations between the states on every proposal
for a change of economic policy were at an end. 1
The wars of 1866 and 1871 necessarily made
considerable changes in the commercial relations of
Germany to Austria and France. Austria was
inclined to a less strongly protectionist policy,
partly because her statesmen, in the reorganisation
of the empire, were compelled to pay more atten-
tion to the interests of Hungary, which was mainly
agrarian, exported grain and other agricultural
produce, and was distinctly sympathetic to freer
trade. In the treaty of 1868 between Austria and
the Zollverein there were reductions made on both
sides ; by Austria on manufactured goods, by Ger-
many on wine and iron. 2 In the case of France,
there were fears that she might refuse to renew
the treaty with Germany whilst continuing her
arrangements with other powers ; and it was also
likely that, should Thiers remain in power, she
would adopt a strongly protective policy. All
that could be obtained was secured in the Treaty
of Frankfurt in May, 1871, but it was little more
than the guarantee of perpetual " most favoured
nation " treatment ; it did not secure a permanent
set of low duties as the previous treaty had done.
Other treaties of the same kind as this were made
1 Zimmermann, ii. pp. 71, 72, 2 Lotz, i. 86-8,
THE ADMISSION OF ALSACE-LORRAINE 51
in March, 1868, with Spain and her possessions in
Cuba, Porto Rico, and the Philippines ; and in the
following year with the moderately protective
Switzerland, with Mexico and Japan.
The Franco-German War had one other most
important economic effect. The acquisition of
Alsace-Lorraine greatly increased the competition
which German spinners and textile manufacturers
had to meet, without bringing any corresponding
development of the home market. In Germany
in 1868 there were 3,000,000 cotton spindles and
37,000 weaving looms, whilst in the same year
there were in Alsace-Lorraine 2,131,000 cotton
spindles and 48,536 looms. 1 There was great dis-
cussion and uncertainty in Germany as to the
policy to be adopted in regard to the new imperial
lands ; but finally it was found necessary to admit
them completely into the Union, and the prosperity
which followed immediately after the war made
the new competition less felt than it would other-
wise have been. 2
The policy pursued by the Zollverein after 1866
was in the direction of Free Trade, and under the
guidance of Delbruck the movement progressed
with great rapidity. In 1868 the reductions made
in the treaty with Austria were generalised ; some
duties were abolished, and there were reductions
on certain kinds of cotton goods, linen yarn, pig-
iron, unwrought steel, drugs, fine leather goods,
and other commodities. 3 Then came the further
1 Zimmermann, ii. p. 81. 2 Ibid., pp. 81-5. 3 Schippel, p. 185.
52 THE ZOLLVEREIN AFTER THE TREATIES
reform in 1870, which simplified the tariff, reduced
still further the duties on iron and steel, and freed
altogether a number of articles, particularly chemi-
cals. Finally, in 1873 there were still more changes,
and the completion of the general policy of the
reduction or entire abandonment of protective
tariffs, and the adoption of tariffs for revenue
purposes only. 1 The changes thus made were not
to come entirely into force before the 1st January,
1877, but by that time the duties on iron, except
on fine goods, were completely gone, as on most
other things. Only a small group of highly
finished commodities remained liable to duties ;
the German Empire had become very nearly a
free-trading state.
As the duties on iron form about the best illus-
tration of the line of movement, it may be useful
to set them out here.
COMMODITY
Pig-iron ....
Bar-Iron ....
1839 l8 4S l8 ^5 iS68 1870 1873 1877
2 1-50 1 0-50
6-18 9-18 5-7 5-7 3-50-5 2
Iron Plates .
9-24 18-24 7-15 7-15 5-7 2
Coarse Cast-Iron
Goods ....
6 6 2-40 2-40 2'40 2
Coarse Iron Goods .
36 36 8-16 8-16 8 5
Fine Iron Goods . .
60-300 60-300 24-60 24-60 24-60 24-60 !
24-6
(Marks per 100 kilog.)
The establishment of this policy was the result
of mingled economic and political forces. The
landowners of the eastern provinces were still
1 Schippel, p. 186, remarks that the tariff legislation of these five
years was altogether in the spirit of the financial reforms of Gladstone
and Peel.
PRACTICAL COMPLETION OF FREE TRADE 53
free traders, and so in a more moderate way were
the commercial class and many of the manufac-
turers. 1 The opposition came, as always, from the
heavy iron and spinning industries, championed
chiefly by the southern states. The Free Trade
movement, which was so strong that Government
proposals to protect petroleum and raise the duty
on tobacco for financial reasons were rejected, 2
found its political advantage in the fact that there
was at the time no compact Conservative party,
and that Bismarck was relying for support in his
schemes for the organisation of the empire on the
moderate Liberals. Unwilling to accept many
items in their political programme, he disarmed
their hostility by the adoption of their economic
policy ; but he left commercial matters largely
to Delbriick and Camphausen. 3
The practical completion of the Free Trade
policy by the cessation of the iron duties was
followed by an immediate and sharp reaction. The
representatives of the iron and cotton industries
had never ceased their agitation against the reduc-
tion of the tariff, and in conjunction with the manu-
facturers of chemicals, sugar, linen, and leather,
they had formed the Central Union, which com-
menced to work for a return to Protection. They
were aided by the conditions of German industry
after 1872, but still more by the changes which
1 Lotz, i. pp. 91, 92. 2 Zimmermann, ii. pp. 219, 220.
3 Zimmermann (ii. p. 230) complains that the whole policy at this
time was a slavish imitation of the action of Great Britain, without
any regard to the difference in geographical and economic conditions.
54 THE ZOLLVEREIN AFTER THE TREATIES
were coming over German agriculture and by the
financial needs of the Empire.
In the history of German trade after 1871 the
dominant fact is the payment of the war indemnity
of nearly six milliard francs (including interest) by
France ; much of it was paid in bills of exchange,
but a great amount in gold. The results were
a great increase of imports, whilst exports remained
almost stationary ; a very rapid rise in prices, as
a result of the great influx of gold ; and consider-
able impetus to industry from the high prices and
also from the expenditure by the Government on
railways and public works. There followed the
usual results excessive development of works,
over-capitalisation, and over-production. In June,
1870, there were in Prussia 410 joint-stock com-
panies with a total capital of three milliard marks ;
by the end of 1874 the number had increased
to 2,267, with a capital of seven and one-third
milliards. 1 But already in 1873 the crash had com-
menced ; it was widespread and general, not merely
in Germany, but outside. There followed a rapid
fall in prices and general depression ; and for a time
the low level of prices in Germany kept serious
foreign competition away. Then, however, the
situation gradually improved ; markets became
steadier, and prices began to rise. But just then
Great Britain entered upon a period of depression;
agricultural difficulties, due to bad harvests, affected
the whole country; there was a drop in the home
1 Blum, p. 158, quoting Max Wirth's Geschichte der Handelskrisen.
THE REACTION 55
demand for iron and textile goods, and the British
manufacturers, who were over-producing as a result
of the impetus given by the unusually high prices
of 1872 and 1873, now sent large quantities of
goods abroad at extremely low prices, that is
to say, they "dumped." This counteracted the
tendency of the German market towards a rise in
prices, and seriously hindered the recovery of the
German manufactures ; hence came the renewed
demand for Protection, strongest in the case of the
textile and iron industries. 1
Moreover, a very important change had come
over the opinions of the landowners. With the
development of means of transport and the
growth of the American railways, the Russian
and even American competition in the supply of
grain to the European markets was beginning to be
severely felt; the German landowners were not
only ceasing to be exporters, but were severely
threatened even in the home market. Further, the
movement of population to the towns had com-
menced in Germany, and the more attractive
conditions offered by industrial employment were
beginning to deprive the landowners of their
labourers. They had ceased to have any further
interest in the promotion of Free Trade ; in fact,
they were themselves beginning to desire some
measure of protection. And even some of those
observers who believed that it would be a mistake
1 Dietzel, in Quarterly Journal of Economics, May, 1903. Cf. Lotz,
i. pp. 122-37.
56 THE ZOLLVEREIN AFTER THE TREATIES
to attempt to shut out the foreign and cheaper
supplies of foodstufts, were yet, like Conrad, willing
to establish a moderate amount of protection for
grain, by a scale of duties limited in duration and
gradually diminishing, to enable the agriculturists
to transfer their attention to other branches of
production. 1
How far this joint protectionist movement of
agriculture and industry would have been success-
ful, if left to itself, is doubtful ; the determining
factor in the situation was the condition of the
imperial finances. The expenditure of the empire
was increasing rapidly, and to Bismarck it seemed
impossible to continue to raise the revenue required
by direct taxation, which was becoming extremely
burdensome. It was felt that a rearrangement of
the imperial finances was absolutely necessary, both
on economic and political grounds, and Bismarck
resolved that his best policy was to have recourse
to indirect taxation in the form of customs duties,
and to substitute the proceeds of these for the
contributions to the imperial exchequer from the
separate states contributions which they raised
by direct taxes. The demands on the states were
steadily rising ; in 1874 they were 51,400,000
marks, whilst by 1878-9 they had risen to over
70,000,000 marks. The Chancellor was much in-
fluenced by these considerations, and as a member
of the landowning class he was not insensible
to its demands ; the position of affairs in home
1 Dietzel, pp. 386, 387.
BISMARCK'S NEW POLICY 57
politics had changed, and he could afford to break
with the Liberals. In October, 1878, 204 members
(i.e. a majority) of the Reichstag signed a declara-
tion in favour of the reconsideration of fiscal policy. 1
And another fact which had considerable weight
with the Chancellor was the growth of Protection
in the neighbouring countries, particularly in
France in the tariff' of 1878. 2 The policy which
Bismarck now adopted had three objects in view.
First, he desired to establish (to use his own words)
"a customs system which secures to the entire
home production a preference before foreign pro-
duction in the home market, whilst keeping within
the limits imposed by financial interests." Secondly,
there was to be a reform of the railway system and
railway rates, to promote the transport of German
goods, and to put an end to the preference given on
many of the railways to foreign products ; he wished
to obtain an imperial railway system, and when that
proved impracticable, he resolved that the Prussian
railways, at least, should become the property of the
1 Blum (p. 310) quotes from the Circular : " In view of the com-
mercial policy of most of the countries bordering on Germany, with
the knowledge of the absence of a German customs tariff and the evil
effect of this on national well-being, and on account of the continuance
of the crisis in German industry and agriculture (the signatories)
believe a reform of the tariff, based on the result of careful investiga-
tions and expert balancing of interests, to be absolutely necessary.
. . . Although holding diverse views as to commercial policy, the
signatories are agreed on this fundamental point that the difficult
problems of German commercial policy cannot simply be solved by
phrases about Free Trade and Protection, but that it is much more
necessary to reconcile the real and supposed conflicts of interests by the
exercise of a scientific, patriotic, and reasonable spirit."
2 Lotz, i. pp. 146-9.
.58 THE ZOLLVEREIN AFTER THE TREATIES
state. And thirdly, he was anxious for the re-
arrangement of the imperial finances. 1
The argument for the new policy was set out in
a letter addressed by the Chancellor on 15th
December, 1878, to a committee appointed by the
Bundesrath to consider the revision of the tariff.
The financial object of tariff reform, according to
this memorandum, was to be the reduction of
direct and the increase of indirect taxation ; and
the Chancellor calculated that if the future import
duties were to average 5 per cent, ad valorem, the
increased revenue would amount to about seventy
million marks, or almost exactly the amount which
in the year 1878-9 was contributed by the separate
states to the imperial exchequer. To secure this
result it was necessary to return to the principle of
the liability to taxation of all foreign products
crossing the frontier, with the exception of those
materials for industry which Germany either did
not produce at all, or produced only to an inade-
quate amount. This proposal the Chancellor pro-
ceeded to justify on the ground of the economic
interests of the nation. " I leave undecided the
question whether complete mutual freedom of
international commerce, such as is contemplated by
the theory of Free Trade, would not serve the
interests of Germany. But as long as most of
the countries with which our trade is carried on
surround themselves with customs barriers, which
there is still a growing tendency to multiply, it
1 Blum, pp. 305, 306 ; cf. Dawson, pp. 47-54.
BISMARCK'S ARGUMENT FOR PROTECTION 59
does not seem to me justifiable, or to the economic
interest of the nation, that we should allow our-
selves to be restricted in the satisfaction of our
financial wants by the apprehension that German
products will thereby be but slightly preferred to
foreign ones." Protective duties for particular
industries he thought likely to cause difficulty and
arouse hostility, but a customs system protecting
the whole home production would "in no way
appear partial, because its effects would be more
equally spread over all the productive circles of the
land than is the case with a system of protective
duties for isolated branches of industry. The
minority of the population, which does not produce
at all, but exclusively consumes, will apparently be
injured by a customs system favouring the entire
national production. Yet if by means of such a
system the aggregate sum of the values produced
in the country increase, and thus the national
wealth be on the whole enhanced, the non-produc-
ing parts of the population and especially the
state and communal officials who are dependent
upon a fixed money income will eventually be
benefited." He therefore proposed the maintenance
of the existing duties and their possible increase,
and the introduction of new duties ; and he held
that, except in cases where the foreign commodity
was not produced in Germany and was indispens-
able, the greater part, if not the whole, of the
import duty would be borne by the foreigner.
And in any case a small duty of from 5 to 10 per
60 THE ZOLLVEREIN AFTER THE TREATIES
cent, would only be one of the forces affecting
prices ; it would probably not do the consumer
any harm, and would do the home producer some
good. In regard to agriculture, the Ministry, in
the memorandum which accompanied its definite
proposals, declared that the duties were so small
that they could not be regarded as protective to
any considerable extent, and would not diminish,
and still less exclude, the import of foreign grain ;
but they would check the swamping of the German
market by the surplus products of other lands, and
make German agriculture better able to hold its
own, even if the general price of grain should fall.
Even granted that the result of the new duties
be an increase in the price of the necessaries of
life, the Government asserted that this would be
corrected ultimately by the increase of home pro-
duction and by the greater demand for labour and
consequent rise of wages. 1
The Chancellor was supported by the iron and
textile industries and their allies, and by the land-
owners and the agrarian party generally. He was
opposed by the exporters, who feared retaliation
(though this opposition was somewhat weakened
by the growing tariffs of foreign powers), by the
two great seaports, which dreaded the dislocation
of their trade, and by the municipalities, which, on
the great Municipal Day at Berlin, where seventy-
two town councils were represented, protested
strongly against any policy likely to cause an in-
1 See passages quoted in Schippel, pp. 230-2.
THE NEW TARIFF 6l
crease in the price of food. 1 The National Liberals
led the opposition, but they were a declining party,
and they had no hold on the workmen ; the Socialist
movement was growing rapidly, but its leaders
seem to have been disinclined to take any vigorous
action. Thus in 1876, the Socialist Congress at
Gotha declared that "the Socialists of Germany
are indifferent to the controversy raging in the
proprietary classes as to Protection and Free Trade ;
the problem is a practical one, and must be so
considered in each particular case." And some of
the Socialist leaders were apparently inclined to
take the line that a protective tariff might increase
the demand for labour in the home market, and
consequently bring some benefit to the workmen,
though, on the other hand, they disapproved of
proposals which tended to raise the price of food. 2
In spite of a considerable amount of opposition,
the tariff proposals were carried, 3 not, however,
before the agrarian party, which held the political
balance, had forced the Government to increase
considerably the duties originally proposed on
agricultural produce. The tariff ultimately adopted
dealt with forty-three groups of commodities, and
retained the system of specific duties, that is to
say, duties levied on a given quantity of each
commodity, and not changing with the changes in
1 Blum,, p. 330.
2 For a sketch of the Socialist attitude towards the problems of
tariff policy, see Schippel, pp. 323-52.
3 The details of the controversy may be read in Zimmermann, ii.
pp. 271-300 ; and Lotz, i. pp. 163-74.
62 THE ZOLLVEREIN AFTER THE TREATIES
value of that quantity. In fact, the whole tariff
system was inelastic, defective, and unscientific ;
in particular it did not take sufficient account
of the complications of industry, and lacked
adaptability. 1 The new policy was based on the
principle of moderate protection for agriculture
and industry alike. The British protective system,
up to 1846, had been maintained chiefly for the
sake of agriculture ; the German protective system
from 1848 to 1860 had been dictated by the interests
of manufacturers ; now an effort was to be made
to harmonise the two, and to give a fair measure
of protection to all. And at this point it will be
convenient to examine the attitude of the German
economists towards national fiscal policy up to the
establishment of the new tariff.
1 Schumacher, Verhandlungen, pp, 157, 158.
CHAPTER V
THE ATTITUDE OF THE ECONOMISTS
AT the outset of a survey of the movement of
economic thought in Germany in the last century,
it is necessary to remind ourselves of two very
important influences which have dominated the
whole of German political thought during that
period. The first of these is the idea of the
paternal state an idea based on the historical fact
that the Prussian State is the creation of a series
of strong rulers, such as the Great Elector,
Frederick William L, and Frederick II., working
by means of a powerful and highly centralised
bureaucracy. For centuries the nation looked for
impetus and initiative in all departments of national
life to the monarchs, and on the whole it rarely
looked in vain. The second great influence is that
of the desire for national unity a desire dis-
appointed at the War of Liberation, but ever
growing in strength, attempting to realise itself
in the abortive movements of 1848-9, and at last
triumphant in 1870. The effect of these two ideas
has been a general sympathy on the part of all
German writers on economics and politics towards
63
64 THE ATTITUDE OF THE ECONOMISTS
State action, and an inability amongst economists
to keep their discussions free from political con-
siderations.
Most of the German economists of the early
years of the nineteenth century were followers and
interpreters of Adam Smith, and the most im-
portant representatives of this school were Rau,
whose Lehrbuch was published between 1826 and
1832, and Nebenius, the official of Baden, who, it
will be remembered, played a considerable part
in the foundation of the German Zollverein. l But
as early as 1809 a note of revolt against the
doctrines of Adam Smith was sounded by Adam
Muller, whose Elemente der Staatskunst was pub-
lished in that year. His criticism of Adam Smith
is based chiefly on his own conception of the State
as representing the " totality of national life." Too
much regard, he held, is paid by Adam Smith to
the individual and to the immediate production
of exchange values ; and he complains that the
collective interests of the community, the main-
tenance of collective production in the future, and
the social well-being of the workers are almost
entirely ignored, and that Adam Smith neglects
to point out " the necessary counterpoise and com-
pletion of the division of labour," namely, the prin-
ciple of the "national combination of labour."
For Great Britain Adam Smith's individualistic
economics might be adequate, and probably were ;
for Germany and the continental states generally
1 See p. 7,
FRIEDRICH LIST 65
a different theory of economic action and of the
relation of the State to commerce and industry
was absolutely necessary.
Much more important and much more influen-
tial was the work of Friedrich List (1789-1846),
who published his Rationale System der Politischen
Oekonomie in 1841 a book which owed its wide-
reaching success partly to its power of argument
and abundance of historical illustration, and partly
to its fervid patriotism and its appeal to that
growing desire for national unity which animated
the vast majority of the German people. It is less
an economic argument than a great political appeal,
and its title gives the key to its contents. Like
Muller, List lays great emphasis on the distinc-
tion between "private economy" and "national
economy." * National unity is the first essential of
individual well-being, and "private economic in-
terests, like all others, must be subordinated to the
maintenance, completion, and strengthening of a
nationality." Like Muller again, he emphasises
the fact that it is not to the production of wealth
alone that the economic policy of the nation
should be directed, but to the creation of many-
sided productive powers, and the harmony and
balance of the three branches of national economic
1 List, National System of Political Economy (translated by Lloyd),
chap. xiv. e ' The foreign trade of a nation must not be estimated in the
way in which individual merchants judge it, solely and only according
to the theory of values (i.e. by regarding merely the gain at any
particular moment of some material advantage) ; the nation is bound
to keep steadily in view all those conditions on which its present and
future existence, prosperity, and power depend" (chap. xii.).
F
66 THE ATTITUDE OF THE ECONOMISTS
action agriculture, manufacture, commerce. In
this latter idea of the balance of the three depart-
ments of economic activity we may detect traces
of the influence of one of the most remarkable
works of Fichte, whose Geschlossene Handelsstaat,
published in 1800, sets forth a scheme of a self-
contained socialistic state, in which perhaps the
most important task of the Government is to
maintain the balance between the producers of
food and raw material, the producers of manu-
factured goods and the merchants, and to prevent
the predominance of any one group over the
others ; from this ideal state foreign trade must be
excluded, because it is certain to tend to destroy
such a balance. But whilst he desired to maintain
agriculture, List also held most strongly that in-
dustrial development is essential to any community
which desires to attain to the highest possible level
of civilisation. 1 To enable industries to grow up,
protection by tariffs and all possible forms of
governmental action is necessary until such time
as the manufactures are strong enough to stand
1 c ' Manufactories and manufactures are the mothers and children of
municipal liberty, of intelligence, of the arts and sciences, of internal
and external commerce, of navigation and improvements in transport,
of civilisation and political power. They are the chief means of
liberating agriculture from its chains, and of elevating it to a com-
mercial character and to a degree of art and science, by which the
rents, farming profits, and wages are increased, and greater value is
given to landed property. The popular school has attributed this
civilising power to foreign trade. ... If, however, trade in the
manufactures of far distant lands exercises admittedly so beneficial an
influence on our agricultural industry, how much more beneficial must
the influence be of those manufactures which are bound up with us
locally, commercially, and politically" (List, chap. xii.).
THE HISTORICAL SCHOOL 67
alone and to contend effectually with foreign com-
petition. This is the " infant industries " argument
for Protection ; but it will be noticed that even
List did not contemplate the maintenance of Pro-
tection as a permanent policy the ultimate ideal
for each state is (in his doctrine) that by these
" educational tariffs " it should at last become
strong enough to cast off trade restrictions. 1 But
in spite of the increase of prosperity and growth
of industrial activity in Germany since the estab-
lishment of the Customs Union, Protection could
reasonably, at the date of List's book, be thought
necessary to enable the rising industries to develop
in face of the overwhelming industrial power of
Great Britain.
Two years after the publication of List's great
book, there appeared the first work of the school
which was to exert the most potent influence on
German economic thought for the remainder of
the nineteenth century the historical school. In
1843 Roscher published his Grundriss, and this
was followed in 1848 by Hildebrand's Die
Nationaloekonomie der Gregenwart und Zukunft,
and in 1853 by the book of Karl Knies entitled
Die Politische Oekonomie von Standpunkte der
geschichtlicJien Methode. These various works
formulated the general principles on which the
new school has worked, and the principles have
been applied since that time by an ever-increasing
army of students and investigators, who have
1 See below, p. 72.
68 THE ATTITUDE OF THE ECONOMISTS
devoted themselves chiefly to historical inquiry
and the collection of the facts of economic history,
and to the deduction from the results so obtained
of principles which may serve as a guide for the
economic action of communities, and particularly
of their own country.
The historical school has on the whole always
thrown its weight on the side of Protection, at
least for Germany. It does not regard either Free
Trade or Protection as an ideal, except in so far as
universal Free Trade is a far-off goal, desirable,
but only to be reached when the whole political
character of the world is changed. Both Free
Trade and Protection have their uses in the different
stages of national development. " The fundamental
propositions," set forth by Knies and adopted by
all the historical school, " are that the economic
constitution of society at any epoch on the one
hand, and on the other the contemporary theoretic
conception of economic science, are results of a
definite historical development ; that they are both
in vital connection with the whole social organism
of the period, having grown up along with it and
under the same conditions of time, place, and
nationality ; that the economic system must there-
fore be regarded as passing through a series of
phases correlative with the successive stages of
civilisation, and can at no point of this movement
be considered to have attained an entirely definite
form ; that no more the present than any previous
economic organisation of society is to be regarded
SCHMOLLER'S " MERCANTILE SYSTEM" 69
as absolutely good and right, but only as a phase
in a continual historical evolution ; and that in
like manner the now prevalent economic doctrine
is not to be viewed as complete and final, but only
as representing a certain stage in the unfolding or
progressive manifestation of the truth." 1 Given
the particular conditions of Germany, most of the
writers of the historical school have held that their
country was at the time of the Bismarckian tariff
legislation of the late seventies in the stage where
protection and vigorous State action in regard to
commerce and industry were necessary, and their
general views are best represented by the greatest
of living economic historians, Professor Gustav
Schmoller. In his Mercantile System, published
in 1884, Professor Schmoller has given a clear
exposition of this theory, though in an elaborate
historical setting. He traces the development
(with special reference to Germany) of the economic
unit from the village through the town and the
territory to the state ; " political organisms and
economic organisms are by no means necessarily
conterminous ; and yet the great and brilliant
achievements of history, both political and economic,
are wont to be accomplished at times when economic
organisation has rested on the same foundation as
political power and order." 5 Like Miiller and
List, and like all the members of the historical
school, he emphasises the moral element, and the
1 Ingram, History of Political Economy, p. 203.
2 Schmoller, The Mercantile System (translated by VV. J. Ashley).
70 THE ATTITUDE OF THE ECONOMISTS
need for the consideration of the general interest
of society. " All economic and political life rests
upon psychical mass movements, mass sentiments,
and mass conceptions, gravitating around certain
centres." 3 "The idea that economic life has ever
been a process mainly dependent on individual
action an idea based on the impression that it is
concerned merely with methods of satisfying in-
dividual needs is mistaken with regard to all
stages of human civilisation, and in some respects
it is more mistaken the further we go back." 2 So
the municipal economic policy of the Middle Ages,
in spite of its local partiality and prejudices, was
fully justified so long as the towns were the most
important forces on the side of civilisation and
economic progress. Later the place of the towns
was taken by the territories, striving to make them-
selves into self-contained and self-conscious eco-
nomic unites. " What to each in its time gave riches
and superiority, first to Milan, Venice, Florence, and
Genoa, then later to Spain and Portugal, and now
to Holland, France, and England, and to some
extent to Denmark and Sweden, was a state policy
in economic matters, as superior to the territorial
as that had been to the municipal. ... It was not
only a question of state armies, fleets, and civil
services ; it was a question rather of unifying
systems of finance and economy which should
encompass the forces of millions and whole countries
and give unity to their social life." 3 And this is
1 Loc. cit.y p. 61. 2 Loc. cit., pp. 3-4. 3 Loc. cit., pp. 48-9.
THE TRUE VIEW OF PROTECTION 71
the true conception of mercantilism ; it is, in fact,
a great policy of national construction, " state
making and national economy making at the same
time. . . . The essence of the system lies not in
some doctrine of money or of a balance of trade ;
not in tariff barriers, protective duties, or navigation
laws, but in something far greater : namely, in the
total transformation of society and its organisation,
as well as of the state and its institutions, in the
replacing of a local and territorial economic policy
by that of the national state." 1 And so to Pro-
fessor Schmoller the practice and theory of the
European states in the first half of the nineteenth
century, as expounded by List, had a truer relation
to their actual economic conditions than had the
theories of Adam Smith. 2
But this doctrine of Protection is a very relative
one ; it all depends on the particular condition
of a country at a given time. The policy of Bis-
marck in his tariff legislation may, on this reason-
ing, have been a sound one for Germany twenty-
five years ago, when it was necessary to take all
possible steps to consolidate the Empire and pro-
mote its economic development. It is defensible
on precisely the same principles as those which led
Adam Smith to defend the old Navigation Acts ;
but this very fact would condemn merely pro-
tective tariffs as a permanent policy. There is
a higher stage of development, when the infant
industries have become adult and are able to fight
1 LOG. cit., pp. 50-1. 2 Loc. cit., p. 60.
72 THE ATTITUDE OF THE ECONOMISTS
their own way in the world. To give them per-
manent protection is to keep them in perpetual
tutelage. List himself wrote that " a nation which
has already attained manufacturing supremacy can
only protect its own manufacturers against retro-
gression and indolence by the free importation
of the means of subsistence and raw materials
and by the competition of foreign manufactured
goods." 1 England, he argued, had by 1841 reached
the highest stage of development, and for her Free
Trade was the right economic policy. 2 So also
1 List, loc. cit., chap. xv. The previous passage is interesting : " Eng-
land will then give up the idea that she is designed to monopolise
the manufacturing power of the whole world. She will no longer
require that France, Germany, and North America should sacrifice
their own manufactures in consideration of the concession by England
of permitting the import, duty free, of agricultural products and raw
material. She will recognise the legitimacy of protective systems
in those nations, although she will herself more and more favour Free
Trade," for^the reason given above. He adds that England will cease
to urge foreign nations to become Free Traders ; " she will herself
permit competition without regard to the foreign systems of pro-
tection."
* "Finally, history teaches us how nations which have been
endowed by nature with all resources which are requisite for the
attainment of the highest grade of wealth and power, may and must
without on that account forfeiting the end in view modify their
systems according to the measure of their own progress : in the first
stage, adopting Free Trade with more advanced nations as a means of
raising themselves from a state of barbarism, and of making advances in
agriculture ; in the second stage, promoting the growth of manufac-
tures, fisheries, navigation, and foreign trade by means of commercial
restrictions ; and in the last stage, after reaching the highest degree of
wealth and power, by gradually reverting to the principle of Free
Trade and of unrestricted competition in the home as well as in foreign
markets, that so their agriculturists, manufacturers, and merchants
may be preserved from indolence and stimulated to retain the supre-
macy which they have acquired " (chap. x.). He adds that Great
Britain alone appeared (in his time) to have reached this final stage.
GERMAN ECONOMISTS AND STATE ACTION 73
Professor Schmoller writes : " That age could begin
to think and act in the spirit of Free Trade which
had left so far behind it the toilsome work of
national development that it regarded its best
results as matters of course " ; l and most of the
other members of the German historical school
of the present day seem to regard German industries
as having reached the stage in which they no
longer have need of what List called " educational
tariffs " (Erziehungszolle). 2 Where they do defend
the maintenance of the tariffs against the importa-
tion of manufactured commodities, they do so, as
we shall see later, on entirely different grounds.
The German historical school has taken up also
an altogether different attitude towards State action
from that adopted by the older English economists.
They allow a very large sphere of action to the
State, and the term applied to so many of them
" Socialists of the Chair " means that they go
a considerable way towards that form of socialism
which in its origin is associated with the name
of Ferdinand Lassalle. As a philosophic doctrine,
however, it is much older than that writer. Fichte
had opposed to the " security " theory of the State
the proposition that " it is the duty of the State to
give each man that which is his due, then to estab-
lish him in the actual possession of his property,
1 Schmoller, loc. cit., pp. 61-2.
2 Cf. Schacht, " Inhalt und Kritik des Zolltarifentwurfs " in
Schmoller's Jahrbuch, 1902 ; and Wagner, Agrar- und Industriestaat,
2nd ed., p. 223.
74 THE ATTITUDE OF THE ECONOMISTS
and then to safeguard him therein." 1 Many of the
followers of Hegel, whose philosophic teaching
tended "to glorify existing institutions, to see
in Church and State the objective embodiment
of the Absolute Idea," 2 had regarded the Prussian
State as the instrument appointed to bring about
the social reformation. The term " state social-
ism " was adopted in Germany to indicate the
antithesis to revolutionary socialism, and to mark
a policy of reform, not by the destruction, but
by the utilisation of the existing state organisation.
So in Professor Wagner's articles on " Finanz-
politik und Staatsozialismus," published in 1887,
it is asserted that "the chief aim of the State at
present in taxation and every other form of its
activity ought to be to alter the national distribu-
tion of wealth to the advantage of the working
class. All politics must become social politics ;
the State must turn workman's friend." 3
This does not mean merely the protection of the
worker by factory legislation and his relief in time
of poverty by the Poor Law system ; it includes
the ownership of railways and other industrial
enterprises by the State, the undertaking by the
State of whatever enterprises are desirable, but
cannot be, or are not likely to be, undertaken by
private individuals or companies, and the establish-
ment of State-aided compulsory insurances against
1 Fichte, Der Geschlossene Handeltsatuat , bk. i. chap. i.
8 Russell, German Social Democracy, p. 2.
3 Rae, Contemporary Socialism, p. 387.
GERMAN RAILWAY POLICY 75
sickness and accident, and State systems of old-age
pensions. This state socialism found its expression
in the social legislation of Prince Bismarck, which
was inspired partly by a genuine interest in social
reform, and partly by a desire (not in the least
successful) to outbid the Social Democrats for
popular favour. 1
A most important and beneficial influence was
exercised on the industrial development of Germany
by the new railway policy. The older State action
in this matter had taken the form of subventions
to private companies, and the purchase or direct
construction of railways to only a limited extent.
In 1875 eight lines were owned, and eight others
were managed by the Government, and thirty
were privately owned and managed. The con-
stitution of the Empire provided for the imperial
control and supervision of railways, the building
by the Government of railways " considered neces-
sary for the defence of Germany or for the purpose
of general commerce," and the settlement of railway
rates. An Imperial Railway Board was set up in
1873, and Bismarck secured the passage through
the Prussian Parliament of a law enabling the
Government to transfer the railways of that state
to the empire. This was intended to show an
example, but the smaller states would not take the
same line ; and consequently, with the exception
of those in Alsace and Lorraine, the railways re-
1 For a detailed description of this policy, see Dawson, Bismarck
and State Socialism.
76 THE ATTITUDE OF THE ECONOMISTS
mained the property of the several states. The
Prussian Government then set to work to buy up
the lines in its own territory ; between 1879 and
1882 about six thousand miles were bought, and
the process was continued, until, in 1902, the
Prussian State railways were over nineteen thou-
sand miles in extent. In the Empire, as a whole,
the state Governments between them owned in
1900 railways over twenty-eight thousand miles in
length. 1 Not only has this policy of State owner-
ship been financially extremely beneficial, but it
has enabled the Governments to establish a scien-
tific and coherent system of railway rates, which
promotes, instead of hampering, trade.
The Chancellor's policy of social reform was
exemplified by the Sickness Insurance Law of
1883, with its complement the Accident Insurance
Laws of 1884 and 1885, and the Old Age and
Infirmity Insurance Law of 1889 (now replaced
by the enactment of 1899) ; these applied to the
working-class population of the whole Empire, and
there could be no contracting-out. Under the
Sickness and Accident Laws, every manual worker
and every person whose salary is below a certain
amount must insure in some fund ; usually he
pays two-thirds and his employer one-third of the
weekly contribution, and in return he receives free
medical treatment and sick -pay during illness.
The Old Age Insurance system, which includes
provision for permanent incapacity arising from
1 The Statesman's Year-book, 1903, p. 674.
COMPULSORY INSURANCE 77
ill-health, follows the same general lines ; it is
compulsory on all persons in receipt of incomes of
less than 100 a year, with certain small excep-
tions, and is optional for a large number of other
persons. l The obligation to insure begins at sixteen
years of age ; employer and employed pay an equal
share of the premium ; the pension, to which the
State gives a subsidy of 2 10s. per annum, can
first be claimed at the age of seventy, or in the
case of permanent disablement by ill-health, after
five years' insurance. 2 The schemes have hardly
yet passed out of the experimental stage it is not
yet twenty years since they came into force, but
there can be no question that they have con-
stituted the most serious and most successful
attempt yet made to deal with the problem.
1 It was estimated at the occupation census of 1895 that over
12,000,000 persons were liable to insurance under this law (Board of
Trade Report, p. 15 n.).
2 For full details on the whole subject, see the Board of Trade
Report, 1899, and especially Brooks' Compulsory Insurance Report of
the United States Commissioner of Labour.
CHAPTER VI
GERMAN COMMERCIAL POLICY
TO 1894
FOR some years after the adoption of the new
tariff in 1880, German foreign trade remained
almost stationary in value, and even declined a
little. The following table shows the movement
of imports and exports (exclusive of the precious
metals) of Germany for the period 1880-91 in
million marks : l
Year. Import. Export.
1880 .... 2,819 ... 2,893
1881 .... 2,962 ... 2,975
1882 .... 3,128 ... 3,188
1883 . . . . 3,263 ... 3,270
1884 . . . . 3,260 ... 3,203
1885 . . . . 2,937 ... 2,859
1886 . . . . 2,877 ... 2,984
1887 .... 3,111 ... 3,134
1888 . . . . 3,271 ... 3,204
1889 .... 3,990 ... 3,165
1890 .... 4,146 ... 3,327
1891 .... 4,151 ... 3,176
It will be observed that for the five years 1880
to 1884, the average value of imports was 3,086
1 Statistisches Jahrbuchfur das Deutsche Reich, 1892, p. 38.
78
FOREIGN TRADE AND CUSTOMS REVENUE 79
million marks, whilst the average for the next four
years was 3,049 million marks, or about two
million pounds a year less ; the average of exports
was for 1880 to 1884, 3,106 millions, and for 1885
to 1888, 3,045 millions, or about three million
pounds less. After 1888 the figures are not alto-
gether comparable, because of the inclusion of
Hamburg and Bremen, which, though long under
negotiation, had been delayed by the return to
Protection. 1 It will be noticed further that after
1888 there was a sharp rise in imports, whilst
exports remained at about the same level, and the
excess of imports over exports became very large.
For the imperial exchequer the effects of the
new customs system seem to have been altogether
satisfactory. In 1877-8 the net revenue from the
customs was 103 '7 million marks, or 2 '4 marks per
head of population ; by 1883-4 the amount had
risen to 189*7 million, or 4*2 marks per head ; and
in 1889-90 a total was reached of 357*7 million,
or 7*3 marks per head. The contribution to the
imperial exchequer from the separate states, which
had reached 70 million marks in 1878-9, sank
rapidly until in the year 1882-3 the customs
revenue not only supplied an amount equal to the
old contributions, but provided a surplus which
could be distributed amongst the states ; and in
1884-5 nearly 41 million marks were available for
this purpose. 8
After 1880 the most noticeable feature in the
1 Zimmermann, ii. p. 98. 2 Blum, p. 306.
80 GERMAN COMMERCIAL POLICY TO 1894
history of the German tariff is the increase of the
duties on agricultural products, coincident with
the growth of the political power of the agrarian
party. It is true that there were some slight
increases in the duties on manufactured commodi-
ties, but these were not very important, and against
them must be set some small reductions. 1 The
agrarians complained of growing competition, and
urged the necessity of protecting the food supply
of the empire against the dangers of war ; and
they secured increases, of which the more important
are shown in the following table :
DUTY PER 100 KILO.
Commodity. 1879. 1881. 1885. 1888.
Wheat . . 1 mk. ... ... 3 mk. ... 5 mk.
Rye . 1 ... ... 3 ... 5
Barley . . -5 ... ... l ... 2j
Flour . . 2 ... 3mk. ... 7 ... 10|
Meat of all kinds 12 ... ... 20 ...
As regards Germany's foreign trade, the ex-
porters had feared at the time of the establishment
of the new protective tariff that they might be
hampered by retaliation on the part of foreign
nations. Fortunately their fears in this direction
were not realised, since the Government of Prince
Bismarck was able, in most cases, either to make
new treaties, or to secure the maintenance of the
existing treaty relations. Political influence enabled
Germany between 1880 and 1888 to establish, with
such Eastern Powers as China, Japan, Corea, Siam,
and also with Servia and Roumania, treaties which
1 Lotz, i. 177.
FOREIGN COMMERCIAL RELATIONS 81
bound those Powers to reduce some of their exist-
ing duties, or, at least, not to increase those duties
on German products, without imposing any corre-
sponding obligation on Germany herself. Of
another kind were the treaties with Italy, Spain,
Greece, Switzerland, in which the reductions of
duties were mutual, although on the German side
they were not, except in the case of Switzerland,
very important. With the great states, such as
Austria - Hungary, Belgium, the Netherlands,
France, Sweden, and Norway, all that could
be obtained was a continuance of " most favoured
nation " treatment, whose importance for Germany
was enhanced by the fact that France had made
treaties with the other countries, which gave her
certain reductions of duties, and that under the
" most favoured nation " clause Germany enjoyed
the same advantages. In Great Britain, under
the treaty of 1865, Germany continued to re-
ceive the same favourable treatment a privilege
which was extended to her also in the British
Colonies. 1 With Russia and the United States
the condition of affairs was by no means so satis-
factory, for both those nations were particularly
interested in the export of agricultural produce,
and therefore came into sharp conflict with
Germany over the new tariff, which they not
unnaturally regarded as directed specially against
themselves. Russia had always refused to bind
herself by treaties, even of the simplest kind,
1 Ibid.., ii. pp. 60-3,
82 GERMAN COMMERCIAL POLICY TO 1894
and from 1877 onwards her tariff wall was steadily
rising a fact which was not without influence on
the movement of the German tariff between 1880
and 1890. Germany's relations with the United
States had long been based on reciprocal "most
favoured nation " treatment, but this had been of
little value ; the situation was now very strained,
and the German policy in regard to agricultural
products must be counted as one of the strong
motives for the high protective policy adopted in
America by the McKinley Tariff.
On the whole Prince Bismarck was disinclined
to the old policy of conventional tariffs ; he seems
to have been opposed to anything which would
bind the hands of the Government in its defence
of the commercial interests of the country. He
adhered, with certain slight exceptions, to the
simple system of the autonomous tariff; but by
1890 a considerable change had come over the
political conditions of Germany, marked by the
dismissal of Prince Bismarck and the appointment
of General Caprivi as his successor. In home
affairs the chief features of the new system were
the abandonment of anti-socialist legislation and
the attempt towards a " labour policy," illustrated
by the international conference at Berlin ; in par-
liamentary politics the important development was
the rise of the Centre or Catholic party. 1 In
1 In 1887 the National Liberals were the largest party in the Reich-
stag with 99 members, the Centre came next with 98, and the Conserva-
tives next with 80; at the election of 1890 106 members of the Centre were
returned and 73 Conservatives, while the National Liberals fell to 42.
MOVEMENT OF FOOD PRICES 83
foreign policy, the independent attitude was
abandoned, and the most striking example was
furnished by the Anglo-German arrangement with
regard to East Africa, under which Great Britain
was given a free hand there and in Zanzibar, in
exchange for the surrender of Heligoland to
Germany. Commercial policy was now to be
modified in the same way as the result of a
number of converging influences.
The question of the food supply had suddenly
become serious. The following table shows the
movement of wholesale prices for wheat and rye
per 100 kilog. at Berlin, for the period 1880 to
1891 i 1
Year. Wheat. Rye.
1880 . . .218 mks. ... 188 mks.
1881 . . .219 ... 195
1882 . . . 204 ... 152
1883 . . . 186 ... 145
1884 . . .162 ... 143
1885 . . . 161 ... 141
1886 . . .151 ... 131
1887 . . .164 ... 121
1888 . . .172 ... 134
1889 188 ... 156
1890 . . .195 ... 170
1891 . . .224 ... 211
It will be observed that, as a result of a number
of causes, the agricultural duties did not prevent
a continued fall in prices until 1886, but after that
year there was an upward movement which became
extremely sharp with the failure of harvests in 1890
and 1891. This was particularly the case in regard
1 Bade, pp. 27-8.
84 GERMAN COMMERCIAL POLICY TO 189*
to rye, which is the chief bread-stuff for a very
large part of the German population. In 1891 the
Russian Government found itself compelled, in
view of the acute economic distress in Russia, to
prohibit the export of wheat and rye and other
agricultural produce. At the same time, the diffi-
culties of the German exporters were increased by
the adoption of the McKinley Tariff in the United
States and by the marked movement towards
higher protection all over Europe. Most of the
nations with which Germany had treaties either
gave notice of their termination, or were inclined
to do so, and France was also about to renounce
the treaties which she had made with various
countries, and by which Germany had profited.
It had become necessary for Germany to re-
adjust her policy. It was believed to be clearly
impossible for her to continue in the old way and
to make no effort to influence the tariffs of her
neighbours. It was therefore decided to endeavour
to continue the existing reciprocity arrangements,
but to elaborate them into a new series of treaties,
which should return to the old principle of re-
ciprocal reductions of duties. The agrarian party
clung to the protection of the autonomous tariff,
and were opposed to any modifications ; but under
the prevailing circumstances they were not unwilling
to see a temporary reduction of the duties. What
they did object to was anything which would
establish those reductions for any considerable
number of years. On the other hand, the growth
RETURN TO THE TREATY SYSTEM 85
of industry not only rendered a large and cheap
food supply desirable, but made it necessary that
everything possible should be done to secure a large
and assured foreign market for German manu-
factured articles. The latter was the dominant
consideration, but if German manufacturers were
to export freely, foreigners must be allowed to have
easier access to the German market.
"The conclusion of new international treaties
with simple ' most favoured nation ' treatment,
without the settlement of tariffs, would indeed
give Germany the possibility of securing an in-
ternal market for its own manufactures by means
of an arbitrary protective tariff, but would provide
not the slightest guarantee for the maintenance of
that foreign market which is so essential for our
export trade. In face of the world competition
of the economically developed states, becoming
ever fiercer with the rapid increase of production
and its aids, permanent intercourse between them
is conceivable only in the form of a reasonable
exchange of commodities, and this presupposes
again a deliberate reciprocal limitation of free
action in regard to tariffs. Under the present
commercial conditions, Germany cannot count on
the maintenance of its export, unless by such limita-
tions on its own side it secures to other nations
the possibility of paying for its goods, wholly or in
part, by their own products." l
The home producers, both agricultural and
1 Government Memorandum, quoted in Lotz, i. p. 87.
86 GERMAN COMMERCIAL POLICY TO 1894
industrial, must consent to some sacrifices, for "con-
cessions at the hands of agricultural nations, such
as Austria-Hungary, Italy, and Russia, were to be
obtained only by the reduction of certain duties
on agricultural commodities ; concessions at the
hands of manufacturing nations, like Belgium and
Switzerland, by the reduction of certain German
duties on manufactured products." 1 The manu-
facturers as a whole supported the new policy,
since they were anxious for the growth of the
export trade, and did not fear foreign competition
in the home markets so much as formerly ; the
working classes also gave their support to it, and
the opposition was in the main confined to the
agrarians, who were called on to make the chief
sacrifices, and were unwilling to do so for any
length of time.
The new policy was inaugurated in December,
1891, by the commercial treaty with the Austro-
Hungarian Empire, which for some time had been
desirous of entering into closer relations with
Germany, since the latter country was its most
important market, taking on an average over one-
half of the total Austro-Hungarian exports. 2 But
at the same time, only about 10 per cent, of the
German exports went to Austria-Hungary, and
her imports from that country were only about
14 per cent, of the whole, so that for the purposes
of negotiations Germany was in much the stronger
position. Hungary was particularly interested in
1 DietzeL, pp 367-8. 2 Wuttke, p. 415.
TARIFF CHANGES 87
the reduction of the German agrarian duties,
and in Austria itself there was a reaction against
the protective policy of recent years. Following
the treaty with Austria came others with Italy,
Belgium, and at the beginning of 1892 with
Switzerland. They were all to remain in force till
the 31st of December, 1903, and unless then re-
nounced were to continue indefinitely, but were to
be terminable at one year's notice from either side.
The bases of all these treaties were the same
reciprocal "most favoured nation" treatment and
reduction of duties. The most important changes
on the German side were in the case of the agri-
cultural duties, which were reduced below the level
of 1888, but in no case to the rate of 1885 ; thus
the duties on wheat and rye were lowered from
5 to 3^ marks per 100 kilog., on barley from 2J
to 2, on flour from 10^ to 7J, and on meat from 20
to 15. In manufactured articles moderate reduc-
tions were made in the import duties on joinery,
glass, and earthenware, some iron goods, textiles,
paper, leather manufactures, and others. In all, it
was estimated that the articles affected by these
reductions and by some abolitions of unimportant
duties had been imported from the four countries
concerned to the amount of 260 million marks on
an average for the years 1888 to 1890. 1 On the
other side there were general reductions of duties
on German manufactured goods ; and in a number
of cases where reductions were not made, the con-
1 Lotz, ii. p. 83.
88 GERMAN COMMERCIAL POLICY TO 1894
trading states bound themselves not to make an
increase. The German exporters were by no means
satisfied, for they had hoped to obtain greater
reductions of hostile tariffs, and they overlooked
the fact that they had, at any rate, prevented any
further advances for a considerable period. They
were, however, willing to accept the treaties, and
though the agrarians made a strong opposition on
certain points, they were not powerful enough to
secure the rejection of the Government policy.
Then, however, agricultural conditions changed,
and there was a fall in prices, due partly to im-
proved harvests at home, and partly to the increase
of imports to Germany from the United States
and Roumania. The following table shows the
movements of prices from 1891 to 1894 : l
QUOTATIONS PER 100 KILOG.
1891. 1892. 1893. 1894.
Wheat (at Cologne) 23-2 mks. 19'2 mks. 16-4 mks. 14-1 mks.
Flour 31-0 26-2 22-1 19'2
%e 22-2 19-1 15-2 12'7
Barley (at Mannheim) 18-7 l6'8 17'7 15-3
The result was that the Government had much
more difficulty in carrying the second series of
commercial treaties in the latter part of 1893 with
Servia, Spain, and especially Roumania. The last-
named country was coming to be one of the most
important sources of Germany's food supply, par-
ticularly during the conflict with Russia. In 1889
5 per cent, of the German supply of wheat came
1 Dietzel, p. 369.
RUSSO-GERMAN COMMERCIAL RELATIONS 89
from Roumania, but in 1893 the amount had risen
to 20 '4 per cent., and to an even higher point in
the case of rye. 1 The agrarian party were therefore
strongly hostile to anything which would encourage
the increase of the quantities imported from Rou-
mania, whilst, on the other hand, the manufacturers,
who sent, it was estimated, 100 million marks worth
of goods per annum to that country, wanted a treaty
which would still further develop their market.
The new treaties, although supported by the whole
force of the manufacturers, were confirmed by the
Reichstag only after a most strenuous opposition
from the agrarians. The conflict reached its height
over the treaty with Russia, which was in some
ways the most important of all. It has already
been remarked that the commercial relations be-
tween that country and Germany had for some
time been distinctly strained, but the trade between
the two was, nevertheless, very considerable. In 1 890
Russia imported from Germany goods to the value
of 10,300,000 30 per cent, being for manufactured
goods and exported to her goods to the value
of 27,000,000 95 per cent, of these latter being
foodstuffs, raw materials, and unfinished goods. 2
In 1891 Russia sent into Germany more than one-
half (53 per cent.) of the latter 's total import of
cereals, and this quantity taken by Germany
amounted to about one-sixth of the total Russian
export of cereals. Germany sent to Russia iron
1 Lotz, ii. p. 110.
2 Wuttke, p. 419, and British Foreign Office Report, p. 41.
90 GERMAN COMMERCIAL POLICY TO 1894
and steel goods, chemicals used in manufactures,
coal and coke, porcelain and cement, and a very
large quantity of flour. Moreover, she had a large
transit trade, for a considerable proportion of the
Russian supplies of raw cotton and wool came to
her through Germany.
Germany had two grounds of complaint against
Russia. The highly prohibitive tariff, which, after
eight increases of duties between 1881 and 1891,
culminated in the last year in a new general scheme
of duties and reached the highest point in Russian
protective policy since 1850, affected all nations
equally ; but the discrimination against land-borne
in favour of sea-borne goods hindered the com-
petition of Germany with Great Britain in the
supply of coal and iron, and in the carrying trade.
Russia had hitherto stood apart from the treaty
system, in her unwillingness to bind her customs
tariff for any definite time, but now she was not
disinclined to modify her policy, particularly as the
treaties already made by Germany put her in an
extremely difficult position. Those treaties had
given reductions of duties on agricultural produce
to other nations, and thereby they enjoyed a
distinct advantage over Russia. After the con-
clusion of the first series of treaties, Russian corn
paid a duty 43 per cent, higher than that imposed
on the products of the favoured nations Austria-
Hungary, Italy, Switzerland, Belgium, in the
treaties, 1 and the United States, Argentina, Servia,
1 British Foreign Office Report, p. 42.
RUSSO-GERMAN NEGOTIATIONS 91
Bulgaria, and Turkey, under the "most favoured
nation " clause. Roumania was also about to be
included.
Negotiations between the two Powers had com-
menced towards the end of 1891, by Russia pro-
posing that Germany should grant her the terms
of the conventional tariff in regard to most agri-
cultural products, together with free entry for a
number of raw materials, and offering in return to
make some concessions, but not on metals, textiles,
chemicals, or sugar. The German Government
replied that the proposals were inacceptable, since
they secured to Russia reductions on 80 per cent,
of her exports, and gave practically nothing in
return ; it suggested, therefore, that Russia should
remove the obstacles to commercial intercourse on
the frontier by simplifying the customs regulations,
equalise the duties on sea- and land-borne goods,
and reduce the duties on about four-fifths of the
tariff groups of commodities. Negotiations were
continued after the control of Russian commercial
policy had passed into the hands of M. Witte,
who proposed to establish a minimum and maxi-
mum tariff the minimum to be a slightly modified
version of the tariff of 1891, for the benefit of
those states which gave Russia "most favoured
nation" treatment, and the maximum to be the
same tariff increased in various cases and against
various countries. In October, 1892, Russia offered
to admit German goods under the minimum tariff,
and to abolish the preferential treatment of sea-
92 GERMAN COMMERCIAL POLICY TO 1894
borne trade ; and in March of the following year
the German Government replied with its final
proposals. It offered the conventional tariff terms
in return for considerable reductions on the Russian
minimum tariff, and the promotion of trade by
the rearrangement of the customs regulations. On
the refusal of the Russian Government to consider
these proposals and the failure of an attempt at
a conference of experts, the actual tariff war began.
From August 1st, 1893, German goods imported
into Russia became subject to the maximum tariff,
which imposed on them surtaxes amounting to at
least 30 per cent, on manufactured goods and
20 per cent, on semi-manufactured articles. In
the same month Germany replied by imposing sur-
taxes of 50 per cent, on all Russian goods liable
to customs duties one result being that the duty
was about 115 per cent, higher on Russian bread
stuffs than on those imported from America,
Hungary, Roumania, and Argentina. In return,
the Russian Government again increased the tariff
against German produce by 50 per cent., and
raised the shipping dues against German vessels.
It extended these measures to Finland ; and the
German Government consequently applied the 50
per cent, surtaxes to goods imported from that
Duchy also. All these various increases had been
made by the 16th of August, but the strain on
both sides was very much too severe ; early in
September fresh negotiations were opened, and on
October 16th the first conference was held at Berlin.
THE TARIFF WAR 93
"The statistics published by the German Govern-
ment show that after the outbreak of the tariff
war, the German export trade to Russia had
been partially paralysed. The export of locomo-
tives ceased ; the export of wrought iron was one-
third of the average in the preceding year, and of
cement less than one -half. And in addition to
the losses of the German exporters and manufac-
turers, it became apparent that a large number
of Germans lived by the import and handling of
Russian products, and they were, of course, severely
affected. The railways, which are State property,
were run, on certain branches, at a loss. German
ships were practically excluded from Russian ports,
and the German coast towns, interested in the
carrying trade, were heavy sufferers. . . . With the
approach of winter the situation became worse, as
the Baltic ports were closed by the ice. The large
trade in extra-European goods, which had been
carried on through Germany, was crippled. The
transit of raw cotton through Germany for the
Russian market was, in 1893, only one-half what
it had been in the preceding year. And in addition
to the economical losses, a grave danger was im-
minent. There is ample proof that the tariff
war, as it proceeded, was regarded by both re-
sponsible parties as likely to lead to a state of
things dangerous for the peace of Europe." 1 On
the other side, Russia was suffering from the injury
inflicted on her agricultural exports, particularly
1 Report, p. 46.
94 GERMAN COMMERCIAL POLICY TO 1894
after the good harvest of 1893. The following
table shows the movement of imports and exports
between the two countries for the years 1890 to
1894 inclusive. It will be remembered that the
acute struggle was in the latter half of 1893, and
in the first two months of 1894.
RUSSIAN EXPORTS TO GERMANY.
Mill. Roubles.
1890 . . .178
1891 . . .193
1892 . . .138
1893 . . .133
1894 . . 148
GERMAN EXPORTS TO RUSSIA.
Mill. Marks.
54
58
38
35
54
Both sides were now anxious to come to terms,
and political motives combined with economic
interests to bring about this result. Russia desired
a treaty with Germany as a first step in a series of
such treaties, and Germany was anxious to do
something to counterbalance the growing Russo-
French alliance. The outcome of this less hostile
disposition on both sides was the treaty signed
on February 10th, 1894. The German Govern-
ment declared that German trade, commerce, and
shipping were profoundly interested in the reduc-
tion of the Russian duties, and that, on the other
hand, the freer importation of Russian grain would
not seriously affect the German agricultural in-
terests, since the really dangerous menace was
from the United States, Roumania, and other
countries which already enjoyed treaty privileges.
The agrarian party fiercely resisted the treaty, but
it was carried after a hard struggle.
THE TREATY OF 1894
95
It was a compromise. Russia received "most
favoured nation " treatment, which gave her the
benefit of the lower grain duties ; she also secured
the abolition of duties on some of her products,
such as flax, oil-seed, and wool, and an advantage
over the United States in the duty on oil. Ger-
many, for her part, obtained a reduction of duties
on 120 articles as, for instance, 20 per cent, on
leather goods, 17 to 20 per cent, on un wrought
iron, 18 per cent, on iron machinery, 17 to 20 per
cent, on pottery, 17 per cent, on paper, 12 to 30
per cent, on woollen tissues. Both parties bound
themselves for ten years not to increase the duties
on certain specified goods. The treaty also pro-
vided that Russia should abandon the distinction
between sea-borne and land-borne goods, whilst
Germany undertook that Russian goods should
not be subject to higher rates than domestic goods
for carriage on the Prussian State railways. The
following table show the movement of trade
between the two countries since 1893. 1
1 These are the figures given in the Statistisches Jahrbuchfiir das
Deutsche Reich, 1902, pp. 174-6, but the Russian returns give an alto-
gether different set of figures. They are quoted in the Foreign Office
Report, p. 50, and may be set out here as showing the difficulty of
obtaining accurate trade statistics. (The value of the rouble has
fluctuated between 2*. 0|rf. and 2*. 2d.)
RUSSIAN EXPORTS TO GERMANY.
RUSSIAN IMPORTS FROM GERMANY.
Mill. Roubles.
Mill. Roubles.
1893
132
101
1894
148
143
1895
1T9
176
1896
185
190
1897
175
180
1898
179
202
1899
164
231
1900
188
215
96 GERMAN COMMERCIAL POLICY TO 1894
GERMAN IMPORTS FROM RUSSIA.
Mill. Marks.
353-4
1893
1894
1895
1896
1897
1898
1899
1900
1901
1902
543-9
568-8
634-7
708-3
736-6
715-9
729-5
729-5
773-6
GERMAN EXPORTS TO RUSSIA.
Mill. Marks.
184-6
194-8
220-9
364-1
372-0
440-5
437-3
359-1
345-9
372-1
Thus Germany had returned to the system of
the "autonomous" and "conventional" tariffs ; the
former applied against all those countries which
had not made with her a commercial treaty pro-
viding for reciprocal reductions of duties, and the
latter containing all the lower rates of duty estab-
blished by treaties and generalised to treaty powers
by the force of the " most favoured nation " clause.
But it is important to note that the system adopted
differed from that now employed by France ; there
the Government can increase the minimum (" con-
ventional") as well as the maximum ("autono-
mous") rates at any time, whilst the German
Government, in its treaties, bound itself not to
increase the tariff rates for a term of years.
The Russian treaty seems to have been satis-
factory in its effect, but this was by no means the
case with all the others, and in particular the settle-
ment of Germany's commercial relations with the
Austro-Hungarian Empire was not followed by
results equal to the expectations of the German
EFFECT OF THE TREATIES 97
exporters. They had hoped for a great expansion
of the Austrian market, but their export of textile
manufactures actually declined for some time. 1
There was an increase in respect of metals, but
exports as a whole were almost stationary ; they
were valued at 420 million marks in 1893, 436
million in 1895, 477 million in 1896, 435 million in
1897, 466 million in 1899, 511 million in 1900.
Imports, on the other hand, from Austria rose
rapidly ; they were 580 million marks in 1893,
after a decline in 1895 they rose to 600 million in
1897, and to 730 million in 1899. The Austrian
Empire sent chiefly agricultural produce to
Germany, and the general effect of the treaty
seems to have been to increase the competition
which the German agrarians had to meet, without
securing any considerable increase of market for
the manufacturers. 2 The negotiations with Spain
brought Germany into yet another tariff war. In
1893 a treaty had been signed between the two
countries, which was accepted by the German
Parliament, but rejected by the Spanish. There-
upon the German Government withdrew the
" most favoured nation " treatment of Spanish
goods, and subjected them to the autonomous
tariff; the Spanish Government did the same for
German goods. Germany, in her turn, imposed
a surtax of 100 per cent, on all commodities
1 The average import of textiles into Austria-Hungary from
Germany from 1892-4 was 33 '8 million kronen; 1897-9, 30 '8
million kronen (Wuttke, p. 439).
2 Wuttke, p. 458.
H
98 GERMAN COMMERCIAL POLICY TO 1894
coming from Spain. Spain then proposed in 1896
that both sides should make use simply of the lowest
rates of the autonomous tariff terms which Ger-
many accepted. But inasmuch as France, England,
Switzerland, and other countries enjoyed in Spanish
markets preferences over Germany, the Govern-
ment of the last-named country soon became
anxious to obtain more satisfactory terms, and at
the time of the purchase of the Caroline Islands,
in the beginning of 1899, a fresh treaty was signed,
securing reciprocal " most favoured nation " treat-
ment. 1
A word must be said as to the commercial rela-
tions of Germany to two other countries, Great
Britain and the United States. Ever since the
treaty of 1865, Germany had enjoyed the advan-
tages of the " most favoured nation " clause in
Great Britain and in all its colonial possessions.
In 1897 the Canadian Government granted a
reduction of duties on British goods alone, and
Germany immediately protested against this on
the ground that it violated the terms of the treaty
of 1865. The British Government, therefore, gave
a year's notice of the renunciation of the treaty,
but suggested that it would be willing to undertake
negotiations for a fresh arrangement. Germany
then decided to continue the treaty so far as con-
cerned Great Britain and those of her colonies
which did not discriminate between British and
German goods ; but against Canada she applied
1 Zimmennann, ii. pp. 308, 309.
RELATIONS WITH THE UNITED STATES 99
her autonomous tariff. This arrangement has been
renewed from time to time, but so far no new
treaty has been made. With the United States
German relations had almost always been far from
satisfactory. By the Saratoga Convention, signed
in 1891, Germany abandoned many of the restric-
tions on the import of American meat, and gave
the United States a right to participate in certain
reductions of duties, whilst she received in return
" most favoured nation " treatment for her sugar
products. But this was not of much use to her,
since the United States subsequently imposed
surtaxes upon all bounty-fed sugar, and in spite of
all its efforts the German Government could not
secure preferential treatment. 1
1 A few other treaties were made towards the end of the century,
the chief being the agreement with Japan in 1896.
CHAPTER VII
THE REVIVAL OF THE
PROTECTIONIST MOVEMENT, AND
THE NEW TARIFF
COUNT CAPRIVI had succeeded in carrying the
commercial treaties, but he had incurred the fierce
hostility of the agrarians, and soon after the con-
clusion of the Russian treaty they were strong
enough to secure his overthrow and his replace-
ment by Prince Hohenlohe. The period from the
latter 's succession to office until the close of the
century was characterised chiefly by the revival of
the protectionist agitation, particularly amongst
the agrarians. But before noticing the causes of
this agitation and its results, it will be well to
review some of the features of the industrial
development of Germany since the foundation of
the Empire. 1
The population of the Empire increased from
41 millions in 1871 to 56 millions in 1900, and is
continuing to increase to the extent of some
850,000 persons a year. 2 The imports in 1872 for
1 For a brief and fairly reliable sketch, see Veritas, The German
Empire of To-day.
2 Cf. Troeltsch, pp. 10-11.
100
GERMAN INDUSTRIAL DEVELOPMENT 101
home consumption were estimated at 163,000,000,
and in 1902 at about 290,000,000. The exports
of domestic produce were valued in 1872 at
116,000,000, and in 1902 at 240,000,000. The
production of coal averaged 32 million tons a
year for the period 1870-4, and 97 million tons
for the period 1896-1900. In the former period
the average quantity of pig-iron produced was
1'8 million tons, and in the latter period 7'4 million
tons ; in 1902 it was 8*3 million tons. The pro-
duction of steel averaged 1*1 million tons for the
period 1881-5, and 5 '5 million tons for the
period 1896-1900 ; in 1902 it was 7*6 million tons.
The German merchant navy (vessels of 17^ tons
and upwards) increased from 982,000 tons in 1870
to 2,093,000 tons in 1901. The annual tonnage
of vessels built rose from 32,600 in 1878 (the
first year for which figures are available) to 101,900
in 1901. In all the scientific industries, particu-
larly in the production of chemicals, dyes, and
colours, there has been a very marked advance
aided by an educational system which is un-
doubtedly superior on the technical and scientific
sides to anything to be found elsewhere, and by
an enlightened policy on the part of the manu-
facturers, such as that described in the case
of the chemical trades by Professor Dewar in
his presidential address to the British Associa-
tion at Belfast in 1902. Much aid has been
given to the industrial development of the coun-
try by a well-conceived railway transport policy,
102 REVIVAL OF THE PROTECTIONIST MOVEMENT
rendered easy by the State ownership of rail-
ways.
It is important to observe also that the indus-
trialisation of Germany is marked by the same
general features as the economic history of
England after the industrial revolution. There is
the same rapid growth of the towns (an increase as
astonishing as that of the American cities), 1 and
the same decline in the agricultural population,
which in 1870 was about one-half, and in 1900
about one-third of the whole, having fallen both
relatively and actually. But agriculture still re-
mains the chief occupation ; according to the
census of 1895, llf million persons were employed
in agriculture and kindred occupations, about
9 millions in industry, and about 3 millions in com-
merce and transport. 2
At the same time, and as a natural consequence,
there has been a constant increase of dependence
on the foreign food supplies. 3 The following table
shows the increase in the surplus of the amount of
grain, meal, and flour imported into Germany over
the amount exported :
1881-1885 .... 39-1 million cwt.
1886-1890 .... 42-8
1891-1895 .... 70-1
1896-1900 . . . . 103-1
1 Cf. Shaw, Municipal Government in Continental Europe, chap. v.
2 Troeltsch,, p. 25.
3 Cf. Voigt, " Deutschland und die Weltmarkt' (in Handels- und
Machtpolltik), pp. 154-79.
IMPORTS AND EXPORTS 103
The prices of agricultural produce have, on the
whole, steadily fallen ; but there still remains a con-
siderable difference between the various parts of
the Empire, largely because of the distance in many
cases of the markets from the place of production,
and the difficulties of transport, in spite of the
growth of German railways. 1 The following table
shows some of these differences in 1902 :
Wheat per 1,000 kg. Rye per 1,000 kg.
Berlin . . 163-1 mks. ... 144-2 mks.
Danzig. . 162-4 ... 139'4
Mannheim . 174-0 ... 150-3
Munich . 183-3 ... 151'9
Thirdly, imports greatly exceed exports. In the
Free Trade period, from 1872 to 1879, the average
annual imports were valued at 190,000,000, and
the exports at 130,000,000; and although the
latter were admittedly under-estimated, there yet
remained a considerable excess of imports over
exports. After 1879 the statistics were improved,
and at first the new protectionist system acted as
a drag. The import trade declined for a time, and
in 1880 exports were slightly in excess of imports.
From then till 1888 the two were in practical
equilibrium, but after 1888 and the inclusion of
the Hanse towns, the turn came, and the following
table shows the " special trade " of Germany since
1893, in million marks :
1 Troeltsch, pp. 29 and 30.
2 Statitstischeti Jahrbuch, 1902, pp. 164-6.
104 REVIVAL OF THE PROTECTIONIST MOVEMENT
Year.
Imports for
Home
Consumption.
Exports for
German Home
Produce.
Excess of
Imports over
Exports.
1893 .
. 4,134
3,245
889
1894 .
. 4,285
3,051
1,234
1895 .
. 4,246
3,424
822
1896 .
. 4,558
3,754 ...
804
1897 .
. 4,865
3,786
1,079
1898 .
. 5,440
4,010
1,430
1899 -
. 5,784
4,368
1,416
1900 .
. 6,043
4,753
1,290
1901 .
. 5,710
4,513
1,197
1902 .
. 5,806
4,813
993
During the same period there has been a marked
increase in the import of manufactured articles.
The following table gives the figures for the ten
years from 1893 to 1902 in million marks :
Year.
1893
1894
1895
1896
1897
1898
1899
1900
1901
1902
Million Marks.
901
835
925
939
966
1,015
1,148
1,200
1,064
1,103
Average 1893-1897 = 913-2
Average 1898-1902=1,106-0
It should be added that German industry has
been characterised more than that of any other
country, with the exception of the United States,
by the rise of trusts, or by their practical equivalent
in economic effect, the Kartels, which now number
over four hundred, and, though strongest in the coal
1 Statistisches Jahrbuch, 1902, p. 96.
THE KARTELS 105
and iron industries, are gradually extending them-
selves over the whole range of German industry.
" They are combinations for maintaining prices
(and more or less for the joint marketing of the
produce) by a number of concerns which retain
their own independence as producers. 1 And these
Kartels have notoriously sought to relieve the
German market in times of depression by sending
abroad below the domestic price. . . . The Kartels
have, however, advanced considerably beyond the
point of lower foreign prices ; they have devised a
plan whereby export is assisted and encouraged by
the grant of bonuses by the several syndicates to
their members and customers. This plan appears
to have been first introduced in 1891, and it would
seem to have been more systematically established
in 1897. In the period of expanding trade which
soon followed it was quite unnecessary, but in 1901
the reaction again came." 2 Finally, it must be
pointed out that neither the tariff nor the Kartels
(though it is one of the commonest claims of the
latter and of the American trusts that they can
regulate industry and give it a more equable course)
have been able to guard Germany against recurring
periods of acute depression, such as that through
which the country passed between 1901 and 1903.
1 It is in this respect that the Kartels chiefly differ from the
American trusts.
2 W. J. Ashley, The Tariff Problem, pp. 120-1. For a detailed
description of the organisation and working of the Kartels, see Raffalo-
vich, Trusts, Cartels et Syndicats, and the Consular Report for the
Frankfurt District, 1903.
106 REVIVAL OF THE PROTECTIONIST MOVEMENT
It has already been remarked that the closing
years of the nineteenth century witnessed the
revival of protectionist movements, arising chiefly
amongst the agrarians. We have observed that
after 1891 there was a somewhat rapid decline
in the price of agricultural produce, particularly
grain. This was due hi part to the effects of the
treaties, which opened the German market more
than before to foreign grain, and partly to the good
harvests. The agricultural party ascribed the fall
solely to the tariffs, and until 1896-7 their great
cry was the fall of prices ; x but then a turn came,
and the following table shows the movement of
prices from 1894 to 1897 : 2
QUOTATIONS PER 100 KG.
1894. 1895. 1896. 1897.
Wheat (at Cologne) 14-1 mks. 14-7 inks. 16.2 mks. 18-4 inks.
Flour 19-2 20-2 21-4 23'9
Rye 12-7 12-6 13-0 13-8
Barley (at Mannheim) 15-3 15-7 16-1 16-7
After 1896 they raised the new cry of " Leute-
not," declaring that the rapid development of
industry was denuding the land of labourers, and
that the agricultural interest was suffering from
low prices because of the reciprocity treaties made
for the sake of the industrial exporters, and at
the same time was hampered by the withdrawal of
labourers from the rural districts, which increased
the agricultural cost of production. The agrarian
party therefore denounced the " export orgy," and
1 Lotz, ii. p. 134. 2 Dietzel, p. 369.
RECONSIDERATION OF POLICY 107
the policy which furthered the exportation of
manufactured articles by the importation of agri-
cultural produce. They put forward a demand
for duties protecting all branches of agriculture
grain, cattle, garden products, etc. *
Moreover, the time for the renewal of the treaties
was approaching, and it became necessary for the
Government to prepare for negotiations. It pro-
posed to do so by the adoption of a new tariff
which should contain higher rates of duty, and
should also be much more specialised and detailed
than the tariff of 1879. It believed that the higher
the rates of the tariff, the better the terms which
could be' forced from foreign nations, and also that
it was desirable to specialise the tariff rates in
order to enable reductions to be made on any one
article, without this involving reductions on a
number of others. 2 The basis of the scheme was
to be the simultaneous protection both of agri-
culture and manufactures ; but the strong agrarian
1 Dietzel, pp. 370-3 ; cf. Lotz, ii. p. 137.
2 "It frequently happens that another nation lays stress on securing
a reduction of rates on certain specialties, and is disposed to pay for
this concession with one equally advantageous to us. But if now the
Customs Act be made up too summarily, and these specialties are
bunched together with many other articles under one head, we must
lower the rate on the whole group for the sake of one article. The
result of that would be that third nations, having the advantage of
' most favoured nation ' clauses, would profit by the reduction of the
duties on the other commodities included in the same group, without
having to pay an equivalent of their own therefor. The more
specialised the Customs Act, the more compensation material there
would be for treaties ; and the more general, the less there would
be " (Dietzel, p. 376, summarising the argument of the Imperial
Minister of the Interior).
108 REVIVAL OF THE PROTECTIONIST MOVEMENT
movement, which had been going on since 1893
and found its representation in the Bund der
Landwirte, directed the new policy mainly in the
interests of the large landowners. The result was
the Bill of 1901, which dealt with 946 groups of
commodities. There was a long and fierce parlia-
mentary battle, and the new tariff was not carried
till December, 1902 ; it is, however, not to come
into force until such a time as the Government
shall appoint.
The principle of the new tariff is the increased
protection of agriculture and industry alike, but
the primary object is the improvement of agri-
culture ; and for that purpose minimum duties,
very considerably higher than the old tariff rates,
are established for the chief kinds of grain. The
differences are shown in the following table :
OLD DUTIES.
NEW
DUTIES.
(per ton).
(per ton).
Autonomous
Tariff.
Treaty
Tariff.
Maximum.
Minimum.
s. d.
s. d.
s. d.
s.
d.
Wheat
2
10
I
15
3
5
2
15
Rye .
2
10
1
15
3
2
10
Barley
1
2 6
1
2
1
10
Oats .
2
1
8
3
2
10
The minimum duties represent the point below
which the duty may not be lowered in any com-
mercial treaties which the Government may make.
" These four duties form 7 per cent, of our total
import. If, however, we consider these four duties
in relation only to imports liable to duties as
THE NEW TARIFF 109
must be done, since we can consider only these
articles which can be used for concessions they
form one-seventh of the import ; and if we exclude
further all colonial produce liable to duty and
some other articles which are of no use in negotia-
tions with the treaty states . . . we perceive how
much is lost to us, so far as negotiations are con-
cerned, by the fixing of the minimum tariff for
grain." 1 There are increases on other agricultural
produce, but no minimum is fixed for these.
As regards the duties on manufactured goods,
the principles of the new tariff are (1) "the main-
tenance of the existing exemption of raw materials
so far as these are not produced at all in Germany,
or are only produced in insufficient quantity or
inferior quality " ; (2) taxation on semi-manufac-
tured goods intended to be worked up for export,
only to such an extent as not to interfere with the
export trade ; (3) increase of taxation on manu-
factured goods. 2 Thus raw materials, or materials
only in the first stage of manufacture, are to be
admitted free ; for example, raw silk and once-
twisted silk are exempt from duty, the duty on
silk yarn is reduced by nearly two-thirds, the duties
on woollen and cotton yarn and cotton thread
either remain at the old level or are reduced ; but
rates on twice-twisted silk, which represents the
employment of more labour, are increased 42 per
cent. On woollen and half- woollen goods there is
1 Schacht, in Schmoller's Jahrbuch, 1902,, part ii. p. 342.
* Schacht, p. 309.
110 REVIVAL OF THE PROTECTIONIST MOVEMENT
an increase of from 15 to 30 per cent., on cotton
manufactures from 57 to 80 per cent., on leather
goods 50 to 100 per cent. The rates on all kinds
of iron are advanced considerably, as also on tools
and all manner of machinery, with an elaborate
reclassification. Of the tariff as a whole Dr.
Schacht points out that its main tendencies are
towards the increase of taxation on agricultural
produce generally, and also towards the raising
of the cost of half-finished goods. There is also
a higher taxation of many manufactured goods, on
the assumption that the greater the labour expended
on a particular commodity, the higher should it be
taxed. These principles, he adds, are due to a
complete misunderstanding of the productive power
of Germany ; the tariff proposals will promote the
production of grain and of half-finished goods, but
will harm the small farming and manufactures.
Yet these latter are the most important factor
in the economic life of Germany to-day. The
main economic problem is the question of popula-
tion, and work can be provided for the rapidly
increasing numbers not by the "extensive" in-
dustries of grain-growing and the manufacture of
half-finished goods, but by the "intensive" indus-
tries of small farming and the manufacture of
finished goods. It is essential, then, that nothing
should be done to hamper German industry in any
way ; " we dare not adopt a policy which makes
competition more difficult for us by increasing the
cost of raw and semi-manufactured materials, and
CRITICISM OF THE TARIFF 111
reduces our labourers' strength by raising the price
of the necessaries of life. But that is the policy of
the tariff, and thereby it not only misunderstands
the real foundations of German economic life, but
lays a direct burden upon the lower classes." 1 And
Professor Schmoller, whilst not agreeing in all
points with his contributor, adds that he shares the
opinion of Dr. Schacht that the officials entrusted
with the preparation of the tariff are much too
protectionist, and far too much inclined to consider
every new duty as a sign of progress ; and he
agrees also that those interests which are well
organised and best represented have exercised far
too great an influence in the shaping of the tariff. 2
He thinks, however, that a moderate protection
for agriculture, and even a slight increase of some
of the agricultural duties, is desirable, and he hopes
that the tariff, in spite of defects, may, in the
hands of a skilful diplomacy, offer adequate oppor-
tunities for negotiations with foreign Powers.
The tariff so established is to be the autonomous
scale of duties, but the treaties are still unsettled,
and the German Government finds itself sur-
rounded with difficulties both at home and abroad.
It is clear that after its surrender to the great land-
owners by the grant of minimum duties, the min-
istry will have to seek most of its " compensation
material " in the unfixed agricultural duties and in
the duties on manufactured goods. Reductions
on merely industrial products would naturally not
1 Schacht, p. 351. 2 Footnote to Schacht, p. 353.
112 REVIVAL OF THE PROTECTIONIST MOVEMENT
be acceptable to any country except Belgium, and
high all-round protection to agriculture would ren-
der it impossible to make many treaties, since
Switzerland, Hungary, Russia, and France are all
interested in reductions on the various kinds of
agricultural produce. But the smaller agricultur-
ists, the " Nebenagrarien," are certain to resent
reductions in duty only on those agricultural pro-
ducts, chiefly connected with cattle-rearing and
dairy-farming, in which they are interested, and
already their alliance with the " Hauptagrarien,"
the grain producers, is breaking up. On the other
hand, the manufacturers are opposed to the main-
tenance of high agrarian duties, since that will
interfere with the negotiations for the reduction of
foreign tariffs on their productions, and at the same
time they will resist any decrease of German
duties on manufactured goods. The working
classes, under the lead of the Socialists, though
apparently still indifferent to the general question
of Protection and Free Trade, are strongly opposed
to the increased agricultural duties, as tending to
raise the price of food. Moreover, foreign nations,
particularly Austria, Russia, and Switzerland, have
prepared for the negotiations by devising new
tariffs with increased rates of duty.
The German Government may, and probably
will, succeed in some measure in overcoming these
difficulties as it did in 1892-4, but its task is one
of the utmost difficulty, and after prolonged diplo-
matic discussions the issue is still uncertain.
CHAPTER VIII
RECENT ECONOMIC DISCUSSION IN
GERMANY
IN the long controversy which raged during the
preparation of the tariff and the passage of the law
through the Reichstag, it was natural that the
economists should play a very conspicuous part,
and they may be divided into three main groups.
The thoroughgoing Protectionists are chiefly so
in the interest of agriculture ; they approach the
subject from different standpoints, but they are
represented chiefly by Professor Adoph Wagner.
Then there is what may be called the Middle
School, led by Professor Schmoller ; and finally
there is the small Free Trade group, whose most
conspicuous member is Professor Brentano of
Munich.
The agrarian group are all in favour of increased
duties on agricultural produce in order to help the
landowners and farmers, whose lamentations, as we
have seen, are similar to those with which we are
familiar in Great Britain. But it is important
to observe that scarcely any amongst them care
to base their arguments solely on the economic
114 RECENT ECONOMIC DISCUSSION IX GERMANY
distress of the agrarian interests. They all advance
other considerations, and their general position is
summed up in a sentence of their chief economic
representative, Professor Wagner: "An adequate
protection for agriculture, higher than the present,
would be in the general interest of the whole com-
munity, even if by its means the industrial develop-
ment of the state and possibly also the growth of
population should be not entirely stopped, but
certainly slackened, in the all-round interests of
the workers and of the economic organisation
of Germany. The maintenance of a capable
German agriculture means the maintenance of
the German people now and for the future." l The
argument on which this conclusion is based is elabo-
rated in Professor Wagner's book entitled Agrar-
und Industriestaat, and an attempt must be made
here to indicate its chief propositions. There is
a group of extreme agricultural Protectionists, but
apparently they find it convenient to accept
Wagner's arguments, at least for the present.
Professor Wagner views with the greatest anxiety
what he regards as the excessive industrialisa-
tion of Germany, and his views on this matter
are shared by many others, such as Professor
Oldenburg and Professor Pohle (Frankfort). 2 The
maintenance of the industrial state requires three
things : (1) that other countries are willing and
1 Wagner, Agrar- und Industriestaat, 2nd ed., pp. 1, 2.
2 See the Report of Professor Pohle, and the speech of Professor
Oldenburg in the Verhandlungen des Vereins fur Socialpolitik, vol.
xcviii. pp. 183 aeq. and 230 seq.
"AGRAR- UNO INDUSTRIESTAAT" 115
able to supply agricultural products, both as food
and raw materials, cheaply ; (2) that these supplies
can be safely conveyed to the industrial state ; and
(3) that the manufactured goods of that state can
be assured of an adequate market in the countries
which supply the food and raw material. 1 And in
regard to all three of these necessary conditions
there are considerable dangers now threatening.
In the first place, several countries, hitherto content
to remain in the agricultural stage of development,
are turning their attention to industry; thus not
merely is the United States (on which Great
Britain has so long depended for the greater part
of its food supply) becoming preponderatingly
industrial, but Russia, Canada, Australia, Italy,
and Roumania are all striving to make themselves
into industrial communities. And this means not
only that they will sooner or later consume most
of their own supplies of raw material (it is, for
example, inevitable that the United States should
itself ultimately make use of the greater part of its
production of raw cotton), but that further, as these
states become more industrial their population
will greatly increase, and they will make greater
demands on their own food supplies. They will
thus tend to use for their own purposes most of
their production of food and raw material ; they
will have less to export, and the older industrial
states, which have based their organisation entirely
on the assumption that these supplies are per-
1 Wagner, loc. cit., pp. 143 seq.
116 RECENT ECONOMIC DISCUSSION IN GERMANY
manent, will find themselves hopelessly crippled.
Secondly, even if the supply continue, it will
always be liable to be cut in time of war. To
guard against this as much as possible, the in-
dustrial nations find themselves bound to incur
ever-increasing expenditures on naval armaments,
and a growing burden of taxation. 1 Thus between
1898-9 and 1903-4, the expenditure on the German
navy advanced from six million pounds to ten and
a half million pounds, and the British expenditure
from twenty-four million to thirty-five million.
And thirdly, even though the supplies of food and
raw material continue quite unchecked, the growth
of industrial competition on the one hand, and the
attempt of various nations to supply their own
industrial wants on the other hand, must make
it ever more difficult for a manufacturing nation
to dispose of its manufactured goods abroad, except
by constantly cutting down its prices. These
general propositions Professor Wagner supports
by an elaborate examination of the sources of
the German supply of food and raw material,
illustrating its growing dependence on foreign
countries ; and by a most detailed investigation
of the movement during the last forty years of
the British export industry, which, he holds, is
tending to become almost stationary, or at any
rate to expand only at the cost of very great efforts.
1 Cf. the strong advocacy of a powerful German navy by a group of
economists in Handel- und Machtpolitik (ed. Schmoller, Sering, and
Wagner).
THE DANGERS AND THE REMEDY 117
He regards the whole foundation of the industrial
state in the form which it has taken in Great
Britain, and which it seems likely to assume in
Germany, as altogether unsound. So also Professor
Pohle writes : " The rule of the system of industry
for export cannot long endure. That system, as
Roscher already recognised, contained an element
truly of temporary brilliancy, but of permanent
outward and inward peril. It is an idle dream
to believe that the economic future of Germany
can be permanently based on the production of
industrial commodities for foreign nations." 1
The remedy is to make Germany as independent
as possible of foreign nations. Not that foreign
trade is to be cut off, but attention is to be paid
more to the balance between the manufacturing
and agricultural interests of Germany. 2 Produc-
tion for the home market must be the primary
consideration ; the condition of agriculture must
be improved before the decline has gone so far as
to be irremediable, the agricultural population
recruited, and the rush to the towns checked. This
may mean a slackening in the rate of the increase
of the population, but that would not be un-
welcome. The best way to attain these ends is to
give agriculture the stimulus of greater protection.
" It is not to be denied that, like all the great
things which a nation needs armaments, civil
administration, justice, a system of education,
1 Pohle, p. 10.
a Wagner, loc. cit., pp. 42 and 43.
118 RECENT ECONOMIC DISCUSSION IN GERMANY
arrangements for the care of the economic interests
of the community, etc. so also the maintenance of
the permanent economic and numerical strength
of the nation in an adequate and sturdy agrarian
population requires sacrifices. But we believe these
sacrifices, in this case as in the others we have
named, are necessary for that higher object which
we have in view." 1 And Professor Wagner, whilst
recognising that the increased duties which he
advocates on the import of agricultural produce
might, and very possibly would, mean an increase
in the cost of living to the lower classes of the
community, yet thinks that compensation could be
given for this by employing the proceeds of the
new duties in further State grants to the various
pension funds. Other economists, sharing the same
general opinions, take the same line in regard to
the union of tariff legislation and social reform ;
"it appears to be beyond dispute that increased
duties on grain would result in higher prices for
bread, and therefore the working-class population,
amongst whom the expenditure on foodstuffs may
amount to 75 per cent, of their income (whilst in
the case of the most prosperous class the amount
may fall to 20 per cent.) must in every case, as
Sering claims, receive an equivalent compensation
by the extension of social legislation and the reform
of the imperial taxes with more attention to social
needs (im sozialen Sinne}"'
1 Wagner, loc. cit., p. 36.
2 Von Halle, Volks- und Seewirtschaft, p. 11.
THE CRITICISM OF WAGNER 119
We may take the criticism of these last points
first. As Professor Lotz has pointed out, 1 Wagner
has failed to demonstrate that higher protective
duties are the sole means of improving agri-
culture and stopping the decline of the agricul-
tural population. The fact that in spite of their
present protection the German landowners are in
a bad way, is partly at least to be ascribed to their
own defects, to their lack of enterprise, their want
of money, and consequent disinclination and in-
ability to make improvements. The value of
agriculture to the national life is, no doubt, con-
siderable ; but it would be extremely hard to
demonstrate that a reduction in the number of
industrial workers and an increase in the number
of the peasantry and rural labourers would tend to
raise the general level of civilisation in the com-
munity. So Conrad writes : " There can be no
doubt that an increase of the well-being at home
and the remunerative employment of the growing
population with which we have to deal, can only
be expected from industry and commerce. And,
consequently, it is beyond dispute that our tariff
policy must have in view chiefly their interests." 2
And, as Lotz has again pointed out, while it is
desirable to lessen the pressure upon the towns
and to remove large masses of the people from
conditions which do not make for physical efficiency,
there are ways of doing this without taking them
1 Verhandlungen des Vereins fur Socialpolitifc, vol. xcviii. p. 121 seq.
2 Conrad, Jahrbucher, February, 1902, p. 189.
120 RECENT ECONOMIC DISCUSSION IN GERMANY
back to agriculture. It is certain that the develop-
ment of means of transport and transit will, before
very long, enable Great Britain and Germany to
carry out, if they choose to do so, great schemes
of industrial redistribution which will spread the
workers over larger districts, and put an end to
much of that density of population in limited
areas, which is at present one of the most painful
characteristics of our industrial societies. 1 As to
the growth of population, it is argued by Wagner's
opponents that for Germany, situated as she is, and
compelled to be a great military power, it is essen j
tial to have as large a population as possible, and
that such a population can be maintained only by
persisting in the policy which she has so success-
fully followed, the policy of industrialism ; and
Wagner's reply, that the strength of a population
does not depend so much on its numbers as on its
efficiency, hardly meets the case. In regard to the
corn duties, Wagner does not carry even all the
protectionist economists with him ; Schmoller is
not particularly favourable to any increase (unless
it does not unduly raise the cost of living to the
workers), whilst Conrad is decidedly hostile. The
latter is in favour only of the raising of the duties
on cattle and cattle products (which is practically
prevented by the new tariff proposals) ; apparently
he thinks that the grain duties have even harmed
the landowners, by rendering them less alive to
] On this point cf. Wells, Anticipations, chap, i., and Mr. W. L.
Magdens's pamphlet on Industrial Redistribution.
FOOD PRICES AND THE TARIFF 121
the need of improvement in their methods. 1 More-
over, there is not wanting evidence that the agrarian
protective duties have affected the cost of living in
Germany disadvantageously. The following table
shows the comparative prices in England and
Prussia of wheat 2 per 1,000 kg. :
1871- 1875- 1881- 1886- 1891- 1896-
1875 1880 1885 1890 1895 1900
England . . 246-4 206-8 180-4 142-8 128-2 134-3
Prussia . . 235-2 211-2 189'0 173-9 165-5 l60'9
Prussia more or less
than England . -11-2 +4-4 +8-6+31-1 +37'3 +26'6
In Westphalia, which is mainly industrial, the
prices were in comparison with England, in 1871-5
the same, 1876-80 15'6 marks more, 1881-5 17'2
marks more, 1886-90 40'8 marks more, 1891-5
45-2 marks more, 1896-1900 30'1 marks more. 3
It will be seen that since the introduction of the
tariff policy established by Bismarck, the Prussian
prices have become much higher than the English.
And on the question of food prices in general a
recent writer remarks that "there is in Germany
no longer anything said about the great cheapness
of food " (as compared with other countries).
1 Conrad, "Die Stellung der Landwirtschaftlichen Zolle" (Verein
filr Socialpolitik, vol. xc.). Cf. Von Halle, Volks- und Seewirthschaft ,
pp. 10-13 : " If they regard a higher duty on grain as a panacea . . .
the result for the agricultural classes of East Germany will be as fatal
as the clinging to an out-of-date economic system was, fifty years
earlier, to the planters of the southern states of the American Union ;
for the whole state, it would, in view of the geographical position
of Germany and international relations, be even more fatal."
2 Conrad, loc. cit., p. 125.
3 Conrad, Jahrbiicher, February, 1902, p. 161.
122 RECENT ECONOMIC DISCUSSION IN GERMANY
" Whilst Germany had up to the seventies cheaper
food than France and England, to-day in the
south-west of Germany it is not only dearer than
in Free Trade England, but sometimes even dearer
than in France, though that country has a higher
tariff on wheat than Germany, and much dearer
than in America." 1
The arguments as to the bases of the industrial
state are more serious, but on the whole not more
convincing. After all, it is possible to take too
long a view, and to carry speculation too far. It
may be perfectly true that a time will come when
the whole food supply of the world will be con-
sumed by the countries that produce it, that is to
say, that unless some of the now chiefly industrial
states return in some degree to agriculture the
supply of bread-stuffs will not keep pace with the
world's demand. But this prospect will scarcely
seem very near to those who have been told so
much of the unlimited resources of Canada, who
remember the almost untouched possibilities of
Argentina and Uruguay and other South American
states, of Egypt and Northern Africa, of Russia
and Siberia (under an intelligent economic policy),
and of Asia Minor. Similarly, in regard to the
exhaustion of raw material, it is, of course, probable
that ultimately the United States will consume all
its own cotton (though it is worth noting that Cobden
had the same fear seventy years ago). But there
1 Weile, Der Einfluss der Deutschen Schutzzollpolitik aufdie Entwicke-
lung der Industrie und Handwerkschaft, p. 22.
MARKETS FOR MANUFACTURED GOODS 123
are great possibilities of the production of cotton
in other lands, as yet almost undeveloped, as, for
example, in British West Africa. It must be a
very long time before the alarming condition of
things which Professor Wagner foresees is realised,
and, in any case, that condition can only come
about very gradually, and as it conies there will be
a gradual transference back to agriculture of the
labour for which industry cannot provide employ-
ment. 1 As to the question of markets for manu-
factured products, there is no evidence that they
are declining. As a matter of fact, they are in-
creasing even in protected countries. If we take
Germany itself, the growth of her export trade
means a corresponding growth in her import trade,
and this increase is not merely of imports of food
and raw materials, but it is in manufactured goods
also. As civilisation advances with the develop-
ment of the industrial state, the standard of life
rises, the wants of the community increase, com-
modities which were once luxuries come to be
regarded as necessaries, and, in spite of tariffs, they
are imported from abroad. Wagner recognises
that this will always be the case to a con-
siderable extent, but seems hardly to realise
how considerable that extent is. The following
table sets out the recent movement of the im-
1 Cf., for the above criticism of Wagner and for further discussion
of the problem, Dietzel, "The German Tariif Controversy," in the
Q. J. Economics, May, 1903, especially pp. 405 seq. ; and Brentano,
Dei Schrecken des uberwiegenden Industriestaats.
124 RECENT ECONOMIC DISCUSSION IN GERMANY
port of manufactured goods into some protected
countries : l
Country. Average 1892-1896. Average 1897-1901.
Germany . . 891 '4 mill. mks. ... 1,078-6 mill. mks.
France . . 585-8 frs. ... 714-0 frs.
Switzerland . 273-6 ... 347'7
Italy . . . 255-0 lire ... 312-7 lire
Austria-Hungary 398-2 kr. ... 456-0 kr.
Holland . . 287'8 gulden ... 362-4 gulden
1891-1895. 1896-1900.
Russia . . 105-7 mill, roubles ... 1 66 -4 mill, roubles
" Why should the result in the future be any
different ? Why should the decline of our export
industries, taken as a whole, set in, in case Russia,
Canada, Central and South America, Eastern Asia,
Cape Colony, and Australia should develop manu-
factures at some future time ? If to-day a more
extensive division of labour is taking place within
the industrial realm, and a comprehensive inter-
change of products between countries like England,
France, and Germany (that is, lands, all of which
lie in the temperate zone, all on about the same
plane of social and economic development), is it
not probable that such a division of labour and such
intercourse will not only continue, but extend even
further, when it includes not only the industrial
states of to-day on the one side, but Russia and
others on the other side ? For between the former
and the latter there is a much greater diversity of
natural as well as social conditions than exists
1 Statistical Abstract for the Principal and Other Foreign Countries,
1903, pp. 65-71.
THE THEORY OF INTERNATIONAL TRADE 125
between England, France, and Germany." 1 And
the number of countries which can ever become
largely industrial is comparatively limited (few
have resources of the right kind), and in the others
the market for manufactured goods will always be
very large. It is true that competition in those
markets will become more and more keen, but this
simply means that no one country is likely to have
in the future such a complete industrial predomin-
ance as Great Britain used to enjoy.
There is one other point in Professor Wagner's
argument which should be noted. The English
theory of international trade as expounded by
Torrens, Ricardo, and Mill has never had much
influence amongst continental economists, and
Wagner attacks it on the ground that the greatest
relative advantage, which it presupposes as the
reason why a country should devote itself to the
production of a particular commodity or group
of commodities, may work extremely badly for the
community as a whole. It may mean that a coun-
try will find itself limited to the production of
one thing alone, and hence will lose all the advan-
tages which come from the possession of diverse
industries and a variety of technical skill ; or it
may mean that a country will be compelled to
devote itself more and more to the production
of commodities in which its advantage over its
competitors is of the worse kind, namely, cheapness
arising not from efficiency of method or abundance
1 Dietzel, loc. cit. } p. 403,
126 RECENT ECONOMIC DISCUSSION IN GERMANY
of materials, but from ill-paid and sweated labour. 1
As to the first of these alternatives, it can only be
said that there is no evidence in any industrial coun-
try of any such process taking place ; but on the
contrary, new industries requiring great technical
skill are rising in all industrial communities. The
second point will be familiar to English readers
in Mr. and Mrs. Webb's work on Industrial
Democracy. They will remember that in appen-
dix ii. of that work this argument against Free
Trade that it may, according to that pure theory
of international trade which has been adopted by
British economists, lead to the dependence of this
country on sweated and ill-paid industries is elab-
orately stated ; but they will remember also the
authors' strong argument that no system of pro-
tection would remedy this, but that safeguards
against it must be sought elsewhere. 2 The admitted
1 Wagner, loc. cit., pp. 32 seq. ; cf. Pohle, p. 218. " In regard to
a great part of this industry (the manufacture of clothing) we are
entitled to say that Germany's ruling position in the world-market can
be maintained only at the expense of the workers' standard of living.
Of the conditions of work which prevail in that industry we may fairly
use the English expression that wages are only enough to keep
1 body and soul together,' and that the hours of labour are as many as
the hours of the day. In a great part of these branches of industry
home employment is still predominant. The miserable condition of
the home workers of the Erzgebirge, the Fichtelgebirge, the Thurin-
gian Forest, and other German hill districts, is well known ; and
all these work largely, if not chiefly, for export. There are still worse
conditions ruling among the home industries of the towns, and particu-
larly in the different branches of the clothing trade " (Pohle, p. 218).
2 " But though the existence of parasitic trades knocks the bottom
out of the argument for laisser faire, it adds no weight to the case for
a protective tariff. . . . The advocate of a protective tariff aims at
excluding imports ; the opponent of ' sweating/ on the other hand
THE MIDDLE SCHOOL 127
truth of the facts alleged only implies the necessity
of State action to put an end to the conditions
which render " parasitic industries " possible ; it
is difficult to see how any policy, which aims
simply at restraining the growth of industry and at
stimulating the development of agriculture, would
be likely to remedy the evil.
We pass now to the Middle School, which, in
the main, follows the lead of Professor Schmoller.
With the general attitude of that group towards
Free Trade and Protection we are already fami-
liar ; l to them " the tariff problem admits of only
relative solution " all depends on the particular
conditions of time and place. They are not hostile
to Free Trade, but they believe it to be only one
of various policies to be applied according to cir-
cumstances. Neither are they Protectionists ; in
sees with regret the rapid growth of particular exports, which imply
the extension within the country of its most highly subsidised or most
parasitic industries. Hence, whatever ingenious arguments may be
found in favour of a protective tariff, such a remedy fails altogether to
cope with this particular evil. If the expansion of the industries
which England pursues to the greatest economic advantage say, for
instance, coal mining and shipbuilding, textile manufacture and
machine-making is being checked, this is not because coal and ships,
textiles and machinery are being imported into England from abroad,
but because other less advantageous industries within England itself,
by reason of being favoured with some kind of bounty, have secured
the use of some of the nation's brains and capital, and some of its
export trade. ... In short, the absolute exclusion by each country
of the imports competing with its own products would not, any more
than Free Trade itself, prevent the expansion within the country
of those industries which afforded to its wage-earners the worst con-
ditions of employment" (Webb, Industrial Democracy, ed. 1897, ii.
pp. 865-6).
1 See above, Chapter V.
128 RECENT ECONOMIC DISCUSSION IN GERMANY
fact, their advocacy of the use of tariffs for the
purposes of promoting international exchange is in-
compatible with protectionist ideals. Professor
Schmoller holds that for the purposes of negotia-
tion agrarian and industrial duties are alike neces-
sary, and believing that agriculture is suffering,
he would encourage cattle-rearing by duties on
foreign cattle and meat, but would support duties
on bread-stuffs only when they do not raise the
price of bread unduly whatever that may mean.
But to him the tariff is important chiefly as a
weapon. " I believe that we may draw this lesson
from history, that all protective movements are
closely connected with national sentiment, strivings
after international authority, efforts towards the
balance of power, and therefore will continue to
exist so long as amongst the fully developed states
there are others striving after economic develop-
ment, and so long as the peoples for economic
purposes have need of every weapon which stands
ready for their use." 1 He points out that the
increases of the tariff in the eighties were used
by Bismarck in this way, and that the Bismarckian
idea has now been taken up again. But the nego-
tiation tariff is not to be a high protective tariff;
it is supported by him only in order to give Ger-
many a better position in commercial negotiations.
Schmoller holds that the " neo-mercantilism " of
the present day has arisen out of the nationalist
1 Verhandlungen des Vereins fur Socialpolitik , 1902, p. 265. The
following quotations are from Schmoller's speech, pp. 264-71.
THE TARIFF AS A WEAPON 129
movements, and is based not on List's theory of
" educational tariffs " (i.e. the infant industries
doctrine), but on the desire to possess an "inter-
national weapon " (Machtmittel). " The new period
of Protection, this neo-mercantilism, has come, not
because the theorists and statesmen were incapable
of understanding the lofty arguments of Free
Trade, not because everywhere some monopolists
and large manufacturers control the Government,
but out of natural nationalist tendencies, particu-
larly in those countries with the most liberal and
democratic constitutions. It is based not alone
or even chiefly on the doctrine of ' educational
tariffs,' but arises out of an instinctive, rather than
reasoned, motive that the tariffs are an inter-
national weapon which, skilfully employed, can be
of the utmost use." A strong tariff is particularly
needed to enable Germany to fight the extreme
protectionist policy of Russia and the United States.
These views are shared by a very considerable
number of the younger German economists, the
most distinguished, perhaps, being Dr. Schuhmac-
her, head of the great Commercial High School at
Cologne. 1
But this policy of tariffs to be employed as
a means of fighting other nations which pursue a
policy of exclusion has certain serious dangers.
We have seen that the application of the policy
against France under the Monarchy of July,
1 See his long report in the Verhandlungen des Vereins fur Social-
politik, 1902.
K
130 RECENT ECONOMIC DISCUSSION IN GERMANY
against Spain and other powers, has not always
produced satisfactory results. The increase of the
agricultural duties by Bismarck in the eighties did
nothing to promote exchange with Russia for a
number of years in fact, by the admission of the
German Government itself, German trade with
Russia declined steadily between 1880 and 1890 ;
the conflict with Russia in the nineties was short
and sharp, and, on the whole, in that case the
policy was justified, but the risks run were very
great. Moreover, these tariffs for negotiation are
like armaments ; when one country increases them,
others do the same. As soon as the proposals for
the new German tariff were published, Austria and
Switzerland proceeded to revise and increase their
tariffs, in order to be ready to fight Germany.
And further, when protective duties are once
granted, whatever the original purpose may have
been, a vested interest in their maintenance is
created, and the producers so protected are sure
to oppose any proposal to reduce the duties in the
effort to bribe foreign powers. So, as we have
seen, the agrarian interest in Germany has fiercely
opposed any treaty reductions of the grain duties.
Schmoller himself recognises that " admittedly this
neo-mercantilism frequently overlooks the fact that
these weapons may as often be used unskilfully
and mistakenly, as rightly. The agitation of the
interested classes commonly fails to see that ex-
cessive protection as a whole does more harm than
good. So Russia, the United States, and France
THE TARIFF AND ECONOMIC REFORM 131
have fallen into a high protective system, and
sometimes into a commercial policy which, though
it aims at international power, is of a worse kind,
and hinders the economic development of these
countries instead of promoting it." And elsewhere
(as has been pointed out), Schmoller writes in
regard to the new tariff that the officials who
planned it were much too favourable to Protection
pure and simple, and that those interested groups,
which were well organised and skilfully led, exer-
cised far too great an influence upon it. 1
Another moderate view is that of Professor
Conrad, of Halle. He thinks that industrial pro-
tection has gone far enough, but he would protect
agriculture so far as that policy does not involve
the depression of the standard of living for the
working classes. He would retain the existing
duties on foodstuffs for the present, because of
the critical condition of German agriculture, but
the only duties he would increase are those which
would encourage the development of special
branches, such as cattle-rearing and dairy-farming.
Professor Sering, of Berlin, favours the increase of
the agricultural duties only because he thinks that
they will help agriculture over a transition period
in which radical changes must be made, if the con-
dition of the eastern provinces is not to be a serious
social menace to Germany. He will support the
heightened grain duties only if they are to be
regarded as part of a social programme which shall
1 Schmoller's Jahrbuch, 1902, part ii. p. 353.
132 RECENT ECONOMIC DISCUSSION IN GERMANY
include the reduction of duties on such com-
modities as coffee, petroleum, etc., the gradual
prohibition of the invasion of the eastern provinces
by the cheaper Slav labour, and the transformation
(by a national system of land purchase) of the large
estates of the eastern provinces of Prussia into
peasant holdings. Unless these steps are taken to
maintain the peasantry, in whom he believes the
strength of Germany to lie, he will oppose the new
duties. 1
It will have been noticed that none of the
economists quoted are inclined to defend increased
duties on manufactured goods ; the Free Trade
school naturally demands their abolition, not at
once, but gradually. It recognises fully that
educational tariffs may be of use to a country in
some periods of its economic development it is
prepared to defend their application in the past ;
but it is opposed to " maintenance tariffs "
(Erhaltungszolle). 2 Such tariffs not only hinder
the territorial division of labour, which has
the same effect on production as labour-saving
machinery ; they not only prevent or delay a
reduction in the national cost of production and
the attainment of "a greater total product from
a given expenditure of labour, and a higher national
dividend than before," 3 but they also strengthen
the industrial combinations, and enable them to
1 Verhandlungen des Vereinsfiir Socialpolitik, 1902, pp. 244-7.
2 Brentano, Das Freihandelsargument , p. 15.
3 Dietzel.
THE FREE TRADE ARGUMENT 133
maintain artificial prices in the home market by
eliminating competition from outside. This party
accepts entirely the industrialisation of Germany,
and believes that in the present stage of that
country's development "the real protection of
national labour is Free Trade." 1 The material
progress of Germany depends on the extension
of her manufactures and the completion of the
division of labour between the industrial com-
munities of the world. The agricultural duties
are to be condemned, since they not only increase
the cost of food by limiting the supply from
countries where it is produced more cheaply than
in Germany, but also by limiting imports reduce
the market for German exports, which are chiefly
manufactured goods, and so in two ways hamper
the growth of industry. 2 They also point to the
experience of Germany as an illustration of the
fact that duties once imposed are much more
likely to increase than to decrease. Some of their
criticisms of Wagner and his allies have already
been indicated ; and it is unnecessary to state their
more general argument, since it follows the lines
of ordinary English economic thought.
On the whole, then, so far as German economists
in the past have been advocates of Protection, their
arguments have been based largely on the political
need of securing the development of German
economic strength as a basis for political power.
To-day that condition has been realised, and the
1 Brentauo. 2 Ibid.., pp. 16, 17.
134 RECENT ECONOMIC DISCUSSION IN GERMANY
argument for Protection is shifted on to another
ground ; it is alleged that the development has
been too one-sided, and that the comparative
neglect of agriculture has become a source of
weakness to the Empire. Yet for more than
twenty years agriculture has received a large
measure of protection, and one is forced to believe
that if, in spite of that, it has not held its ground,
the reasons are to be sought in causes over which
tariffs have little control. As to the other argu-
ment for Protection the need for negotiation
tariffs no economist has shown that the result
could not be obtained in another way ; if they are
to be used at all, a system of occasional duties-
such as that established by the recent Sugar Con-
vention and employed in the United States under
the McKinley Tariff 1 would be preferable to the
imposition of a general tariff on manufactured goods,
which might, or might not, be reduced. Tariffs for
negotiation are at best, as even their defenders
in Germany readily admit, a dangerous weapon ;
the policy can only be successful where the country
making use of them is not dependent on supplies
drawn from the country against which they are
employed, whilst the latter is so dependent upon
the former. And, finally, it must be borne in
mind that tariffs are, after all, only the crudest
form of Protection, and are not necessarily the
only or most efficient means of promoting the
economic well-being of a nation ; and the safest
1 See pp. 255-6.
CONCLUSION 135
lesson to draw from the experience of Germany
is the simple fact that changes in tariff policy
have been only one, and commonly not the most
important, amongst the many causes of her eco-
nomic progress.
A BRIEF BIBLIOGRAPHY
WEBER, W. Der Deutsche Zollverein. 1871.
ZIMMERMANN, A. Gesckichte der Preussisch-Deutschen Handels-
politik. 1891. (I.)
ZIMMERMANN, A. Die Handelspolitik des Deutschen Reiches, 1871-
1900. 1901. (II.)
SCHIPPEL, MAX. Grundziige der Handelspolitik. 1902.
LOTZ, W. Die Ideen der Deutschen Handelspolitik, 1860-91.
1892. (I.)
LOTZ, W. "Die Handelspolitik des Deutschen Reiches, 1890-
1900 " (in Beitr'dge zur Neuesten Handelspolitik Deutchslands,
voi. iii. 1901). (II.)
Foreign Office Report on Tariff Wars. (Cd. 1938. 1904.)
POSCHINGER, H. Bismarck als Volkswirth. 1889-90.
WUTTKE, R. " Der deutsch-oesterreich-ungarische Handels-
vertrag vom 6 Dezember, 1891." (In Verhandlungen des
Vereins fur Socialpolitik, 1902).
BLUM, H. Das Deutsche Reich zur Zeit Bismarcks. 1893.
VON HALLE, E. Folks- und See-Wirthschaft. 1903.
DAWSON, W. H. Bismarck and State Socialism. 1891.
"VERITAS." German Empire of To-day. 1902.
POGSON, G. A. Germany and its Trade. 1903.
Statistisches Jahrbuchfiir das Deutsche Reich.
LIST, F. System of National Economy (trans, by Lloyd. 1885).
SCHMOLLER, G. The Mercantile System (trans, by W. J. Ashley.
1896).
SCHMOLLER, WAGNER, and SEEING (Editors). Handels- und Macht-
politik. 2 vols. 1900.
137
138 A BRIEF BIBLIOGRAPHY
WAGNER, A. Agrar- und Industriestaat. 2nd edition. 1902.
POHLE, L. Deutschland am Scheidewege. 1902.
TROELTSCH, W. Ueber die Neuesten Ver'dnderungen im Deutschen
Wirtschaftsleben. 1899.
BRENT ANO, L. Das Freihandelsargument. 1901.
BRENTANO, L. Die Schrecken des iiberrviegenden Industriestaats.
1901.
DIETZEL, H. "The German Tariff Controversy" (Quart. J.
Econ., May, 1903).
GOTHEIN, G. Die Wirkung der Handelsvertr'dge (in publications of
the Berlin Volkswirthschaftliche Gesellschaft, 1895).
CONRAD, J. " Die Stellung der Laadwirthschaftlichen Zolle "
(Vereinfiir Socialpolitik, vol. xc.).
CONRAD, J. "Die Agrarzolle in der Zolltarifvorlage " (in Jahr-
bucher fur National'okonomie und Statistik, February, 1902).
DADE, H. "Die Agrarzolle " (in Beitr'dge zur Neuesten Handels-
Politik Deutschlands, vol. ii., 1901).
SCHACHT, H. "Inhalt und Kritik des Zolltarifentwurfs " (in
Schmoller's Jahrbuch, 1902).
Verhandlungen des Vereins fur Socialpolitik. Vol. xcviii.
PART II
THE UNITED STATES
CHAPTER I
THE ORIGINS OF AMERICAN
COMMERCIAL POLICY
THE economic relations between the states of the
American Union at the end of the War of
Independence resemble closely the condition of
affairs in the Germanic Confederation after the
Congress of Vienna. The separate colonies had
been allowed by Great Britain to impose customs
duties for revenue purposes, and had also been
influenced somewhat by protectionist ideas ; l and
although after 1776 this latter motive seems to
have lost its force, the customs duties continued
to be levied by each state against all others, in-
cluding even its fellow-members of the Union.
Yet the feeling in favour of freedom of trade was
sufficiently strong partly as the result of reaction
against the restrictive policy of Great Britain
to restrain the new Confederation from imposing
any tariff laws between 1776 and 178 1. 2 There
were practically no manufactures to protect ; the
colonies were almost entirely engaged in agri-
1 Stanwood, i. p. 25, quotes from the preambles to the Revenue
Acts of various colonies. Cf. Hill, pp. 14-15.
* Hill, pp. 39-40.
141
142 ORIGINS OF AMERICAN COMMERCIAL POLICY
cultural pursuits or in the carrying trade ; and
although there was a certain amount of iron pro-
duced, yet "in the main, the colonies made only
such manufactures as could not be imported." 1
When from 1782 onwards a change came over
American policy, and tariff legislation began, the
determining forces seem to have been chiefly
political the necessity of raising money for the
purposes of government, and the desire to be able
to meet and resist the commercial legislation of
the European Powers, and particularly the high
tariff and Navigation Acts of Great Britain. 2
These considerations drove the states rapidly in
the direction of commercial as well as political
union, 3 and after some years of uncertainty, owing
to the unwillingness of some members of the
Union to surrender their liberty of economic
action, the Constitution of 1787 settled that
" Congress shall have power to lay and collect
taxes, duties, imposts, and excises, to pay the
debts and provide for the common defence and
1 Taussig, p. 10.
2 "At first the rates were low and the articles taxed few, being
generally luxuries or commodities the importation of which was
thought harmful. In this category slaves, rum, spirits and wine, tea,
coffee, and sugar held important places. The southern states did not
go beyond these purely revenue measures. In all the northern states
rates were advanced and other articles were added to the list, until in
1785 and 1786 the tariff schedules were generally extensive and taxes
were imposed for both revenue and protective purposes, or, to use a
phrase of more recent times, for revenue with incidental protection.
In some of the states, indeed, protection was the principal end
sought." Hill, p. 43.
J The German states followed the opposite direction between 1833
and 1871.
THE FIRST TARIFF ACT 143
general welfare of the United States ; but all
duties, imposts, and excises shall be uniform
throughout the United States ; ... to regulate
commerce with foreign nations, and among the
several States, and with the Indian tribes ; . . .
to make all laws which shall be necessary and
proper for carrying into execution the foregoing
powers." 1
The first use made by Congress of the authority
so conferred appeared in the Tariff Act of 1789.
It was a combination of specific and ad valorem
duties, and was to continue in force for seven
years. Specific duties a fixed tax on a given
amount of each commodity were imposed on
thirty-six articles, the chief being spirits (8-10
cents per gallon), tea (6-20 cents per lb.), sugar,
salt, molasses, cordage, steel (56 cents per cwt.),
and nails ; and there were ad valorem duties of
15 per cent, on carriages, 10 per cent, on glass,
china, earthenware, lace, and some others, 7J per
cent, on paper, gloves, leather, buttons, clothing,
hats, and metal wares, and 5 per cent, on all other
imports except seventeen raw materials (such as
saltpetre, wool, cotton, hides, fur, dye-stuffs), which
were admitted free. 2 Drawbacks of the full duty
less 1 per cent, were granted for all commodities
re-exported within twelve months ; and finally, to
stimulate the American carrying trade, a discount
of 10 per cent, was given on all goods imported
1 Art. i. sec. 8. See text in Bryce, Amer. Commonwealth, i. p. 700.
2 Stanwood, i. pp. 58-60.
144 ORIGINS OF AMERICAN COMMERCIAL POLICY
in vessels owned entirely by American citizens.
Though the duties thus imposed were, on the
whole, quite moderate, it is by no means certain
that the legislation was inspired solely by financial
needs. 1 It is true that these were considerable,
and in face of the widespread dislike to direct
taxation and to excises could only be satisfied
by recourse to customs duties ; but it is also
clear that in the minds of many of its supporters
the Act had a protective purpose, and for that
very reason it called forth a good deal of opposi-
tion, particularly from the Southern States. It was
a policy of Protection, chiefly for manufactures,
modified partly by the inexperience of the legis-
lators 2 and partly by regard to considerations of
revenue. 3 In the very next year, after Hamilton,
the Secretary of the Treasury, had failed to secure
1 ' ' It has often been said that the first Tariff Act, that of 1789, was
a protective measure, and that in the debate on it the protective policy
appeared full grown. But such considerations had little to do with
the Act ; and the discussions on Protection by no means indicate what
was the real centre of interest. ... Its main object was to secure
revenue. " Taussig, pp. 14-15.
2 Channing, United States, p. 139.
3 For the evidence that protective considerations did weigh with
the promoters of the measure, see Hill, pp. 108 seq., and the account
of the debates given by Stanwood, i. pp. 39 seq. Mayo-Smith and
Seligman, p. 6, agree with Taussig, and remark that " it is erroneous
to speak of any protectionist movement at this period " ; but this
seems to be based on the idea that the authors of the tariff did not
regard average duties of 8 per cent, ad valorem as protective a
supposition which is not proved, and is in direct conflict with the
preamble to the Act, which asserts that " it is necessary for the
support of the Government, . . . and the encouragement and pro-
tection of manufactures, that duties be laid,' 5 etc. Dewey (p. 84)
holds that the evidence as to the consciously protective character of
the tariff is conclusive.
HAMILTON'S REPORT 145
an Excise Act, the tariff was increased all round
to meet the growing financial needs of the Union ;
the specific duty on steel was advanced from 56
to 75 cents per cwt., and many articles previously
in the 5 per cent, ad valorem list were now made
subject to 7J per cent, and 10 per cent. In the
following year an excise on spirits (somewhat lower
than the customs duty) was established ; but it
was always unpopular and difficult to collect, and
in 1802 was finally abandoned.
In 1790 Congress had directed the Secretary to
the Treasury to prepare and report plans " for the
encouragement and promotion of such manufac-
tories as will tend to render the United States
independent of other nations for essential, particu-
larly for military, supplies." Hamilton replied in
December, 1791, with a " Report on Manufactures,"
which remains still one of the most elaborate
general arguments for Protection, and contains
most of the ideas which multitudes of writers
have since elaborated. 1 There is the argument from
the desirability of national self-sufficiency. "Every
nation . . . ought to endeavour to possess within
itself all the essentials of national supply. These
comprise the means of subsistence, habitation,
clothing, and defence. The possession of these is
necessary to the perfection of the body politic, to
the safety as well as to the welfare of society.
The want of either is the want of an important
organ of political life and motion ; and in the
1 Full text in Taussig, State Papers and Speeches on the Tariff.
L
146 ORIGINS OF AMERICAN COMMERCIAL POLICY
various crises which await a state it must severely
feel the effects of any such deficiency." There is
the advocacy of the home market, though primarily
in the interests of the agricultural producers ; the
restrictive policy of European Powers, and the
fluctuations of their crops, make the foreign market
too unreliable for the American farmer ; it is there-
fore desirable to create for his produce the largest
possible demand at home, and this can best be
done by promoting "manufacturing establishments."
" This idea of an extensive domestic market for the
surplus produce of the soil is of the first conse-
quence. It is of all things that which most effec-
tually conduces to a flourishing state of agriculture."
But the firm establishment of the necessary manu-
factures in the face of foreign competition is a task
of great difficulty, and so we naturally come to the
famous " infant industries " argument. " Whatever
room there may be for an expectation that the in-
dustry of a people, under the direction of private
interest, will, upon equal terms, find out the most
beneficial employment for itself, there is none for
a reliance that it will struggle against the force of
unequal terms, or will of itself surmount all the
adventitious barriers to a successful competition
which may have been erected either by the advan-
tages naturally acquired from practice and previous
possession of the ground, or by those which may
have sprung from positive regulation and an arti-
ficial policy " this last phrase doubtless a reference
to Great Britain. Finally, Hamilton argues that
FURTHER TARIFF LEGISLATION 147
any increase of prices arising from Protection will
soon be more than counterbalanced by the increase
of production, and resulting cheapness, which it
will call forth ; and he urges the essential harmony
of the industrial and agricultural interests, since
the farmers may have to pay more for a time for
manufactured goods, but will find the value of
their farms enhanced by the growth of the demand
for agricultural produce, both food and raw material.
As definite proposals he recommends the grant of
bounties, the free admission of raw materials (or
the payment of drawbacks), and general protection
against all manufactured articles which can be pro-
duced in the country.
From 1790 onwards there were constant altera-
tions in the tariff between 1792 and 1816 there
were some twenty-five Tariff Acts passed, all
modifying the customs duties in one way or
another. But Hamilton's Report, and the ideas
it embodied, do not seem to have exercised any
special influence on the legislation of this period ;
the motives were always financial. 1 Up to 1808
there were increases of duties on various commodi-
ties ; some specific duties were replaced by duties
ad valorem ; and some articles (chiefly those useful
for military purposes) were added to the free list.
Alone in the duty imposed in 1804 on window
glass " was any concession made to the protective
1 " With two or three exceptions, they had no other motive than to
adjust the revenue to the needs of the Treasury " (Stanwood, i. p. 111).
Cf. Taussig, p. 16,
148 ORIGINS OF AMERICAN COMMERCIAL POLICY
policy." 1 But whilst this was the policy of Con-
gress, it is evident that the feeling in favour of
Protection was growing in the country at large. It
was held back by the general prosperity of American
trade during the Napoleonic wars until the United
States became involved in the European complica-
tions after the year 1807 ; until that time the
American export and carrying trade had reaped
great benefit from British difficulties. The follow-
ing table shows the movement of the foreign
trade of the United States from 1791 to 1807 (in
million dollars) : 2
Gross Exports.
19-0
20-7
26-1
33-0
48-0
67-0
56-8
61-5
78-6
71-0
94-0
72-0
55-8
77-7
95-5
101-5
108-3
The most striking column here is that of re-
exports, which represents the growth of the carry-
1 Stanwood, i. p. 115. 2 Taussig, p. 12.
Financial years
ending Sept. 30.
Gross Imports.
Re-exports.
1791
. 29-2
5
1792
31-5
1-7
1793
31-1
2-1
1794
. 34-6
6-5
1795
. 69-7
8-5
1796
81-4
26-3
1797
. 75-4
27-0
1798
. 68-5
33-0
1799
. 79-0
45-5
1800
. 91-2
39-1
1801
. 111-3
46-6
1802
. 76-3
35-7
1803
. 64-7
13-6
1804
85-0
36-2
1805
. 120-6
53-2
1806
. 129-4
60-3
1807
. 138-5
59-6
EFFECTS OF THE NAPOLEONIC WARS 149
ing trade of the United States, and the commercial
importance of the war to that country is most
markedly illustrated by a comparison of the figures
for 1802 and 1803, the years of the Treaty of
Amiens, with those which immediately precede and
follow them.
But with 1808 a change came. In November,
1806, Napoleon had replied to the British blockade
of the French coast by the Berlin Decree, which
declared the British Islands blockaded, and forbade
all trade in British goods. Great Britain answered
by proclaiming the continental coasting trade at
least for ports under French control closed to
neutrals, and at the end of 1807 ordered "the
condemnation of any American vessel seized while
on a voyage to any European port closed to British
vessels, unless such vessel had first touched at a
British port. Napoleon, on his part, in the Milan
Decree (December 17th, 1807) declared that any
ship which had obeyed the above order was good
prize if seized in any port under his control. At
this time, Napoleon was the virtual master of all
the continental ports except those of Sweden,
Norway, and Turkey, and the British were supreme
on the ocean. These orders and decrees, therefore,
provided for the speedy annihilation of American
shipping, and this seems to have been the object of
the last British Order in Council, if one may judge
from a perusal of Mr. Perceval's correspondence on
the subject. The official reason as stated was a
desire to compel the United States to retaliate
150 ORIGINS OF AMERICAN COMMERCIAL POLICY
upon the French Government." 1 But it was not
to be expected that the United States would quietly
submit to this treatment. On December 23rd, 1807,
Congress passed the Embargo Act, which pro-
hibited American vessels from leaving for foreign
ports, and foreign vessels from taking any cargo
except that already on board. The vigorous
enforcement of these orders on both sides for
although in March, 1809, the Embargo Act was
repealed, it was replaced by the establishment of
Non-Intercourse with France, Great Britain, their
allies and colonies was one of the chief causes of
the Anglo-American War of 1812.
With the political effects of these various regula-
tions we are not concerned ; but they were of great
importance for the economic development of the
United States. The following table shows the
movement of American foreign trade (in million
dollars) from the issue of the Embargo at the
beginning of 1808 to the end of the war. 2 It
should be noted that at the commencement of the
war of 1812 the United States import duties were
doubled.
Year.
(1807
Gross Imports.
. 138-5
Re-exports.
59-6
Gross Exports.
108-3)
1808
57-0
13-0
20-4
1809
. 59-4
20-8
52-2
1810
85-4
24-4
66-7
1811
53-4
16-0
61-3
1812
. 77-0
8-5
38-5
1813
22-0
2-8
27-9
1814
13-0
1
6-9
Charming,
United States, pp.
177-8.
2 Taussig, p. 12.
GROWTH OF AMERICAN INDUSTRY 151
So by 1814 American foreign trade had practi-
cally ceased to exist. The war was equivalent in
its effects to a policy of Protection amounting to
prohibition, and American manufactures, left in
secure possession of the home market, entered
upon a course of rapid expansion. Especially was
that the case with the production of woollen goods,
which increased in value from four million dollars
in 1810 to nineteen million in 1815; 1 and with
cotton spinning, which it is estimated employed
4,500 spindles in 1805, 87,000 in 1810, and 130,000
in 1815. 2 There were the beginnings of cotton
weaving, and the growth of the manufacture of
iron, glass, and pottery. 3 It was during these years
that the factory system began (but only began) to
replace domestic industry in the United States :
"the manufacture of cotton and wool passed rapidly
from the household to the mill ; but the methods
of domestic and neighbourhood industry continued
to predominate, even in those industries, down to
and including the decade between 1820 and 1830." 4
Just at the close of 1814 a treaty of peace was
signed by Great Britain and the United States,
and this was followed in 1815 by a commercial
agreement, intended at first for four years, but
1 "A loose, though significant guess" (Taussig, p. 40 n.).
2 Taussig, p. 28, from Woodbury's Report of 1836.
3 " See what has been, only by the short operation of the Embargo
and Non-intercourse Act, done in America ! . . . We have here before
us the seeds of a great event nothing less than the complete and
absolute independence of America upon English manufactures "
(William Cobbett, quoted in Bolles, ii. p. 289).
4 Twelfth Census of the United States, vii. p. liii.
152 ORIGINS OF AMERICAN COMMERCIAL POLICY
prolonged in 1818 for another ten years ; by it
the contracting parties bound themselves not to
impose discriminating duties on each other's pro-
ducts. 1 The first result of the cessation of
hostilities was a swift rise of imports ; from
$13,000,000 in 1814 they rose to $113,000,000
in 1815 (with only six months of peace), and
$147,000,000 in 1816. This last was the highest
figure yet recorded, and moreover, as re-exports
were comparatively small, "the value of net im-
ports was almost double that of any year pre-
ceding the war." 2 The phenomena of Continental
Europe at this time were repeated in the United
States ; the barriers erected during the long war
were removed, and both found themselves exposed
to a sweeping invasion of British manufactured
goods, which severely threatened the very exist-
ence of some at least of the industries which had
grown up under the shelter of the system of
prohibition. In the United States the manu-
facturers of cottons, woollens, and chemicals
thought themselves particularly imperilled, and
in 1815 President Madison called Congress to
their help. " Under circumstances giving a power-
ful impulse to manufacturing industry," he wrote, 3
"it has made among us a progress and exhibited
an efficiency which justify a belief that with a
protection not more than is due to the enter-
prising citizens whose interests are now at stake,
1 Charming, United States, p. 198. 2 Stanwood, i. p. 131.
3 Seventh Annual Message, 1815.
THE COMMENCEMENT OF PROTECTION 153
it will become at an early day not only safe against
occasional competitions from abroad, but a source
of domestic wealth and even of external commerce.
In selecting the branches more especially entitled
to the public patronage, a preference is obviously
claimed by such as will relieve the United States
from a dependence on foreign supplies, ever subject
to casual failures, for articles necessary for the
public defence or connected with the primary
wants of individuals. It will be an additional
recommendation of particular manufactures where
the materials for them are extensively drawn from
our agriculture, and consequently impart and
insure to that great fund of national prosperity
and independence an encouragement which cannot
fail to be rewarded."
The result was the tariff of 1816, which com-
menced a series of enactments which for about
twenty years became more and more protectionist.
But the first steps were quite moderate. The
original scheme was to reduce the war duties
29 per cent. that is, to leave the permanent
duties 42 per cent, higher than before the war
of 1812 ; but the proposals were considerably
modified in their passage through Congress owing
to the opposition of the shipping interest and the
rivalry of the various groups of states which sought
protection for their industries. 1 So the proposed
1 "The difficulty is illustrated most clearly by the objections of
Northern members to a protecting duty on sugar and of Southern
members to giving protection to cotton manufactures. On the question
of protection to iron the North and the South united against the
Middle States" (Stanwood,, i. p. 157).
154 ORIGINS OF AMERICAN COMMERCIAL POLICY
duty of $1.25 per cwt. on bar-iron was reduced
by the House of Representatives to 45 cents ; the
proposed duty on sugar was cut down consider-
ably ; instead of the desired rate of 33^ per cent,
the cotton manufactures obtained only 25 per cent,
for three years and 20 per cent, after the expiration
of that term. 1 That protectionist motives exercised
a strong influence over the tariff discussions there
can be no doubt, but they had not yet obtained a
complete control over the minds of the legislators. 2
The new tariff was a combination of specific and
ad valorem duties.
The new customs laws seem to have had little
effect, so far at least as the iron and cotton indus-
tries were concerned. The imports of bar -iron
rose from 12,293 tons in 1816 to 21,160 tons in
1817, and, after a temporary decline, to 22,459 tons
in 1820, whilst the home production fell rapidly
1 In connection with cottons the system of the "minimum valuation"
was adopted; i.e. it was directed that all cotton, cloths, etc., "the
original cost of which at the place imported shall be less than 25 cents
per sq. yard, shall be taken and deemed to have cost 25 cents per
sq. yard, and shall be charged with duty accordingly. " Taussig writes
(p. 30) : " After 1818 the use of the power-loom, and the fall in the
price of raw cotton, combined greatly to reduce the prices of cotton
goods. The price of coarse cottons fell to 19 cents in 1819, 13 cents
in 1826, and 8^ cents in 1829. The minimum duty became propor-
tionately heavier as the price decreased, and in a few years after its
enactment, had become prohibitive of the importation of the coarser
kinds of cotton cloths."
2 Taussig (pp. 18-19) seems to think that the new duties (averaging
20 per cent.) were the outcome chiefly of financial needs. Dewey
(p. 162) holds that " Protection was adopted as a fundamental basis
of the fiscal system and revenue was subordinated to industrial needs."
He adds, however, that there was little opposition, because the country
was confronted by a real crisis.
ECONOMIC CRISIS 155
in part doubtless because of the technical defects
of the manufactures. Similarly in the cotton
manufacture " the tariff of 1816 was not protective
so far as those establishments were concerned
which had not the most efficient machinery. This
is almost equivalent to saying that it was protective
in relation to but one factory in the country." 1 The
help given to the makers of woollens by the duties
was also only slight ; and the three industries soon
began to invoke again the aid of Congress. In
1818 they secured an increase in the duty on bar-
iron, and a prolongation of the 25 per cent, on
cottons until 1826 ; but apart from these increases,
the protectionist movement for some time made
little progress. This was due in part to the atti-
tude of the Southern States, where agriculture
was prosperous owing to the world-wide demand
for their cotton and tobacco ; they believed that
protection for manufactures, which were practically
impossible under the climatic conditions of the
South and with slave labour, would be inimical to
their interests. Moreover, in politics it was the
"era of good feeling" there were no organised
political parties to seek in the advocacy of Protec-
tion an election cry. But in 1818-19 there came
an economic crisis ; the prices of the agricultural
staples of the United States, hitherto high, fell
rapidly, thus imitating the prices of manufactured
goods, which had declined sharply when the con-
1 Stanwood, i. p. 173. Cf. for the effect of the various duties,
Taussig, pp. 34-5, 40-1, 50-1.
156 ORIGINS OF AMERICAN COMMERCIAL POLICY
elusion of the war had removed the restrictions on
imports. This fall in agricultural prices to some
extent benefited the manufacturers, but did not
moderate their demand for Protection ; and the
agriculturists, especially in the North, became
more favourable to it in their desire in view
of European legislation to develop the home
market. 1 Thus one important effect of the crisis
was to revive and strengthen the agitation in favour
of more protection, just as the crisis of 1873 and
the following years in Germany prepared the way
for Bismarck's tariff legislation. In 1819 the Con-
gressional Committee on Manufactures, under the
stimulus of the commercial trouble of that year, 2
brought forward proposals for a complete revision
of all the tariff rates, with large increases all round,
partly to provide revenue to meet a growing deficit
in the national accounts, and partly to extend the
protection already given to manufactured goods.
There was a prolonged conflict, and in April it was
carried through the House of Representatives only
to be summarily rejected by a majority of one vote
in the Senate.
From 1820 to 1824 there was some agitation
throughout the Union in favour of tariff changes,
but practically no attempt was made to give ex-
1 Taussig, pp. 19-24.
2 " Its causes were complex : in part the inability of the manufac-
turing industries to recover a stable footing after the abnormal growth
occasioned by the embargo and the war, and in part a spirit of specula-
tion developed by several years of rapid commercial expansion and bad
banking" (Dewey, p. 166).
THE ACT OF 1824 157
pression to it in the legislature until the new Con-
gress, to meet at the end of 1823, had been elected.
The effect of the census of 1820, which determined
the apportionment of seats in the House of Repre-
sentatives, 1 had been to increase the representation
of the Middle States New York, Pennsylvania,
Ohio, Kentucky, Tennessee which were strongly
protectionist. President Monroe invited the new
Congress to " a review of the tariff for the purpose
of affording such additional protection to those
articles which we are prepared to manufacture, or
which are more immediately connected with the
defence and independence of the country." The
response to this appeal was the Tariff Act of 1824,
of which "it may be said without reservation that the
sole object was the protection of manufactures " ; 2
the financial position of the Government made
it unnecessary to consider revenue. It increased
the duties on iron, lead, wool, hemp though not
so much as those interested had desired ; on cotton
and woollen goods the ad valorem duties were
raised from 25 to 33^ per cent., but the additional
protection to woollens was discounted by the
doubling of the duty on raw wool. Strong oppo-
1 ' ( Representatives and direct taxes shall be apportioned among the
several States which may be included within this Union, according to
their respective numbers. . . . The actual enumeration shall be made
within three years after the first meeting of the Congress of the United
States, and within every subsequent term of ten years. . . . The
number of Representatives shall not exceed one for every thirty
thousand " (Original form of art. i. sec. 2 of the Constitution, given
in Bryce, Amer. Comm., i. p. 697).
2 Stanwood, i. p. 202.
sition came from the commercial classes of New
England to the tariff as a whole ; from the ship-
builders to the increases on hemp (for cordage),
flax, and iron ; from the manufacturers there to the
increases on molasses (for rum) and raw wool. But
New England was not solid in its resistance to the
new tariff, for it had itself growing manufactures
of cotton and woollen goods ; and hence its vote
was divided. 1 The South was united ; it exported
cotton largely, and feared retaliation, particularly
from Great Britain. The Middle and Western
States, whose interests were chiefly agricultural,
threw their whole weight on the side of the new
proposals, partly in their desire for the development
of the home market, and partly to obtain protec-
tion for their hemp, wool, and flax. 2 The combina-
tion of these states and the manufacturers of New
England carried the Act of 1824, but only by a
small majority.
Two other points about the proposals of that
year are noticeable. A clause providing for the
imposition of a surtax equivalent in amount to the
bounty paid by a foreign country on any goods
imported into the United States was rejected, on
the ground that it would be a breach of the Com-
1 In the division on the Bill of 1819, 19 New England representatives
voted for it, 18 against ; New York, New Jersey, Pennsylvania, and
Delaware gave 55 votes for, 1 against ; the South, 8 for, 63 against ;
Ohio, Illinois, and Indiana, 8 for, none against (Stanwood, i. pp. 192-3).
In 1824 the South voted against the proposed tariff, the Middle and
Western States for ; of the New England States, Rhode Island and
Connecticut for, the rest against (Taussig, pp. 74-5).
2 Taussig, pp. 70-5.
THE CONSTITUTIONAL QUESTION 159
mercial Treaty of 1815 with Great Britain, which
guaranteed that no unfavourably discriminating
duties should be imposed by the United States on
commodities coming from that country. And
much more important than this was the question
whether the levying of import duties for protective
purposes was constitutionally within the power of
Congress or not ; the matter was raised only tenta-
tively, and was not much discussed, but it was
subsequently to form the subject of very consider-
able controversy. 1
1 Stanwood, pp. 220-5.
CHAPTER II
THE GROWTH OF PROTECTION, AND
THE COMPROMISE OF 1833
FOR a short time after the passing of the Tariff
Act of 1824 the manufacturers seem to have been
satisfied ; but in the latter part of 1826 a demand
for a greater amount of protection made its appear-
ance amongst the producers of woollen goods.
Their complaint was to the effect that the British
duties on raw wool had been reduced, that wages
in Great Britain were lower, and therefore the
Americans could not effectively compete with the
British manufacturers, and were in a very de-
pressed state. 1 They did not ask for a reduction
of the duty on raw wool probably believing that
the agricultural states would not listen to such a
proposal but for an increase in the duties on
woollen goods. The Woollens Bill of 1827, which
was introduced to meet their demands, passed the
House of Representatives, only to be immediately
wrecked in the Senate ; but the woollen manu-
facturers had revived the whole protectionist move-
ment. A widespread campaign had commenced,
1 Stanwood, i. pp. 253-4, 277-
160
THE TARIFF AND PARTY POLITICS l6l
and the advocates of Protection found skilful and
influential exponents of their views in Matthew
Carey, and Niles, whose Weekly Register became
their storehouse of facts and arguments. After
the Woollens Bill had been introduced, the Free
Trade party realised the necessity of vigorous
action, and began a counter-campaign. But unlike
previous controversies on the tariff question, the
economic discussion was now to become inex-
tricably involved with party politics ; and American
tariff legislation entered upon a new stage. The
" era of good feeling " was at an end ; political
parties were at last taking shape again, and round
Andrew Jackson there was being formed a party
which represented a break with all the traditions
of the past. 1
The outcome of the protectionist agitation was
the Tariff Act of 1828, under which " the experi-
ment of protecting was now to be carried to the
highest point it ever reached." 2 That Act, destined
to be known as the "Act of Abominations," was
passed at a time when men's thoughts were con-
centrated on the approaching presidential campaign,
and the determination of the Jackson party to
secure the election of their chief. The supporters
of the retiring President, Adams, whose leader was
Henry Clay, were definitely in favour of Protec-
tion ; the Jackson party was divided the Southern
members, who were united in their support of
Jackson, being in favour of a considerable re-
1 Wilson, pp. 12-21. Bolles, ii. p. 407.
M
162 THE GROWTH OF PROTECTION
duction of duties, whilst the Middle States, whose
votes would turn the election, were almost as
strongly protectionist. The outcome of this
peculiar position was an extraordinary series of
party complications and political manoeuvres, in
which Jackson's supporters were led with astonish-
ing skill by Martin van Buren. A Tariff Bill was
framed, greatly increasing duties on manufactured
goods and raw materials alike ; and ultimately it
was passed by a curious combination. The South
voted solidly against it, so did two-thirds of the
New England members ; the vote of the Western
and Middle States, combined with the protectionist
vote from New England, carried it. 1 But the
votes of the members were determined in the
main by party considerations ; many excessively
high duties had been inserted in the Bill by the
votes of Southern members desirous of making
it so unpopular that it could not pass ; yet though
they voted against it at the last it was carried
largely by the votes of people with whom they
were politically allied, who were not anxious for
Protection, but meant to capture the vote of the
Middle States for their presidential candidate. 2
In this they were successful ; at the election of
November, 1828, Jackson was returned by an
overwhelming majority.
The increases made by the new tariff in the
1 Taussig, p. 98.
2 The complicated story of these mauoeuvres can be read in Stan-
wood, i. chap. viii.
THE "ACT OF ABOMINATIONS" 163
customs duties were very considerable. The duties
on hemp were raised from $35 to $45 a ton, though
good hemp could scarcely be grown in the country ;
on molasses from 5 to 7j cents a gallon, whilst
drawbacks to the manufacturers of rum were
refused ; on pig-iron from 56 to 62J cents per
cwt. ; on hammered bar-iron from 90 to 112 cents
per cwt, and on rolled bar-iron from $30 to $37
a ton. 1 But the chief developments had regard
to woollens. It is admitted that the difficulties
of the American manufacturers of woollen goods
in meeting British competition were due in large
measure to their technical deficiencies and the
preference of the American consumers for the
better quality goods from Great Britain ; 2 but
they secured in 1828 increased specific duties on
woollen goods, though to nothing like the extent
which they had desired. On the other hand, the
old ad valorem duty on raw wool was replaced
by a specific duty of 4 cents a pound, with the
addition of an ad valorem rate which ultimately
was to reach the height of 50 per cent. This
particular clause seems to have been designed to
secure the support of the agricultural states, and
at the same time to damage the Tariff Act by
making it unpopular with the manufacturers.
The passage of the Tariff Act of 1828 led
immediately to one of the most fateful political
conflicts in the history of the United States. We
have seen that the Southern States were strongly
1 Taussig, pp. 88-9, 93, 2 Stanwood, i. p. 280.
164 THE GROWTH OF PROTECTION
opposed to Protection, and they were offended
also by the appropriation of federal surplus revenues
to the construction of public works, particularly
roads and canals, almost entirely in the North,
which with its growing manufactures was in
urgent need of the development of its means
of communication. 1 At the time when the new
tariff proposals were being discussed in 1827, the
inhabitants of South Carolina (always the leader
of the South in action) had protested against the
protective duties on the ground that "the duties
laid by Congress, of whatever description, are
levied in great part on articles purchased by
Southern industry and consumed by the South ;
but these duties are expended almost exclusively
for the benefit of other sections of the Union. . . .
All that is taken from us is disposed of elsewhere.
We are benefited in the South by those expendi-
tures in no way that we can perceive and feel.
All that we pay is accumulated in defending and
improving distant sections of the Union, and the
prosperity of the North is built upon the im-
poverishment of the South." 2 The Southern States
had every claim for special consideration ; in 1829
out of a total export valued at about $56,000,000,
$34,000,000 represented the cotton, rice, and
tobacco exported from the South. 3 The exports
1 Jackson was opposed to this policy, but was overruled by Congress
(Wilson, p. 39). 2 Quoted in Stanwood, i. p. 261.
3 Wilson, p. 50. "The contribution of the South appears still
more striking if it be compared with the total value of agricultural
exports, which was a little under $44,000,000."
THE FREE TRADERS AND REVENUE DUTIES 165
of raw cotton were $26,575,000, as against
$1,258,000 worth of cotton goods. South Carolina
was fourth amongst the exporting states of the
Union. In the tariff of 1828 protection for
manufactures had reached its highest point ; but
the scheme then adopted was so thoroughly bad
that all were agreed on the necessity of some
changes ; and for some time therefore, though its
leaders were preparing their plans, the South did
not think it necessary to take decisive action.
The first changes were made in 1830. The
duties were reduced on tea by 50 per cent., on
coffee by 60 per cent, (and after 1831 by 80 per
cent.), and on cocoa by 50 per cent., whilst the
duty on molasses was put back to the old level,
and the system of drawbacks renewed. But these
were not all the changes required ; the agitation
of the Free Trade party continued, though it is
important to notice that they did not ask for a
complete abolition of duties in fact, they were will-
ing on financial grounds to retain somewhat heavy
rates. In the Petition to the Senate, from the
Free Trade Convention at Philadelphia in 1831,
it is stated that " the people prefer, in time of
peace, duties raised on the importation of foreign
merchandise to any internal tax, direct or indirect.
Whether for good or for evil, that system affords
an encouragement to domestic manufactures not
less efficient for being incidental. Duties on im-
ports, amounting on an average to about 20 per
cent, of the value, appear necessary to the support
166 THE GROWTH OF PROTECTION
of Government" 1 The petitioners condemn the
high duties of 1828, even after the changes of
1830, because without giving real help to the
protected trades they hamper all the others.
They point out that in the existing conditions
of American industry manufacturers must have
recourse to foreign supplies they give as an
instance iron goods, with growing imports in spite
of increased duties 2 and they complain that the
duties greatly increase the cost of materials to
manufacturers, especially the shipbuilders. The
same petition also presents what is probably the
best short statement of the Southern objections
to the protective legislation: "The Southern States
have always confined themselves almost exclusively
to the cultivation of the rich products of their
climate. This is the only advantage they enjoy,
and they owe it to nature. As they make but
few, they consume a much greater proportion of
manufactured articles imported from other states
or other countries. That system, therefore, that
enhances beyond measure the price of those objects
of necessary consumption operates most unequally
and unjustly upon them. They are forbidden to
1 Text in Taussig, State Papers. The Petition, which is an elaborate
statement of the practical argument for Free Trade, was written by
Albert Gallatin.
2 The Petition gives the following figures of imports :
Rolled Iron. Hammered Iron. Manufactures of Iron.
1817-1820 . . 2,237 tons ... 16,887 tons ... Not ascertained.
1821-1824 . . 4,212 ... 23,162 ... $2,600,000
1825-1827 . . 5,400 ... 22,650 ... $3,630,000
1828-1830 . . 6,450 ... 31,000 ... $3,660,000
THE SOUTHERN PROTEST 16?
supply themselves on the cheapest terms consistent
with the revenue necessary for the exigencies of
Government. As the greatest consumers, they
must not only pay a greater share of the duties
requisite to defray the necessary national expen-
diture, but they are compelled to pay the enhanced
price occasioned by the protecting system. That
system cannot be extended to them. They find
in it no indemnity, no compensation for the injury
which it inflicts upon them. They have not, they
cannot, in self-defence erect manufacturing estab-
lishments. The nature of their population for-
bids it." 1
Moderate men in the Northern States were
anxious to make some concession to the South,
and the feeling in favour of a reduction of duties
was strengthened by the condition of the public
1 Readers of De Tocqueville's La Democratic en Amerique will
remember his description (17th ed., vol. ii. chap. x. pp. 320-5) of the
contrast presented to the traveller down the Ohio River by the two
banks, and his prophecy of a great conflict as the inevitable outcome
of the difference between the economic and social organisation of
North and South. With the opinion of the petitioners, quoted above,
may be contrasted the belief of Hamilton, in his Report on Manu-
factures (Taussig, State Papers, p. 59), that "ideas of a contrariety
of interests between the northern and southern regions of the Union
are in the main as unfounded as they are mischievous. The diversity
of circumstances on which such contrariety is usually predicated
authorises a directly contrary conclusion." Forty years later De
Tocqueville agreed with this : " Je vois bien dans les differentes
parties de 1' Union des interets differents, mais je n'en decouvre pas
qui soient contraires les uns aux autres" (loc. cit., p. 369). But he
anticipated conflict owing to the dissatisfaction of the South at seeing
itself outpaced in prosperity and political power by the North, and
the difference of temperament arising from the difference of economic
conditions.
168 THE GROWTH OF PROTECTION
finances. The customs receipts had been suffi-
ciently large to allow of the paying off of the
National Debt with great rapidity. Between Jan-
uary 1st, 1828, and January 1st, 1832, the amount
was reduced from $67,475,000 to $24,322,000, and
the interest payable had fallen by one-half. Mean-
while the receipts from customs were rising ; conse-
quently, with the Congress which met in December,
1831, there began a revision of the tariff, and the
new Act was adopted in June, 1832. 1 The duties
on flax and hemp were reduced slightly, as were
also those on pig and bar iron. But the chief
changes were in the case of wool and woollens ;
the cheaper kinds of raw wool were admitted free,
on the others the duties were considerably reduced ;
on cheap woollen goods the ad valorem duty was
reduced to 5 per cent., on worsted goods from 25
to 10 per cent. ; on other qualities they were
nominally increased but practically reduced, owing
to the abolition of the system of minimums. 2 The
number of absolutely free articles was increased
from 49 to 180 ; tea and coffee imported in Ameri-
can vessels were to be free. " In fact, the protec-
1 A Report of the Congressional Committee which prepared the
scheme contains an elaborate discussion of the relative merits of specific
and ad valorem duties, and declares in favour of the latter on the
grounds that they affect all quab'ties of a commodity equally^ as specific
duties do not unless very elaborately detailed ; and that they enable the
proportion of taxation intended by the legislature to be maintained in
spite of fluctuations of values. These advantages outweigh the dis-
advantage of the encouragement given to false declarations of value
(Bolles, ii. pp. 415-16). For a fuller discussion of this question, see
pp. 236-8.
2 Stanwood, i. p. 384.
THE SOUTHERN LINE OF RESISTANCE 169
live system was put back, in the main, to where it
had been in 1824. The result was to clear the
tariff of the excrescences which had grown on it
in 1828, and to put it in a form in which the
protectionists could advocate its permanent reten-
tion." 1 But this very fact drove the Southern
States into open revolt ; so long as there was a
chance, by ordinary legislative means, of over-
throwing Protection, they were disinclined to have
recourse to other weapons, but they interpreted
the action of Congress in 1832 as meaning the
permanent incorporation of Protection in the fiscal
policy of the Union.
The line which the leaders of the South, es-
pecially Calhoun and Hayne, would take had
already been revealed ; it was the adoption of a
particular view as to the manner in which the Con-
stitution should be interpreted. There were two
possibilities ; the Federal Government might be
comparatively weak, and confined to the exercise
of powers based on a strict and narrow interpreta-
tion of the actual terms of the Constitution, whilst
the separate states enjoyed extensive rights and
powers that is to say, there could be a league of
states, not a Union ; or the Federal Government
might continually increase in authority, and the
terms of the Constitution might be liberally inter-
preted at the cost of a constant diminution of the
powers of the various members of the Union.
Economic and political considerations alike deter-
1 Taussig, p. 105.
170 THE GROWTH OF PROTECTION
mined the Southern States to adopt the former
view. Under their climatic conditions, and with
slave-labour, there could be no considerable growth
of manufactures, and it was quite certain that the
South would be outpaced in population and wealth
by the North, and still more by the Middle States.
That would mean the political predominance of the
North, and it seemed that the result would be
the maintenance of the protective policy to which
the South was so strenuously opposed it might
also mean the overthrow of slavery. The leaders
of the South argued in the tariff controversies
from 1827 to 1832, as we have seen, that the policy
of Protection benefited one portion of the Union
at the expense of another ; and as they could not
prevent the passage of the Tariff Acts, they main-
tained that the Acts themselves were unconstitu-
tional, whatever the courts might say. They argued
that customs duties for protective purposes were
not within the terms of that clause of the Consti-
tution which authorised Congress "to lay and
collect taxes, duties, imposts, and excises, to pay
the debts and provide for the general defence and
welfare of the United States " ; or that even if
they were so included, or could be, by an applica-
tion of the doctrine of "implied powers," the
duties actually levied violated the rule that "all
duties, imposts, and excises shall be uniform
throughout the United States," since they bore
more heavily upon the South than upon the
North. But if the obnoxious tariff laws were
THE DOCTRINE OF NULLIFICATION " 171
passed, and maintained by the courts, what was to
be done ? In a famous debate in regard to public
land, in 1830, Hayne, of South Carolina, had
argued that "the Constitution of the Union was
a compact between the states ; that to make the
Federal Government the sole judge, through its
judiciary, of the extent of its own powers, was to
leave the states utterly without guarantee of the
rights reserved to them, and might result in
destroying the federal character of the Government
altogether ; and that if the states could not defend
themselves in cases where the unconstitutionally
of acts of the Federal Government seemed to
them deliberate and palpable, the government
might be consolidated to a point of intolerable
tyranny." 1
Authority for the action now taken in 1833
was found in the resolutions passed by Virginia
and Kentucky at the time of their entry into
the Union, to the effect that "in case of a de-
liberate, palpable, and dangerous exercise of other
powers, not granted by the said compact, the
states, who are members thereof, have the right,
and are in duty bound, to interpose, for arresting
the progress of the evil, and for maintaining within
their respective limits the authorities, rights, and
liberties appertaining to them." 1 The practical
application of this doctrine was the method of
"nullification." On November 24th, 1832, a State
Convention in South Carolina declared the Tariff
1 Wilson, pp. 43-4. 2 Ibid., p. 45.
172 THE GROWTH OF PROTECTION
Acts of 1828 and 1832 null and void within that
state, and announced that, in the event of the
Federal Government attempting to enforce the
law, South Carolina would deem it necessary to
withdraw from the Union. Jackson, originally
elected with Southern support, had now been re-
elected by an overwhelming majority, and whatever
his personal views on the tariff question itself may
have been, he would have nothing to do with
nullification, which he declared to be " incompati-
ble with the existence of the Union, contradicted
expressly by the letter of the Constitution, unauthor-
ised by its spirit, inconsistent with every principle
on which it was founded, and destructive of the
great object for which it was formed." l In January,
1833, a Bill was introduced into Congress, known
as the Force Bill, authorising the President to use
the Federal military and naval forces to enforce the
tariff, wherever the collectors might encounter
obstacles. But neither side was anxious to push
the matter to extremes. Not all the Southern
States were prepared to follow South Carolina, and
the Free Traders of the North cared more for the
maintenance of the Constitution than for the over-
throw of the tariff. On the other hand, the politi-
cal leaders of the Protectionists recognised the
necessity of yielding to some extent. In February
Clay introduced his Compromise Bill. By it all
duties in excess of 20 per cent, ad valorem were to
be reduced by one-tenth of the excess in each
1 Wilson, p. 61.
THE COMPROMISE OF 1833 173
alternate year up to 1839, and after that by a
greater amount, so that the whole excess should
be abolished by 1842 ; a number of duties were to
be entirely abolished in 1833, and many more in
1842. 1 The result would be that by 1842 the free
list would be much enlarged, and duties brought
to a uniform level of 20 per cent, ad valorem.
This amounted to " giving manufacturers ten years'
notice to prepare for the final abandonment of the
principle of Protection " ; 2 but it is more than
probable that Clay and his friends did not antici-
pate any such event they hoped that something
would happen to enable the notice to be cancelled.
The compromise was readily accepted by Calhoun
on behalf of the South, and became law on
March 2nd, 1833. On March llth, South Caro-
lina repealed the nullification ordinance, but also
declared the Force Bill void.
As a temporary political expedient, Clay's com-
promise was successful in that it put an end to the
crisis, but it did not settle the real question at
issue. The Federal Government had asserted its
right to enforce the Federal law even against the
will of the individual states ; but South Carolina
still adhered to its doctrine of nullification. Practi-
cally, the South was victorious ; it had compelled
the North to repeal the obnoxious tariff, though
the Force Bill remained on the statute book as a
statement of the powers of the Federal Govern-
1 Stanwood, i. pp. 307-8.
2 Bolles, ii. p. 425.
174 THE GROWTH OF PROTECTION
ment. The problem was put aside for a time,
but it was to return a generation later to be solved
only by war. 1
1 For the details of the conflict and the constitutional argument,
see Wilson, pp. 23-65 ; Stanwood, i. chaps, ix. and x. ; Johnston,
History of American Politics, chaps, xi. to xiv. ; and cf. Bryce, American
Commonwealth, chaps, xxxi. to xxxv.
CHAPTER III
COMPROMISE, PROTECTION, AND RE-
ACTIONECONOMIC DEVELOPMENT
OF THE UNITED STATES TO 1860
FOR eight years the Tariff Act established by the
Compromise Act of 1833 remained untouched ;
and consequently during all that period the United
States were moving steadily in the direction of the
removal of restrictions upon foreign trade. The
first four years, from the passage of the Act till
towards the end of 1836, were a time of general
prosperity, but unfortunately they were also coin-
cident with the beginnings of financial disorder,
resulting not from economic causes, but from the
extraordinary policy of the Government. 1 The
chief example of the reckless financial methods of
the administration of President Jackson (1829-37)
was the attack upon the United States Bank.
That institution had been originally established in
1791 with a charter for twenty years, but from the
first there had been considerable doubts as to the
1 The year 1833 " marks the change, for some time impending,
from rational and conservative, to reckless and destructive, finance,
and from comparative prudence on the part of the business community
to wild speculation " (Stan wood, ii. p. 1).
175
176 DEVELOPMENT OF THE UNITED STATES
constitutionality of the proceeding. The result
was that the charter was allowed to lapse in 1811 ;
but the bank had proved so useful that it was
renewed in 1816. The Treasury had subscribed
one-fifth of the bank's capital, and the President
nominated one-fifth of its directors ; it was the
depository of the Federal revenues, its notes were
legal tender for all payments to the United States
Government, and it was bound to redeem its notes
in specie on demand. From the first, the new
Democratic party were hostile to the bank, partly
because, with their theory as to the interpretation
of the Constitution, they held the bank charter to
be unconstitutional, in spite of a decision of the
Supreme Court to the contrary effect in 1819 ;
partly because they thought that its privileges con-
stituted an " un-American monopoly " ; and partly
because they supposed it to exercise great political
influence in the interest of their opponents. There
seems to have been little basis for their charges in
regard to this last matter, or for the further charges
of mismanagement, but Jackson resolved to over-
throw the bank, and when Congress passed an Act
renewing the charter it encountered a Presidential
veto, which the majority was not strong enough to
override. Clay endeavoured to make the bank
question the principal issue at the Presidential
election in November, 1832, with disastrous results ;
the triumphant return of Jackson only strengthened
his determination to destroy the bank. In Septem-
ber, 1833, having at last secured a Secretary of the
DANGEROUS FINANCIAL LEGISLATION 177
Treasury who was ready to help him, Jackson pro-
ceeded to withdraw the Government deposits from
the bank, and not to replace them. The Federal
revenues were henceforth to be deposited in certain
selected state banks (i.e. banks under state charters),
which were not chosen always for their financial
soundness, but in some cases at least for their use-
fulness for party purposes. 1
In the years 1833 to 1836 there was a great rise
of imports, but in spite of this the reduction of
duties had brought a diminished customs revenue.
However, the sales of public land in these years
were so great as to give the Treasury a huge sur-
plus, and in 1836 the National Debt was extin-
guished. 2 If the sales of public land were to go
on, a continued surplus might be expected. The
obvious course would have been to reduce taxa-
tion, but no one was willing to touch the Com-
promise of 1833, which had already come to possess
an almost sacred character. Consequently it was
decided, on the proposal of Calhoun, that on and
after January 31st, 1837, all the surplus funds
remaining in the Treasury above $5,000,000
should be distributed between the various states,
with the proviso, however, that money so distri-
buted could be recalled by the Federal Govern-
ment if necessary a course never adopted, and in
fact impossible. Three such distributions were
1 Wilson, p. 88. Dewey (p. 209) apparently thinks that the charges
against Jackson for favouritism in this matter are exaggerated ; "the
interests of the Government were well safeguarded."
2 Stanwood, i. p. 284.
N
178 DEVELOPMENT OF THE UNITED STATES
made in 1837, amounting to $37,000,000; after
that there was no longer a surplus, but a deficit.
In the same period there was an extraordinary
increase in the number of banks of issue (from
329 in 1829 to 788 in 1837), 1 stimulated by the
new deposit system of the Federal Government,
the growth of speculation, particularly in land,
and the development of industry. The states
exercised no control over the new banks, and
allowed them, even when they possessed scarcely
any capital, to issue notes freely. The country
was flooded with paper money in all stages of
depreciation, and prices rose rapidly. To protect
itself as much as possible, the Treasury in July,
1836, issued a circular requiring all payments for
public lands to be made in cash. This increased
the difficulties of the money market, already very
great and complicated by the calling in of loans
by English creditors ; 2 and by the beginning of
1837 commercial credit was badly shaken. Food
prices rose rapidly, 3 and then a sudden fall in the
price of cotton, following on the over-production
resulting from the rapid rise in prices between
1833 and 1835, brought a general crash. All the
banks in the country ceased payments in specie. 4
With all this the tariff had nothing to do, for
the reductions of duties under the Act of 1833
1 Dewey, p. 225. 2 Ibid., p. 230.
3 Between 1834 and 1837 flour rose from $5 to $11 a barrel, and
corn from 53 cents to $1.16 a bushel ; early in 1837 there were bread
riots in New York (Wilson, p. 93).
4 Stanwood, ii. p. 8.
COMMERCIAL CRISIS 179
were not to be considerable until about 1840. 1
The financial distress was due simply to the
confusion into which the policy of the Jackson
Administration and the growth of speculation,
stimulated by the great sales of public lands and
excessive credit to purchasers, had thrown the
credit system of the country ; consequently there
seems to have been no proposal made in any
quarter for an alteration of the tariff or a return
to a greater measure of protection. After the
crisis there was the inevitable period of stagnation
commercial recovery was very slow ; and the
general depression may have been, and probably
was, increased by the knowledge of the manu-
facturers that under the Act of 1833 the pace
of the reduction of duties was now to quicken.
But, nevertheless, the efforts towards a change in
the Tariff Act were very slight, and met with
little support. Two financial reforms only were
made. In 1838 the State of New York began
the policy of permitting the establishment of any
bank without need of a special charter, on con-
dition of its promoters depositing with the State
Treasury securities to the amount represented by
1 Even Stanwood, who is strongly protectionist in sympathy,
writes : ' ' No candid student of history will hold that the Tariff
Act of 1833 had even a slight direct influence, by an injurious
effect upon domestic manufacture, in bringing on the crisis. The
evidence is necessarily of a negative character, but it is conclusive.
The fact that manufacturers were flourishing up to the time when
the financial storm burst, as all authorities deemed that they were,
is all-sufficing" (Stanwood, ii. p. 8). The connection of this and the
following crisis with the tariff appears to have been a later invention
of Henry Carey.
180 DEVELOPMENT OF THE UNITED STATES
its issue of notes. And in 1840 the Independent
Treasury Act was passed, under which the Treasury
was itself to keep all the proceeds of the public
revenue in its own hands (not making use of the
banks) and to make and receive payments only
in specie. 1
By the election of November, 1840, the Demo-
crats were utterly discredited, in spite of some diplo-
matic successes of Van Buren, who had succeeded
Jackson as President in 1837. The main defect
of his administration had been his steadfast ad-
herence to the financial policy of his predecessor,
and his failure to devise any satisfactory measures
for dealing with the commercial situation. The
new political parties had now been definitely
formed ; on the one side were the Democrats,
led by the President himself and Benton, with
their advocacy of a conservative interpretation of
the Constitution and their consequent opposition
to the expenditure of Federal moneys on internal
improvements, to Protection, and to the National
Bank ; and on the other side were the Whigs, as
the Republican party of Clay and ex-President
Adams was called since 1834, representing many
diverse elements, but agreed upon a wide interpre-
tation of the Constitution and protective legisla-
tion. Already there were signs of the difficulties
to be caused later by the anti-slavery party a
more serious menace to the Democrats than to
the Whigs, since the former were dependent for
1 Dewey, pp. 235-7.
FAILURE OF THE WHIG PROGRAMME 181
much of their political strength on the South. 1
The Whigs, not so much because of their new
policy as because of the discredit into which the
Democrats had fallen, were able to carry the
election of Harrison, a successful soldier, as
President in November, 1840, and immediately
upon his taking office they prepared to commence
financial legislation. They proposed to repeal the
Independent Treasury Act, to re-establish the
National Bank, to amend the tariff in order to
meet the large Treasury deficit, and also to dis-
tribute amongst the states the proceeds of the
sales of public lands, so that these would not
henceforth be reckoned as a source of Federal
revenue. But scarcely had these proposals been
put forward when the President died, and was
succeeded by Vice-President Tyler. The new
President was not a Whig at all, but a discon-
tented Democrat, who had been adopted by the
Whigs as one of their candidates only in order
to detach a certain number of votes from their
opponents and to attempt to secure doubtful
states. He was by no means in sympathy with
their proposals, and immediately vetoed a Bill
establishing a new National Bank. The Distribu-
tion Bill was carried only after some difficulties
with the President and subject to the proviso
(which in fact reduced it to impotence) that the
distribution should be suspended if at any time
1 Wilson, pp. 112-14. Cf. Johnston, American Politics, chaps,
xiii. and xiv.
182 DEVELOPMENT OF THE UNITED STATES
it became necessary for revenue purposes to levy
customs duties of more than 20 per cent. As a
hasty expedient to provide money, a temporary
Tariff Act was passed in September, 1841, laying
a duty of 20 per cent, on all merchandise previously
paying less, or free ; there were, however, certain
exceptions to this general rule, and the proposal
to tax tea and coffee was rejected. 1
By the end of 1841, the financial situation was
worse than ever. In spite of large issues of
Treasury notes, there was a heavy deficit, and
there seemed every likelihood that the final re-
missions of duty, now about to take place under
the Act of 1833, would still further increase the
difficulties of the Treasury. This fact, coupled
with the general uncertainty, probably seriously
hindered the manufacturers ; and the commercial
troubles had again become acute. In 1841 fifty-
five banks had stopped payment; in January, 1842,
six states, including Pennsylvania and Maryland,
were unable to meet their obligations ; and by the
end of April twenty -six more banks were sus-
pended. 2 It was absolutely necessary for some
action to be taken, and after another temporary
measure had been passed to prolong certain duties,
Congress adopted in August, 1842, the new Tariff
Act, which was carried only after much diffi-
1 One of the earliest acts of the new Whig administration was the
repeal of the Independent Treasury Act in 1841. The Act was
restored in 1846, and has remained in force since (Dewey, pp. 239,
252-5).
2 Stauwood, ii. p. 18.
TARIFF ACT OF 1842 183
culty, and by means of complicated parliamentary
manoeuvres. It was passed by the Whigs and was
therefore decidedly protectionist, 1 and was much
more elaborately detailed than any of its pre-
decessors. It was based on the Tariff Act of
1832, and in comparison with that it increased
the duties on cotton manufactures, on glass, and
on the cheapest wools, whilst it reduced the duties
on woollens, wool, leather, and some other com-
modities. But in contrast to the position of
the duties in 1841, which under the Compromise
Act were drawing close to an all-round rate of
20 per cent., the Act of 1842 marks a distinct
return towards Protection. The average duty
was to be about 30 per cent., though on manu-
factured goods it was a good deal higher. There
can, on the whole, be little doubt that the new
Act had a distinctly beneficent effect, 2 mainly
because it gave the manufacturers certainty as
1 " It marks the last triumph of the protectionist policy before the
Civil War " (Mayo-Smith and Seligman, p. 9).
2 Stanwood becomes enthusiastic oil the point. " The final plunge
to the 20 per cent. max. rate of the compromise tariff was bringing
the industries dependent upon protection to a standstill ; and all
business suffered in the stagnation of employment, in the cessation
of the movement of money and goods, which are as the circulation
of the blood in the body of commerce. The adoption of any improved
tariff would have removed one cause of the existing evil the un-
certainty as to the future. The enactment of a tariff which promised
prosperity and health to the starved manufacturers removed all causes,
and actually restored the prosperity which it promised. There is no
other enactment affecting the duties on imports, the effect of which
is so clear, so indisputable as there was never another which worked
so indisputably " (pp. 36-7).
Taussig is more moderate, but agrees that, in the manner indicated
above, the tariff did have a decidedly good effect on the commercial
and industrial situation.
184 DEVELOPMENT OF THE -UNITED STATES
to the conditions under which their industries
were to be carried on, and helped to improve
matters in the iron and cotton industries, which
contributed an impetus to all the rest. It is at
any rate certain that in 1842 there began a revival
of trade and commerce, and although such a
revival must assuredly have taken place in any
case, it is probable that it was quickened by the
increased protection afforded by the new tariff.
And from the point of view of revenue the new
customs duties were quite satisfactory ; in the year
ending June 30th, 1844, and onwards, the Treasury
found itself again in possession of a surplus.
But the tariff was not destined to remain long
untouched. The Presidential election of November,
1844, resulted in the triumph of the Democrats,
represented by Polk. 1 The new President was
opposed to the whole protectionist system, though
his colleague in the campaign, the Democratic
candidate for the Vice-Presidency, was a Protec-
tionist, and so was able to secure Pennsylvania
for his party. In his first message to Congress,
President Polk recognised the right of that body to
levy customs duties, but advocated the limitation
of the exercise of this power to revenue duties
only. In December, 1845, his Secretary of the
Treasury, Walker, presented to Congress a lengthy
report on the tariff, which was simply an elaborate
1 The defeat of the Whigs was due in part at least to the abstension
of the an ti-slavery party, who threw away their votes on an independent
candidate of their own.
WALKER'S REPORT 185
argument for Free Trade. 1 After expressing doubts
as to the constitutional validity of protective duties,
the Secretary proceeds to argue against them on
economic grounds ; and some passages from the
Report may be quoted as illustrating his general
line of argument. He wrote :
"At least two-thirds of the taxes imposed by
the present tariff are paid not into the Treasury,
but to the protected classes. The revenue from
imports last year exceeded twenty-seven millions
of dollars. This in itself is a heavy tax ; but the
whole tax imposed upon the people by the present
tariff is not less than eighty-one millions of dollars
of which twenty-seven millions are paid to the
Government upon the imports and fifty -four
millions to the protected classes in enhanced
prices of similar domestic articles.
" The occasional fall in prices of some articles
after a tariff is no proof that this was the effect
of the tariff; because from improved machinery,
diminished prices of the raw material, or other
causes, prices may fall even after a tariff, but they
would hi such cases have fallen even more but
for the tariff. The truest comparison is between
the present price of the same article at home and
abroad ; and to the extent that the price is lower
in the foreign market than in our own, the duty,
if equal to the difference, must to that extent
enhance the price, and in the same ratio with the
lower duty.
1 Full text ill Taussig, State Papers.
186 DEVELOPMENT OF THE UNITED STATES
"An appeal has been made to the poor by
the friends of protection, on the ground that it
augments the wages of labour. In reply it is
contended that the wages of labour have not
augmented since the tariff of 1842, and that in
some cases they have diminished. 1 ... A pro-
tective tariff is a question regarding the enhance-
ment of the profits of capital. That is its object,
and not to augment the wages of labour, which
would reduce those profits. It is a question of
percentage, and is to decide whether money vested
in our manufactures shall by special legislation
yield a profit of 10, 20, or 30 per cent., or whether
it shall remain satisfied with a dividend equal to
that accruing from the same capital invested in
agriculture, commerce, or navigation.
"The tariff is thus a double benefit to the
manufacturer and a double loss to the farmer and
planter a benefit to the former in nearly a
monopoly of the home market and in enhanced
prices of his fabrics ; and a loss to the latter in the
payment of those high prices and a total or partial
exclusion from the foreign market. The true
question is whether the farmer and planter shall
to a great extent supply our people with cheap
manufactures purchased abroad with their agricul-
tural products, or whether this exchange shall be
forbidden by high duties on such manufactures,
and their supply thrown as a monopoly, at large
1 There seems to be no adequate evidence for this statement of the
Secretary.
TARIFF ACT OF 1846 187
prices, by high tariffs, into the hands of our own
manufacturers.
" Let our commerce be as free as our political
institutions. Let us, with revenue duties only,
open our ports to all the world ; and nation after
nation will soon follow our example. If we reduce
our tariff the party opposed to the corn laws of
England would soon prevail and admit all our
agricultural products at all times freely into her
ports in exchange for her exports. And if England
would now repeal her duties upon our wheat, flour,
Indian corn, and other agricultural products, our
own restrictive system would certainly be doomed
to overthrow." *
Proceeding from these principles, the Secretary
advocated duties for revenue purposes only, with
the imposition of maximum rates on luxuries, the
abolition of all minimums and all specific duties,
and the substitution of ad valorem rates.
The result of this policy of the President and
his advisers was the Tariff Act of 1846, adopted
after only a short, though at times exciting, parlia-
mentary struggle. All minimums and specific
duties were abolished, and commodities were
divided into a number of classes with duties rang-
ing from 5 per cent, to 40 per cent., and in the
1 Bolles (ii. pp. 449-50) speaks of the British manufacturers
"having zealously laboured for Folk's election, and contributed
munificently to that end." He alleges that large sums of money were
subscribed in England and expended on behalf of Folk's candidature in
the United States. Elsewhere (p. 452) he speaks of the tariff of 1846
as "sponsored by the English nation." No satisfactory evidence for
these statements is offered.
188 DEVELOPMENT OF THE UNITED STATES
one case of brandy and spirits to 100 per cent. ;
there was also a class of free articles, the chief
being tea, coffee, and iron and copper ore. Manu-
factures of iron and other metals, wool, and
woollens paid 30 per cent., as did manufactures of
leather and glass ; cotton goods paid 25 per cent.
On the whole, the duties were considerably lower
than under the Act of 1842.
The new tariff remained in force for eleven
years with practically no alterations, and during
that period the United States experienced a very
rapid economic development. Population increased
from 17,069,000 to 31,433,321 between 1840 and
I860. 1 By 1850 the factory system was firmly
developed, 2 but the population was still over-
whelmingly agricultural ; in 1850, when the first
reliable census of the United States was taken,
only 12*5 per cent, of the population were living
in urban areas of more than eight thousand inhabi-
tants. 3 The quantity of corn grown rose from
592 million bushels in 1850 to 839 million bushels
1 Allowance must be made for increases of territory (e.g. in Texas
and Mexico) between these dates. Between 1846 and 1857 the United
States received more than three million immigrants (Stanwood, ii. p. 87).
In each of the five years after 1849 the annual number was over
350,000.
2 " It was not until about 1840 that the factory method of manu-
facture extended itself widely to miscellaneous industries, and began
rapidly to force from the markets the handmade products with which
every community had hitherto chiefly supplied itself. It seems probable
that until about the year 1850, the bulk of general manufacturing done
in the United States was carried on in the shop and the household, by
the labour of the family or individual proprietors, with apprentice
assistance" (Twelfth Census, vii. p. liii.).
3 As against 33 '1 in 1900.
INDUSTRIAL DEVELOPMENT 189
in 1860, but so far the production was almost
entirely for the home market. The total value of
the manufactured products of the United States
was estimated in 1850 at 1,019 million dollars, and
in 1860 at 1,886 million. 1 A great stimulus had
been given by the discovery of a number of new
processes which came into general use from about
1845 onward. The year 1838 had witnessed the
invention of Nasmyth's steam-hammer, and about
1840 anthracite coal began to be used for the pro-
duction of iron ; in 1841 the power-loom for carpet-
weaving was invented, and some years earlier the
knitting-frame had been first worked by machinery.
The amount of pig-iron manufactured by the an-
thracite process was estimated in 1844 at 65,000
gross tons, and in 1856 at 394,000 nett tons. 2 The
quantity of steel rails manufactured rose from
24,000 tons in 1849 to 184,000 in 1856. 3 The
value of the American production of iron was esti-
mated in 1850 at 60 million dollars, whilst imports
amounted to only 16 million. 4 The number of
cotton spindles employed in the United States
was reckoned at 2,112,000 in 1840 and rose to
3,634,000 in 1850, and to 5,236,000 in 1860 ; whilst
the value of the cotton goods exported averaged
4 million dollars between 1844 and 1849, and
had doubled by 1859. 5 The woollen manufacturers
1 Twelfth Census, vol. vii. p. xlvii. 2 Taussig, p. 132.
3 Taussig, p. 134. 4 Bolles, ii. p. 457.
5 Taussig, pp. 141-2. Stanwood admits (ii. p. 90) that "the
new tariff caused little injury to the cotton manufactures . . . the
importation of cotton goods in 1846 was valued at $13,000,000 ; in
1855 it was only $15,500,000,"
190 DEVELOPMENT OF THE UNITED STATES
were hampered by the duty of 30 per cent, on raw
wool, and there was little advance in the production
of woollens of the best quality ; but in the coarser
goods there was distinct progress, and the census
figures give the value of the products of the
woollen manufacture as 20 million dollars in 1840.
43-5 million in 1850, and 61 -9 million in I860. 1
The foreign trade of the United States increased
enormously. The following table gives the figures
for imports and exports of merchandise from 1847
to 1857, when another alteration in the tariff was
made :
Year. Imports. Exports.
$<fc
-p
1847 . 122,424,349 ... 156,741,598
1848 . 148,638,644 ... 138,190,515
1849 . 141,206,199 ... 140,351,172
1850 . 173,509,526 ... 144,375,726
1851 . 210,771,429 ... 188,915,259
1852 . 207,440,398 ... 166,984,231
1853 . 263,777,265 ... 203,489,282
1854 . 297,623,039 ... 236,959,560
1855 . 257,808,708 ... 218,909,503
1856 . 310,432,310 ... 281,219,423
1857 . 348,428,342 ... 293,823,760
It will be observed that there was a very large
excess of imports over exports, but this was
counterbalanced by the great export of gold after
the discovery of the Californian mines. In 1848
1 Taussig, p. 146. Against this must be set Stanwood's assertion
(ii. p. 92) that " the new tariff practically ruined the woollen industry,
which had revived and become fairly flourishing under the protection it
received under the Act of 1842.'' Bolles (ii. pp. 456-7) shares this
view, but both writers admit that one of the chief difficulties of the
woollen manufacturers was the high duties imposed on raw wool,
EFFECTS OF THE TARIFF 191
the gold produced in the United States was valued
at 10 million dollars ; it rose to 40 millions in the
following year, and then steadily to 64 millions in
1853. The customs revenue, which under the
tariff of 1842 had reached 27^ million dollars,
rose, in spite of the lower rates of duty, to 64
millions in 1856.
Contemporary with this great economic develop-
ment at once a cause and a result of it there
was a rapid growth of means of transport. In
1840 there were 2,818 miles of railway in the
United States ; in 1850, 9,021 ; and in 1860,
30,635. l The net tonnage of vessels registered in
the United States for over-sea trade was 900,000
in 1840 and 2,546,000 in 1860; the tonnage of
other vessels, including those on the lakes and
rivers, increased from 1,241,000 in the former year
to 2,753,000 in the latter. 2
It is entirely impossible to form any estimate
of the influence of the tariff of 1846 upon the
economic development thus briefly indicated ;
opinions on the subject differ with the general
attitude of the writers towards the whole question
of Protection and Free Trade. The critics of the
tariff legislation of 1846 cannot profess that it
did more than slightly retard the industrial pro-
gress of the United States ; whilst its warmest
supporters do not pretend that it did much to
hasten the development. In fact, its effect in
1 Conner, p. 46.
2 Board of Trade Blue Book on British and Foreign Industry, 1903,
p. 376.
192 DEVELOPMENT OF THE UNITED STATES
either direction was probably only small ; the
United States were just commencing to exploit
their great resources, and the movement as a
whole was sufficiently strong (whatever might be
the case with isolated industries) to be practically
unaffected by tariff enactments. 1
1 (( The wonderful revolution which was taking place in commerce
and in history makes it impossible to generalise from this experience
as to the effect of import duties upon economic development ; very
likely prosperity would have followed under any system of revenue
laws " (Dewey, p. 257). Cf. Taussig, pp. 116-22.
CHAPTER IV
DURING the eleven years after the passage of the
Act of 1846, suggestions were made from time to
time, particularly by the Whig Presidents, Taylor
and Fillmore, for a revision of the tariff in order
to increase the protection given to manufacturers ;
but their recommendations remained unheeded,
and when a change was at last made it was in the
opposite direction. The Democratic successor of
Fillmore, Pierce, repeatedly urged the reduction
of the tariff duties on the ground that the
Treasury was in possession of a surplus. But
partly because of the party confusion caused by
the breaking up of the Democrats and the forma-
tion of the new Republican party, composed of
the old Whigs and some of the Democrats, and
partly because of the concentration of public
interest on the slavery question, nothing was done
until 1857. In that year an Act was passed, pro-
viding for a reduction of about 25 per cent, all
round on the duties levied by the Act of 1846 ;
o 193
194 WAR TAXATION AND ITS RETENTION
the highest protective duty henceforward was to
be 24 per cent, (except in a few special cases), and
the general level was lower than in any period
since 1816. 1 The free list was extended, particu-
larly for raw materials and the cheaper kinds of
wool. The Act appears to have attracted very
little public attention ; no one was specially hostile
to it, and the woollen manufacturers were anxious
to secure the cheapening of their raw materials. 2
But it was somewhat unfortunate for the supporters
of Free Trade that the passage of the Act, which
reduced the duties to the lowest point they had
reached for almost half a century, should have
been followed almost immediately by a consider-
able financial crisis. There is no evidence that this
was connected in any way with the tariff legisla-
tion, though some writers have alleged that the
effect of the reductions of 1846 were now first felt,
because had the old protective policy been main-
tained the crisis of 1857 would have been greatly
mitigated. 3 The disasters of 1857 were of a
1 Mayo-Smith and Seligman, p. 10. The two highest rates were
reduced from 100 per cent, and 40 per cent, to 30 per cent, each ; the
30 per cent, duties to 24 per cent. ; the 25 per cent, to 19 per cent. ;
the 20 per cent, to 15 per cent. ; and so on.
2 Speaking of the woollen manufactures, Stanwood (ii. p. 109) has
a curious phrase : ' ' The situation previously existing was intolerable.
... In the prevailing state of public opinion made up of active
hostility to Protection in the southern half of the country, and of in-
difference in the northern half, where the slavery question absorbed
popular interest and left room for the consideration of no other busi-
ness questions they were hopeless of obtaining even a hearing upon
the merits of the tariff controversy. They therefore asked for and
ultimately secured such a measure of protection as was afforded by
cheaper raw material."
3 So J. G, Blaine, quoted by Dewey, p. 264,
COMMERCIAL CRISIS 195
familiar kind ; they were the result of the over-con-
fidence arising from a long period of prosperity,
from the consequent growth of speculation, the
over-development of railways followed by a de-
cline in the value of railway stock, and from over-
importation ; and they were intensified by an
unsatisfactory banking system and the excessive
issue of unsecured paper money. The crisis came
suddenly ; it affected the merchants and bankers
rather than the manufacturers ; and there is
nothing to show that it seriously hindered, even
for a time, the industrial progress of the country.
There was an abrupt fall in imports from 348
million dollars in the year 1856-7 to 263 million
dollars in 1857-8, and the customs revenue de-
clined from 64 million dollars to 42 million. The
result was that the Treasury found itself again
faced with a deficit, which continued for some
time, and which it could not entirely meet even
by means of loans.
The financial needs of the Government revived
the protectionist movement, but action was delayed
for a time by the complications of party politics.
At the election of November, 1856, the Democratic
candidate, Buchanan, had been elected to the
presidency, and the Democratic party was openly
opposed to Protection. The new Republican party
was for a time uncertain ; it contained a number
of ex-Democrats, and it was unsafe at first to
alienate these by a public advocacy of Protection,
whilst, on the other side, only such definite advocacy
196 WAR TAXATION AND ITS RETENTION
could secure the support of the great State of
Pennsylvania and some other Middle States,
whose action would probably be decisive at the
next election. But by 1860 the advocates of the
extension of the slave power had become so identi-
fied with the Free Traders, and the Republican
party was so well united, that its leaders thought
it safe to avow that " while providing revenue for
the support of the general Government by duties
upon imports, sound policy requires such an adjust-
ment of these imposts as to encourage the develop-
ment of the industrial interests of the whole
country ; and we commend that policy of national
exchanges which secures to the working men
liberal wages, to agriculture remunerating prices,
to mechanics and manufacturers an adequate re-
ward for their skill, labor, and enterprise, and to the
nation commercial prosperity and independence."
The Republicans controlled the House of Represen-
tatives which met in December, 1859, and therefore
Morrill introduced in March of the following year
the Tariff Act which has since been known by his
name. In theory it was an Act for revenue pur-
poses only and to meet the growing deficits, which
totalled 50 million dollars for the years 1858-60 ;
and it professed to restore duties to the rates of
1846. It encountered considerable difficulties, par-
ticularly in the Senate, where there was a Demo-
cratic majority, and the way only became clear for
it when at the end of 1860 the secession of the
Southern States, which followed closely on the
THE WAR TARIFF 197
election of Lincoln to the presidency, had with-
drawn a number of Democratic Senators, and
given the control of that House also to the
Republicans. The new Act, as finally approved
on March 2nd, 1861, did in fact put the duties
above the level of 1846, chiefly by substituting
specific for ad valorem duties, especially in the case
of iron and wool, where an attempt was made to
capture the vote of Pennsylvania and the West.
Manufacturers, as a whole, cared little about the
Bill. 1
But the new tariff was short-lived ; the Civil
War commenced, and Congress found itself com-
pelled to enter on a course of extraordinary finan-
cial legislation in order to meet the tremendous
expenditure which the struggle involved. In
August and December, 1861, duties were imposed
on many articles hitherto free, and the rates on a
number of commodities, such as tea, coffee, sugar,
hemp, hides, rubber, silk, spices, and a few others,
were largely increased. In the following year
financial needs compelled Congress to have recourse
to internal taxation, and the imposition of specific
duties on home manufactures, such as iron and
steel, paper and leather, and ad valorem duties on
most others ; a general income tax was also es-
tablished. Partly in order to raise further supplies
of money, and partly to compensate the manufac-
1 Mr. Morrill is reported to have said later that the tariff of 1861
" was not asked for, and but coldly welcomed, by manufacturers, who
always and justly fear instability" (Taussig, p. 160).
198 WAR TAXATION AND ITS RETENTION
turers for the burdens which the new internal
taxes imposed upon them, the Customs Act of
July, 1862, again increased duties generally, raising
them to an average of 37 per cent. 1 The free list
established by the Morrill Tariff of 1861 was cut
down by nearly one-half. But this was not the
end ; after some small additions, the culmination
was reached in the Act of June, 1864, which was
accompanied by an Internal Revenue Act, creating
twenty-two new kinds of taxes "a system of
taxation more comprehensive, more burdensome,
and more confused than it has ever been the lot of
any other civilised community to bear " 2 and the
issue of a huge loan. The Customs Act raised
the average duty to 47 per cent., and enumerated
1,450 separate articles ; it increased the customs
revenue from 108 million dollars in 1863-4 to
209 million in 1864-5. The difficulties arising
from the heavy burden of taxation were increased
enormously by the rapid rise of prices, due in part
to the depreciation of the inconvertible paper
currency, which reached its lowest point in the last
six months of 1864, when the average gold price of
100 dollars in currency was only about 43 dollars.
Average prices rose 117 per cent, between 1860 and
1865, and money wages rose only 43 per cent. 3
1 Mayo-Smith and Seligman, p. 12. " If we bleed manufactures
we must see to it that the proper tonic is administered at the same
time" (Morrill, quoted by Taussig, p. 162). The duties on imports
were required to be paid in specie, whilst internal taxes were paid in
the rapidly depreciating currency of the United States (Holies, iii.
p. 186).
- Mayo-Smith and Seligrnan, p. 13. 3 Dewey, pp. 293-4.
EFFECT UPON COMMERCIAL POLICY 199
Unfortunately the manufacturers desirous of
protection found their opportunity in the diffi-
culties of the Government. It is true that they
could reasonably claim some compensation for the
heavy burdens laid upon them by the system of in-
ternal taxation which had been adopted, but they
went much further than this. 1 They secured an
almost unlimited protection, and their action and
the general effect of the war tariff on the United
States, are thus described by two of the ablest
economists of that country : " The tariff of 1864
is the real war tariff, and the basis of the present
tariff. While the main reasons of its passage were
without doubt the need of increased revenue for
the Government and the desire to compensate the
various interests for the burdens imposed on them
by the internal revenue, it is undeniable that its
final shape was largely owing to the endeavours
of the protected manufacturers to gain each for
himself the greatest possible advantage irrespective
of the other's interests. Above all, the habits
engendered during this period of comprehensive
protection to everything led to a crystallisation
of the sentiment in favour of national exclusion
and isolation. The commercial policy of the
United States for many decades was moulded
by the feelings and habits generated during this
period of the Civil War. Henceforth the move-
ment in favour of high protection, which still in
1 "The Bill (of 1864) is full of examples of their prowess"
(Stanwood, ii. p. 129).
200 WAR TAXATION AND ITS RETENTION
great part dominates the American people, was
to become the leading feature in the commercial
and political life of the country. What was in
its origin a mere temporary expedient called forth
by the exigencies of a great military struggle was
to become a permanent institution." l
For a number of years after the close of the
Civil War the tariff policy of the United States
remained absolutely unchanged in its general char-
acter. The effects of the war had been bad enough
in the North, but they were far worse in the
South. In the states which had remained loyal
to the Federal Government there had been indeed
a terribly heavy burden of taxation, but to some
extent compensation had been found for this in
the growth of manufactures, under the high duties
required to meet the expenses of the war. But
on the contrary, the Southern States, dependent
on the sale of their produce in foreign markets,
had found their export trade destroyed by the
rigorous blockading of their ports by the Federal
Navy, and had practically no manufactures capable
of development ; moreover, as they had but a
small population and were compelled to maintain
vast armies, there had been little labour left avail-
able for agriculture or industry. This, coupled
with a system of taxation even more oppressive
than that employed in the North, had brought
the South almost to complete economic ruin.
Now, after the war was ended, the newly con-
1 Mayo-Smith arid Seligmau, pp. 13-14.
FINANCIAL RECONSTRUCTION 201
firmed Union found itself confronted with an
extremely heavy debt (2,760 million dollars), and
a greatly depreciated currency (owing to the large
amounts of inconvertible paper money issued by
both sides during the conflict) ; the great ravages
caused by military operations, particularly in the
South, had to be made good ; and the old slave
states had the difficult problem of replacing slave
by free labour, at a time when they were financially
least able to do so.
The most urgent task was financial reorganisa-
tion, but it was undertaken only gradually, and
in a one-sided manner ; the tariff remained for
some years untouched in most respects. For the
delay, three reasons may be assigned. 1 There was
first the concentration of the attention of Congress
on the problem of reconstruction. The President,
Andrew Johnson, was inclined to follow in the
treatment of the Southern States the liberal policy
of his predecessor, Lincoln. But he possessed
neither the power nor the judgment of Lincoln ;
and, moreover, he was a Southerner, and though
a strenuous supporter of the Union, inclined to
hold the doctrine of state rights. The triumphant
Republican party of the North would have nothing
to do with the President's conciliatory policy ; it
meant to use its power to the utmost, and adopted
the theory that it could do what it liked in the
reconstruction of the Southern States, and could,
so far as they were concerned, suspend the Federal
1 Ibid., pp. 14-15.
202 WAR TAXATION AND ITS RETENTION
Constitution indefinitely. With the policy and
methods actually adopted by Congress we are
not concerned here. It is necessary only to point
out that it was not until the beginning of 1871
that all the states of the Union were once more
represented in Congress, and that during the
four years of Johnson's Presidency (1865-9) there
was an incessant conflict between the President
and the legislature, which absorbed the energies
of both parties. 1 The second reason was the
desire to get rid as quickly as possible of the
internal taxes, always peculiarly repugnant to
Americans, and especially the income tax. These
constituted burdens which were severely felt by
everyone, and felt directly ; they undoubtedly
hampered industry in every conceivable way. It
was therefore decided to remove them as quickly
as possible, and by a series of Acts between 1867
and 1872 all were swept away except the excise
on beer and spirits, and duties on matches, patent
medicines, and a few other commodities. The
heavy import duties had been imposed, professedly
at least, in part to compensate the manufacturers
for the burden of the internal taxes, and, therefore,
theoretically either the war surtaxes on imports
should have been abolished at the same time as
the internal war taxes, or if financial considerations
made that impossible, there should have been a
simultaneous partial reduction of both classes. But
the desire to get rid of the internal taxes was too
1 See Wilson, pp. 254-72.
PROTECTION A PERMANENT POLICY 203
strong ; it therefore became necessary to maintain
the import duties at a high level in order to meet
the heavy cost of government, to prepare the way
for the resumption of specie payments, and to
reduce the debt as rapidly as possible. This reten-
tion of duties at the high level coincided with the
desires of the manufacturers, who flourished (or
thought they flourished) as a result of the protec-
tion afforded them, and could urge with justice
that there were a number of industries which had
been called into existence by the high tariff and
the war, and must collapse if protection were
withdrawn. The country seems to have made
up its mind without much difficulty that for a
time at least the extreme protective system must
be maintained, and even in some cases increased. 1
In 1867 a Bill was introduced, prepared by a
newly appointed Special Commissioner of the
Revenue, and supported by the Secretary of the
Treasury, which proposed to reduce duties on raw
material lumber, dyes, coal, flax, and others, and
to reduce slightly duties on manufactured goods.
1 "The whole industry of the country gradually adapted itself to
the existence of the high tariff, and the people soon became convinced
of the advantages of a policy of commercial stability. . . . Just as
the country had accommodated itself to the so-called Free Trade
policy of the period 1846-57, so now again the tendency seemed to be
averse to any sudden change '' (Mayo-Smith and Seligman, p. 16).
"The country at large, and especially those parts of it in which the
protected industries were concentrated, began to look on the existing
state of things as permanent. The extreme protective system, which
had been at first a temporary expedient for aiding in the struggle for
the Union, adopted hastily and without any thought of deliberation,
gradually became accepted as a permanent institution " (Taussig, p. 174).
204 WAR TAXATION AND ITS RETENTION
The Bill secured a majority in both Houses of
the Legislature, but it did not pass, owing to the
failure to secure the two-thirds majority in the
House of Representatives necessary to overcome
certain technical difficulties. The attempt to reduce
duties had then failed, and no further effort was
made until 1870, whilst, on the contrary, two Acts
were passed with the opposite effect. The first
of these was the Woollens Act of 1867. During
the war there had been a considerable development
of the manufacture of woollen goods, owing
partly to the practical cessation of the manu-
facture of cottons, and partly to the great demand
for clothing for the Federal troops. With the
return of peace, these abnormal conditions passed
away, and the woollen manufacturers found them-
selves in face of a crisis. They began therefore,
as early as 1865, to bring pressure upon the
Government ; and they were skilful enough to
make it appear that the growers of wool were
in agreement with them. They succeeded in ob-
taining in the new Woollens Act an extension of
the so-called " compensation system," which had
been adopted for the first time in the Morrill Tariff
of 1861. 1 The plan then adopted was simply
this : there was a specific duty imposed on wool ;
it was therefore thought necessary to give the
manufacturers, in addition to the ad valorem duty
which was intended to afford them protection, a
specific duty to compensate them for the duty on
1 Taussig, pp. 195 seq.
THE WOOLLENS ACT 205
raw wool, and the consequent increase in price of
their raw material. 1 The duties so imposed under
the Morrill Act had, like all others, been increased
during the war, and the manufacturers now asked
for and obtained a still further advance of nearly
100 per cent, in the actual amount of the duties,
though this was to some extent concealed by an
elaborate reclassification. The manufacturers got
more than the amount of the compensation which
they might perhaps have justly claimed ; they
benefited by the Woollens Act more than the
growers of wool, yet it did not yield them any-
thing like the results which they expected. " The
Wool and Woollens Act of 1867 was designed
expressly to make possible the production at a
profit of goods from the wool fibre. It did not
effect that object, nor did it accomplish that which
was equally its object, the growing of wool at a
profit. On the contrary, wool declined in price and
the manufacture of wool was greatly depressed.
... It is not possible to doubt that the price of
woollen and worsted goods must be enhanced so
long as a duty is laid upon wools which are not
produced in this country and which are yet neces-
sary for mixing with the domestic wool. This is
but to state a fact, and not to pronounce a judg-
1 Thus the duty on the cheaper wool was 3 cents per Ib., and it
was estimated that four Ibs. of wool were required for each Ib. of
cloth ; therefore the compensating duty imposed on each Ib. of cloth
imported was 12 cents (the idea being that this put the manufacturer
in the same position over against foreign competition as if he received
the wool duty free), and 25 per cent, ad valorem for actual protection.
206 WAR TAXATION AND ITS RETENTION
ment upon the expediency of the system. It is a
consequence of the enhanced price that the con-
sumption of woollen goods has never had, and
cannot have, an expansion like that which has
taken place in cotton, in sugar, in iron, and in many
other articles. Wool and woollens are always the
strongest arguments of the Free Trader, and the
most difficult to answer." 1
Similar advances were made by the Copper Act
of 1869. The duty on copper ore before the war
had been only 5 per cent, ad valorem, and on
copper bars and ingots only 2 1- cents per Ib. ; but
in the late sixties the copper mines of the Lake
Superior district were producing so largely that
the price of copper fell rapidly, and the mine
owners began an agitation for the increase of
the import duties. Early in 1869 the duty on
copper ore was made specific, and increased to
somewhere between 25 per cent, and 30 per cent.
ad valorem, whilst the duty on copper bars was
doubled. The Bill was veteod by the President,
but was passed in spite of him, and incidentally
had the effect of closing a number of smelting-
works at Boston and Baltimore, which had been
engaged in the smelting of imported ores. At
the same time, the price of home-produced copper
in the United States was raised. 2 Some other
increases of duty were the substitution of specific
for ad valorem duties on steel rails in 1870 a
change which made the duty heavier as prices fell
1 Stauwood, ii. p. 169. 2 Taussig, pp. 220-1.
MOVEMENT TOWARDS TARIFF REFORM 207
after about 1873 ; on marble also by the Act of
1870 ; on nickel, for which the rates were doubled
in the same year ; and even on such an important
raw material as flax.
Yet gradually the necessity for some changes in
the opposite direction was making itself felt, and the
impression in favour of reform was strengthened by
the persistent advocacy of the Commissioner of
Revenue, Mr. Wells. In 1870 the first step was
taken, but the reductions then made were confined
almost entirely to the non-protected commodities.
That is to say, the duties on such revenue articles
as tea, coffee, cocoa, sugar, spices, and wines were
lowered ; there was also an addition to the free list
of 130 articles, chiefly raw materials and foodstuffs. 1
The only really protective duty reduced was that
on pig-iron, by about 22 per cent., and as we have
seen, some duties on flax, marble, nickel, and steel
rails were increased. The net effect was a partial
mitigation of the tariff, but an increase of the
financial dependence of the Federal Government
on the strictly protective duties as a source of
revenue. The feeling in favour of tariff reform
steadily increased, especially amongst the farmers,
who were dissatisfied with the manner in which
Congress seemed to regard only the interests of
the manufacturers, and were forming in the West
the political association of the "Patrons of Hus-
bandry," or " Grangers." The movement was
aided by the condition of the finances ; the Ex-
1 Stanwood, ii. p. 173.
208 WAR TAXATION AND ITS RETENTION
chequer revenue from customs rose from 194J
million dollars in 1869-70 to over 216 million in
1871-2, and the surplus revenue exceeded the
amount required for the Sinking Fund. The Pro-
tectionists in Congress came to the conclusion that
it was desirable to give way to some extent, and
they resolved to continue the policy of 1870.
They accepted a Bill introduced in the Senate in
1872, which made a reduction of 10 per cent, on
cotton, wool, woollens, metals, paper, glass, and
leather manufactures, 1 and also lowered the duties
on coal and steel. But they added to this a reduc-
tion of the customs and excises on whisky and
tobacco, and the abolition of the duties on tea and
coffee. 2 Whilst apparently a concession to Free
Trade, the new Act really strengthened the position
of Protection ; its authors had gratified the general
desire for a reduction of taxation, but they had
done this particularly in regard to internal duties
and what may be called " breakfast-table taxes " ;
and consequently, as in 1870, they had made the
country still more dependent for Federal revenue
upon the purely protective duties. They believed
quite correctly that should it become necessary to
raise more revenue, it would be easier for them
to increase the protective duties than for the Free
Traders to re-establish revenue taxes. 3 The accur-
1 A method known as the " horizontal " reduction of duties.
2 Mayo-Smith and Seligman, p. 19. * Cf. Taussig, pp. 184-9.
3 ' ' The removal of the tea and coffee duties in 1872 served to fix
for a long time the character of our legislation on the revenue articles
of which they are the type. Step by step, in the various Tariff Acts
RENEWED COMMERCIAL DIFFICULTIES 209
acy of their calculations was soon to be proved.
In 1873 there were grave commercial difficulties in
the United States part of the almost universal
crisis of that year. 1 Imports, which had risen
rapidly from 1870 onwards, fell rapidly, and so did
the customs revenue in consequence. The follow-
ing table gives the figures of American foreign
trade from 1870 to 1875 (in million dollars) : 2
Years ending
June 30. Exports. Imports.
1870 . . 393 ... 436
1871 . . 443 ... 520
1872 . . 444 ... 627
1873 . . 522 ... 642
1874 . . 586 ... 567
1875 . . 513 ... 533
(It was not until 1868 that the American returns
of foreign trade were put on a really satisfactory
basis, as a result of the efforts of Mr. Wells and
General Walker, the well-known American econo-
mist. 8 ) The fall in the customs revenue gave the
passed since the war, all the non-protective duties have been swept
away. By far the most important recent legislation in this direction
was the removal of the duties on sugar in the Act of 1890, a change
which, like the removal of the tea and coffee duties in 1872, emphasised
the determination of the Protectionists to give up the simplest and surest
sources of revenue rather than yield an abatement of the protective
duties" (Taussig, pp. 188-9).
1 "In the United States the phenomena antecedent to the crisis
were enumerated at the time to be, ' a rise of prices, great prosperity,
large profits, high wages, and strikes for higher ; large importations, a
railway mania, expanded credit, over-trading, over-building, and high
living.' The crisis began on the 17th of September, 1873, by the
failure of a comparatively unimportant railway company." By the 29th
twenty banking houses failed (Wells, Recent Industrial Changes, p. 5).
2 Mayo-Smith and Seligman, p. 46.
3 See Worthington Ford's article on "Financial Tariff Com-
parisons" in the Political Science Quarterly, vol. xiii. No. 2,
P
210 WAR TAXATION AND ITS RETENTION
Republicans their opportunity, 1 and their action
was hastened by the fact that their long tenure
of absolute power was coming to an end. The
country had been growing more and more dis-
satisfied with the unsatisfactory results of General
Grant's second Presidency, and the Republicans
were discredited by a number of legislative and
administrative scandals. 2 It was clear that the
new Congress would have a strong Democratic
majority in the House of Representatives, and
the Republicans resolved to make the most of the
short time left to them. In February, 1875, they
carried an Act which repealed the " horizontal "
reduction made in 1872, and increased the duty
on molasses, sugar, tobacco, and spirits. The Act
passed without very great difficulty, though the
President and his Secretary of the Treasury were
both in favour of the re-establishment of the
revenue duties on tea and coffee. The result,
then, was simply a return to the high war rates
with such additions as had been made in 1867,
1869, and 1870. In criticism of the proceeding
it is only necessary to quote the judgment of the
most recent historian, himself a strong advocate
of the principle of Protection. Of the Republi-
cans he writes : " When they were forced to give
up the control of the lower House of Congress,
and thus to surrender the power to initiate revenue
1 They could point to the fact that the customs revenue, as a result
of the legislation of 1872,, had fallen from 216 million dollars in
1871-2 to 163 million in 1872-3.
2 Wilson, pp. 281-3.
THE REPUBLICANS AND THE TARIFF 211
legislation, they signalised their last day of un-
limited authority by restoring the duties levied for
purposes of protection to the giddy height they
had attained when war's terrible greed of money
insured a favourable response to every request
manufacturers might make for higher rates. . . .
As a political move the passage of the Act seems
ill-judged. ... It divided men into two parties
of extremists, at a time when moderate counsels
would have produced a reasonable tariff system
that might have stood unchanged for several years.
At almost every succeeding period of Congressional
or Presidential election until 1896 the tariff was
an issue in the canvass, to the great disturbance
and distress of business, and during the short
period of fourteen years, from 1883 to 1897, there
were four complete revisions of the tariff. It
would not be fair to lay all the uncertainty and
anxiety which the agitation produced to the charge
of the Republicans in the forty-second Congress.
But it is certain that they had more regard for the
interests of the moment than a statesmanlike fore-
sight of the consequences of their eager grasp at
a vanishing opportunity." l
1 Stanwood, ii. p. 191.
CHAFTER V
POLITICAL PARTIES AND THE
TARIFF ECONOMIC PROGRESS OF
THE UNITED STATES TO 1890
THE Act of 1875 was followed by a lull in tariff
legislation which lasted, in spite of one or two
attempts at renewed activity, for eight years.
Towards the end of that period the country had
recovered from the acute commercial depression
which had followed the disasters of 1873 ; the
Government found itself able to resume specie pay-
ments in 1879 ; the Southern States were rapidly
adjusting themselves to their new economic condi-
tions ; manufactures had greatly increased, if not so
rapidly as during the war period, yet to an extent
altogether satisfactory when the retarding effect
of the commercial disorders is taken into account. 1
Foreign trade was flourishing; as the following table
1 The census estimates of the value of the manufactured products
of the United States are : 1860, 1,885 million dollars ; 1870, 4,332
million dollars ; 1880, 5,369 million dollars. It should be noted, how-
ever, that the increase between 1860 and 1870 was somewhat less, and
the increase between 1870 and 1880 somewhat more, than appears from
these figures ; since the valuation was based in 1860 on a gold currency,
and in 1870 on a very unsatisfactory paper currency. The estimates
themselves are by no means complete, but they are fairly indicative
of the progress made.
212
AMERICAN FOREIGN TRADE 213
shows, exports reached their highest point in 1881
(the advance being chiefly in agricultural produce,
partly as a result of the extension of the trans-
continental railway system of the United States),
whilst imports made a great upward bound in the
early eighties, and the increase of customs revenue
gave the Treasury a surplus in 1881. The figures
are million dollars. 1
Year.
1876
Imports.
461
Exports.
540
Exports of
Agricultural
Produce.
456
1877
451
602
460
1878
437
695
536
1879
446
710
546
1880
668
836
686
1881
643
902
730
1882
725
751
552
The Democratic party had persistently advocated
a reduction of the customs duties, and the establish-
ment of a tariff for revenue purposes only ; and
now that in 1880 and 1881, with the rise of the
customs revenue from 215 million dollars in 1878-9
to 386 million in 1879-80, the Treasury found
itself again in possession of a surplus, 2 it seemed
to the Republicans, who still retained power, but
saw signs of their approaching fall, 3 desirable to
1 The table is taken from Mayo-Smith and Seligman, pp, 46. 8.
* The debt was reduced from 2,046 million dollars in 1870 to 1,723
million in 1880 ; in the two years 1878-80 the reduction was 100
millions.
3 They had lost at Congressional elections, and they had nearly
lost the Presidential election of 1876. In 1880 they did better, but
it now seemed likely that they would lose their hold on the Executive
Government.
214 POLITICAL PARTIES AND THE TARIFF
make some concessions to the popular feeling in
favour of a reduction of Federal revenue and a
mitigation of the high protective duties. Accord-
ingly, in 1882 a commission was appointed "to
take into consideration and to thoroughly investi-
gate all the various questions relating to the agri-
cultural, commercial, mercantile, manufacturing,
mining, and industrial interests of the United
States, so far as the same may be necessary to
the establishment of a judicious tariff, or a revision
of the existing tariff, upon a scale of justice to all
interests." 1 The composition of the commission
did not encourage any hope of reform in the
direction of Free Trade ; 2 its members, or some
of them at least, seem to have interpreted their
instructions to mean simply that they were to
make such modifications of the existing duties
as would be likely to remove some part of the
public hostility without in fact affecting the pro-
tective character of the tariff. The commission,
however, admitted in its report " that a substantial
reduction of tariff duties was demanded, not by
a mere indiscriminate popular clamour, but by the
best conservative opinion of the country, including
that which has in former times been most strenuous
for the preservation of our national industrial de-
1 Quoted in Stanwood, ii. p. 203.
2 " Four of the commissioners were themselves personally or
officially interested in industries classed as protected. All the com-
missioners, without exception, were favourable to the principle of
Protection" (Stanwood, ii. p. 204). The chairman was the Secretary
of the most energetic protectionist association in the country, the
National Association of Wool Manufacturers.
THE TARIFF ACT OF 1893 215
fences." By the end of the year the committee
felt itself able to report, and legislation was com-
menced on the lines which it indicated. The new
Tariff Act became law in March, 1883, after the
House of Representatives, with its strong pro-
tectionist majority (including a number of Demo-
crats), had made considerable alterations in the
bill as passed by the Senate, where it was first
introduced. 2 It was therefore not approved by all
the Republicans, but those who disapproved would
not vote against it.
In a number of cases duties were reduced. In
the case of raw wool, hitherto subject to a com-
bined specific and ad valorem duty, the ad valorem
portion was remitted the effect being a real re-
duction on carpet wools, which were not produced in
the United States at all ; a small reduction of little
importance on the better kinds of ordinary wools ;
and the maintenance of a practically prohibitive
rate on the inferior grades. As a consequence
of this reduction of duty on the imported raw
material, the " compensating " specific part of the
duty on woollen goods was likewise diminished
somewhat more than proportionately ; but in the
case of the finer qualities of goods this remission
was counterbalanced by an increase in the ad
valorem rates. On the cheap kinds of cotton goods,
the decrease of duty was 50 per cent., but these
1 Quoted in Dewey, p. 421.
2 The passage of the Bill was accompanied, and promoted, by the
usual complicated parliamentary manoeuvres and manipulation of rules
(Stanwood,, ii. pp. 207-18).
216 POLITICAL PARTIES AND THE TARIFF
were hardly imported into the United States at
all ; silks were largely imported, so the ad valorem
rate was lowered only some 16 per cent. On pig-
iron the duty was lowered very slightly, from $7
to $6.72 a ton ; on steel rails, on the other hand,
the reduction was 40 per cent, (from $28 to $17
a ton), though a fall of prices between 1881
and 1887 deprived this change of much of
its force. Other reductions of varying degrees
of importance were on marble, nickel, and
copper. 1
None of these changes were of sufficient value
to secure a favourable reception of the new tariff
by the advocates of freer trade, whilst other altera-
tions were of a nature to arouse their hostility.
There were a number of distinct advances in the
customs rates, and, as was perhaps to be expected,
the chief advantage was reaped by the woollen
manufacturers. Thus the duty on dress goods,
which have never been manufactured in any large
proportion in the United States, was increased, in
spite of the fact that the tax on imported wool
was at the same time lowered ; the ad valorem
duty on the higher valued kinds of fine cloths
was also raised. On the best grades of cotton
goods, such as embroideries and hosiery, there
was a rise of about 14 per cent. The duties on
various steel manufactures (chiefly machinery
parts, such as rods and shafts) were also in-
creased, as were those on quicksilver and a
1 Taussig, pp. 239-49.
THE POLICY OF CLEVELAND 217
number of manufactures of brass, pewter, tin,
and lead. 1
The changes were then, on the whole, of no
great effect in any direction. 2 The average duties
were in 1882-3 42*45 per cent, and in 1883-4
41 '61 per cent. Practically nothing was changed,
and so far the protectionist party might count the
new tariff as yet another addition to their long
list of victories. Some attempts were made in
1884 and 1886 to renew the tariff discussion, and
reduce duties, but without success, partly owing to
the fact that people were tiring of the constant
changes, and partly because the Democratic party
was by no means unanimous on the subject. A
revolt of some of its members defeated the Morri-
son Bill of 1884. Consequently, in spite of the
fact that the Democratic victory in the election of
President Cleveland in November, 1884, gave that
party for the first time since Buchanan left office
the control of the Executive Government, nothing
was done during its four years of power. But in
December, 1887, the President, in his annual
message to Congress, declared uncompromisingly
in favour of a very considerable reduction of duties.
pp. 233-8. " As a rule duties were advanced on
protected articles of which importations continued in considerable
volume. The advance was by no means universal . . . but it was
made in so large a number of important cases as to give the Act a
distinctly protectionist flavour.''
2 " Although the changes in the rates of customs duties were
numerous, few of them were large enough to work a perceptible altera-
tion in the conditions under which either commerce or manufacturing
industry was prosecuted " (Stanwood, ii. p. 218).
218 POLITICAL PARTIES AND THE TARIFF
After referring to the increased cost to the home
consumer of all commodities, wherever produced,
as a result of Protection, the President continued :
" It is not proposed to entirely relieve the country
of this taxation. It must be extensively continued
as the source of the Government's income ; and in
a readjustment of our tariff the interests of Ameri-
can labour engaged in manufacture should be care-
fully considered, as well as the preservation of our
manufactures. It may be called Protection, or by
any other name, but relief from the hardships and
dangers of our present tariff laws should be devised
with especial precaution against imperilling the exis-
tence of our manufacturing interests. But this ex-
istence should not mean a condition which, without
regard to the public welfare as a national exigency,
must always insure the realisation of immense
profits instead of moderately profitable returns.
. . . We are in the midst of centennial celebrations,
and with becoming pride we rejoice in American
skill and ingenuity, in American energy and enter-
prise, and in the wonderful natural advantages and
resources developed by a century's national growth.
Yet when an attempt is made to justify a scheme
which permits a tax to be laid upon every con-
sumer in the land for the benefit of our manufac-
turers, quite beyond a reasonable demand for
governmental regard, it suits the purposes of
advocacy to call our manufactures infant indus-
tries, still needing the highest and greatest degree
of favour and fostering care that can be wrung
THE TARIFF A PARTY ISSUE 219
from Federal legislation." Already the President
called attention to the trusts, and their probable
effect on home prices when foreign competition
was eliminated ; and he ended by declaring that
" it is a condition which confronts us, not a theory.
. . . The simple and plain duty which we owe the
people is to reduce taxation to the necessary ex-
penses of an economical operation of the Govern-
ment. . . . These things can and should be done
with safety to all our industries, without danger to
the opportunity for remunerative labour which our
working men need, and with benefit to them
and all our people, by cheapening their means of
subsistence and increasing the measure of their
comforts." 1
The message established a distinct line of division
between political parties ; it committed the Demo-
crats finally to Free Trade, and therefore identified
the Republicans with Protection ; and it provided
a clear and definite issue for the Presidential elec-
tion of November, 1888. 2 The two rival policies
to be placed before the country were exemplified
by two Bills one (the "Mills Bill") introduced
and passed in the House of Representatives by a
substantial Democratic majority, and the other
brought forward in the Senate by the Republicans.
1 Congressional Record, vol. xix. part i. pp. 10-11.
2 " From that time on, the tariff question became the chief line of
division between the two great political parties" (Mayo-Smith and
Seligman, p. 23). It had the effect of " making this question more
distinctly a party matter than it had been at any time since the Civil
War " (Taussig, p. 253).
220 POLITICAL PARTIES AND THE TARIFF
The former proposed to abolish the duties on a
large number of raw or semi-manufactured materials
of industry, such as wool, flax, hemp, jute, tin
plates, and on other articles, as salt and soap ; and
to reduce the duties on woollens, cotton goods,
iron, earthenware, and sugar ; it also substituted
ad valorem for specific duties in many cases. It
was estimated that the result would be a loss to the
revenue of about fifty million dollars. 1 On the
other side, the Senate Bill made some reductions
and readjustments, but in a large number of cases
increased the duties. Neither Bill passed, or was
expected to pass ; but the country had a definite
choice offered to it, and the elections of Novem-
ber, 1888, gave a narrow victory to the Republicans
by the return of President Harrison ; and in spite
of some disturbing influences, they were entitled
to consider this as a decision in their favour on the
tariff question. In their election " platform " they
had declared that they would "effect all needed
reduction of the national revenue by repealing the
taxes upon tobacco, which are an annoyance and
burden to agriculture, and the tax upon spirits
used in the arts and for mechanical purposes, and
by such revision of the tariff laws as will tend to
check imports of such articles as are produced by
our people, the production of which gives employ-
ment for labour ; and release from import duties
those articles of foreign production, except luxuries,
the like of which cannot be produced at home. If
1 Details in Mayo-Smith and Seligman, pp. 24-5.
INDUSTRIAL PROGRESS 221
there shall still remain a larger revenue than is
requisite for the wants of the Government, we
favour the entire repeal of internal taxes, rather
than the surrender of any part of our protective
system, at the joint behest of the whisky trust
and the agents of foreign manufacturers." 1 They
now resolved to make full use of their new lease of
power, and the result appeared in the McKinley
Tariff of 1890.
It was not possible for them to argue that the
country required more Protection the proposed
new tariff was the outcome rather of political
events than of the economic condition of the
United States. By 1890 industry and commerce
had recovered from the depression and become
free from the difficulties which had more or less
hampered them since about 1873, and become
acute for the last time in 1885-7 ; and the country
was now making a rapid advance on the upward
path. Population had increased from 38J millions
in 1870 to 621 millions in 1890 ; and the develop-
ment was particularly marked in the great agricul-
tural states of the Middle and North-West. The
total production of grain was estimated in 1870
at 761 million bushels (it had gone back some-
what during the Civil War period), in 1880 at
1,755 million, and in 1890 at 2,122 million. 2
Railways had advanced with extraordinary rapidity,
particularly in the decade 1880-90 ; in 1870 there
1 Quoted in Stanwood, ii. p. 238.
2 Twelfth Census, vol. vi. p. 23,
222 POLITICAL PARTIES AND THE TARIFF
were 60,000 miles in the United States ; in 1880,
93,000 ; and in 1890, 164,000. With this develop-
ment there had come a great cheapening of the
cost of transport ; the charge for the carriage of
a bushel of wheat from Chicago to New York
fell from 30 J cents in 1868 to 14|- cents (or
rather less than one -half) in 1888. 1 These
changes had greatly stimulated agriculture, and
rendered possible the growth of the export trade
in agricultural products, which from 1875 to
1890 averaged about 75 per cent, of the total
exports of the United States. 2 Beside grain, the
most important product so exported was cotton ;
the output of that raw material fluctuates con-
siderably, but it rose from an average of 3,325,000
bales in 1869-73 to an average of 6,553,000 bales
in 1885-9, whilst the export advanced in about
the same proportion from 1,040 million pounds
in the former to 2,015 million in the latter period. 3
The manufacturing industries were increasing with
equal or even greater rapidity ; the value of their
products was estimated at the census of 1870 at
4,232 million dollars, and in 1890 at 9,372 million,
and the increase was even greater than it appears
in these figures, since the former estimate was
based on a depreciated paper currency, and the
latter on the gold currency. 4 The average pro-
duction of pig-iron for the years 1870-4 was
1 Conner, p. 47.
2 Mayo-Smith and Seligman, p. 48.
3 Ibid., p. 5.
4 Twelfth Census, vii. pp. xlvii. seq.
AMERICAN SHIPPING 223
2*2 million tons ; by 1890 the amount was 9*3
million. In 1871, 34,100 tons of Bessemer steel
rails were manufactured, and in 1872, 84,000
tons; in 1890, the total of 1,871,000 tons was
reached. 1 The quantity of cotton consumed in
the country was 486 million pounds in 1869, and
1,060 million in 1889. The consumption of wool
was increasing, and required the whole of the
home production, together with a growing import,
but the manufacturers were still far from able to
cope with the home demand. The industrial pro-
gress was no longer confined to the Northern and
Middle States ; the South also was begginning to
have its share, especially in the case of cotton
goods. The one unsatisfactory feature was the
condition of American shipping and shipbuilding ;
between 1870 and 1890 the tonnage registered
for over -sea trade declined from 1,517,000 to
947,000, though there was an increase in river and
lake shipping. In spite of various Navigation Acts,
and partial remissions of duty on goods borne
in American vessels, the percentage of the United
States' foreign trade carried in native vessels fell
from 66-5 in 1860 to 35'6 in 1870 and to 12'3 in
1890. 2 So far as the shipbuilders were concerned,
there was little doubt that this was due to the
impossibility of obtaining, under the existing
tariff conditions, material sufficiently cheap to
enable them to compete with Great Britain, where
1 Taussig, p. 416.
2 Mayo-Smith and Seligman, p. 57.
224 POLITICAL PARTIES AND THE TARIFF
also wages were lower. The figures for the total
foreign trade up to 1883 have already been given ;
the following table carries them up to 1890 :
Year. Imports. Exports.
1883 . . 723 ... 824
1884 . . 668 ... 741
1885 . . 573 ... 742
1886 . . 635 ... 680
1887 . . 692 ... 716
1888 . . 724 ... 696
1889 . .745 ... 742
1890 789 858
CHAPTER VI
IT was clearly difficult for the advocates of Protec-
tion to urge the " infant industries " doctrine any
longer (save in one or two special cases). Perfectly
valid as this argument may have been in the early
days of the industrial history of the United States,
it could not now serve the Republicans as their
avowed principle of action, and they found it
necessary to provide themselves with another and
more defensible theoretical basis for the practice of
Protection. They therefore turned to the ideas
of the home market and national self-sufficiency ;
their policy had, indeed, from the first been in that
direction, but was now to become so more definitely.
" The world's progress is now dependent upon the
development of internal resources, and not of
external trade. We need a systematic develop-
ment of all those opportunities for labour with
which each country has been endowed by nature.
We must make a better use of all our natural
resources if the world is to advance to a higher
industrial state. Progress must come from the
Q 225
226 THE NEW THEORY OF PROTECTION
development of large continental states, rich in
natural resources." 1 Protection is to be no mere
temporary expedient ; it becomes " a consistent
endeavour to keep society dynamic and progressive.
Protection also ceases to be an isolated exception
to the general passive policy which it has been
popular to advocate, and becomes a part of a
fixed national policy to increase the value of
labour with the increase of productive power, and
to aid in the spread of knowledge and skill and in
the adjustment of a people to its environment." 5
This by itself was somewhat too subtle an argu-
ment (at least in such a form) for popular use, but
it was interpreted by the Republicans at the elec-
tion of 1888 as implying the necessity for the
protection of the highly paid American workman
against the competition of the ill-paid European
labour. This was to be done, not by the exclusion
of European commodities, but by the imposition
of duties which would counterbalance the dis-
advantage of the greater cost of production in
America, and also give a moderate protection. It
would thus protect labour, for it " cut off the privi-
lege of the foreigner to come in with cheaper wares
and to gain a foothold in the market, if perchance
he had gone forward at a little more rapid pace
than the American in adapting his manufacture
to new conditions. It relieved the home manufac-
1 Patten , Economic Basis of Protection (first published in 1890),
2nd ed., p. 15.
2 Ibid., pp. 7-8,
THE WAGES ARGUMENT 227
turer from the necessity of cutting down wages,
supposing that he could have reduced them ; and
in this respect the tariff was a boon to the working
man." This wages argument was not new it
had first made its appearance in the thirties, and
had been discussed slightly in the debates on the
tariff proposals of 1842 and 1846 ; but it appears
not to have become prominent until the eighties.
Even the Democrats felt it necessary to take some-
what the same line. In 1884 they had been careful
in their "platform," whilst asserting that reform
was urgently required, to add that " the necessary
reduction in taxation can and must be effected
without depriving American labour of the ability
to compete successfully with foreign labour, and
without imposing lower rates of duty than will be
ample to cover any increased cost of production
which may exist in consequence of the higher rate
of wages prevailing in this country." 2 And even
in 1888, when their demands had much increased,
they kept the proviso that the revision must be
"with due allowance for the difference between
the wages of American and foreign labour." But
their attitude was not satisfactory to the electors ;
the Republicans pushed the argument for all, and
more than all, that it was worth without any
regard to the problem of the relative efficiency in
1 Stanwood, ii. p. 256.
2 Quoted in Stanwood, ii. p. 222. It is noteworthy that in 1884 the
Democrats, like the Free Traders of fifty years before, asserted openly
that " taxes collected at the custom house " must continue to be the
chief source of Federal revenue,
228 THE NEW THEORY OF PROTECTION
the long run of well-paid and ill-paid labour, or to
the relation of wages to the cost of living and
"the campaign of 1888 was won on the 'pauper
labour ' argument." l
The new Tariff Bill of the Republicans was
introduced in April, 1890, by Mr. McKinley, the
Chairman of the Committee on Ways and Means ;
it received the Presidential approval on October 1st,
and came into force five days later. Its most novel
feature was the extension of Protection to agricul-
ture a policy which was inspired largely by the
desire on the part of the Republicans to allay the
dissatisfaction of the farmers, who believed that
they were being exploited in the interests of the
manufacturers, and to detach them, if possible,
from the Democratic and Free Trade party. Its
economic defence was found in the growth of the
imports of agricultural produce, which reached the
value of $256,000,000 in 1889, and the growing
competition of Canada. So the duty on barley
was increased from 10 cents to 30 cents a bushel ;
on oats from 10 to 15 cents ; on wheat from 20 to
25 cents ; on potatoes from 15 to 25 cents ; on hay
from $2 to $4 a ton ; whilst eggs and apples, hitherto
free, were subjected to duties of 5 cents a dozen
and 25 per cent, ad valorem per bushel respectively.
The duty on tobacco suitable for cigar wrappers,
which could be grown in the United States only
in Connecticut and was largely imported from
Sumatra, was increased from 75 cents to $2 a
1 Mayo-Smith and Seligman, p. 23.
PROTECTION FOR AGRICULTURE 229
pound, "with the additional most important pro-
vision that if any portion, no matter how insignifi-
cant, of any bale of tobacco imported is suitable
for wrapping, the whole should pay the rate of $2
a pound." 1 Additional increases were on flax and
hemp, neither of which were grown in good qualities
in the United States. 2 And finally, the duties on
wool were raised considerably ; the rate on clothing
wool was advanced only from 10 to 11 cents a
pound, and on combing wool only from 10 to 12
cents, but on carpet wool the change was much
greater. This is wool of a coarse kind, not grown
in the United States, but now made subject to a
higher duty because it was believed that better
qualities were imported as carpet wool, and there-
fore paid a smaller duty than they would otherwise
do though no satisfactory evidence of this was
produced ; an ad valorem rate, of from 32 per cent,
to 50 per cent., was now imposed on carpet wool
instead of the former specific rate, and represented
in fact a substantial increase. 3
Naturally the manufacturers of woollen goods
of all kinds strongly resisted the concessions -made
to the growers of wool, and could be pacified only
by more consideration for themselves ; and, in
fact, the schedules of woollens showed the most
1 Mayo-Smith and Seligman, p. 32.
2 " It may be said without qualification that the purpose of the in-
crease of duties on agricultural products was political, and that the
object was accomplished. The farmers were taken into the Protection
partnership" (Stanwood, ii. p. 266).
3 Taussig, pp. 256-9.
230 THE NEW THEORY OF PROTECTION
vigorous application of the protective policy. It
is true that in the case of the cheapest kinds of
woollen goods there was little, if any increase,
because whilst the ad valorem part of the duty
was slightly raised, the specific " compensating "
part was commonly reduced ; but on the better
qualities the increase was large, and at the same
time the rates were greatly complicated by new
classifications and further applications of the prin-
ciple of the sliding-scale. 1 To take only a few
instances of an increase the duty on ready-made
clothing was raised from 40 cents a pound + 35 per
cent, ad valorem to 49J cents + 60 per cent., and on
Brussels carpets from 30 cents the square yard +
30 per cent, ad valorem to 44 cents + 40 per cent.,
whilst in the case of dress goods the advance
made them subject to a duty of nearly 100 per
cent. 2 The same policy was pursued with other
1 The following table gives a simple illustration of this in the case
of woollen cloths (Taussig, p. 260) :
1883. 1890.
(1) If worth 80 cents or less per Ib. , (1) If worth 30 cents or less per Ib. ,
35 cents per Ib. + 35 per cent. 33 cents per Ib. + 40 per cent.
(2) If worth more than 80 cents (2) If worth between 30 cents and
per Ib., 35 cents per Ib. +40 40 cents per Ib., 38 cents
per cent. per Ib. + 40 per cent.
(3) If worth more than 40 cents
per Ib., 44 cents per Ib. +50
per cent.
For further illustrations see p. 234-6.
2 Yet in spite of these high duties, the tariff on wool has greatly
hampered the industry in the United States. " The effect of this duty
is perceptible, not only upon the price of home-grown wool, which is
enhanced by some considerable part of the duty, but also in its cur-
tailment of importations of the most desirable varieties of Australian
and South American fleeces. For this reason among others and there
are several others of importance there has thus far been no serious
IRON AND STEEL 231
textiles ; there were remissions of duties on the
cheaper qualities of cotton, linen, and silk goods,
and radical increases on all the better kinds. Some
other advances, not on textiles, may also be con-
veniently noted here on fine plate-glass from
40-45 per cent, to 60 per cent, ad valorem, and on
cigars (to compensate the manufactures for the
change in the tobacco duties) from $2.50 a pound +
25 per cent, to $4.50 + 25 per cent.
In the case of iron and steel goods, which had
once furnished the friends of Protection with their
most effective arguments, the situation was alto-
gether different. The American production of
pig-iron and Bessemer steel rails exceeded the
British in 1889 for the first time, and so did the
output of coal. The American manufacturers
were in control of the home market ; they no
longer feared foreign competition, and were quite
willing to allow some reductions which probably
would benefit only those consumers on the Eastern
coast to whom transport by water from Europe
was as cheap or cheaper than transport by rail
from distant parts of the United States. The
duty on steel rails was lowered to $13.44 a ton, 1
and there were decreases on the inferior qualities
of boiler iron and steel ingots. But, on the other
hand, the manufacturers in the East, especially
attempts to develop an American export trade in woollen goods. The
one possible exception to this rule is in the case of carpets " (S. N. D.
North, in Annuls of the American Academy, vol. xxiii. No. 1, January,
1904).
1 " It left the duty still at a prohibitory rate " (Taussig, p. 272).
232 THE NEW THEORY OF PROTECTION
near the coast, could secure no remissions on pig-
iron or iron ore, which they obtained largely from
Cuba and Spain. On a number of other metal
manufactures (brass, copper, lead) there were re-
ductions. A concession was made to the shipping
industry by extensive grants of drawbacks on all
materials "which may be necessary for the con-
struction and equipment of vessels built in the
United States for foreign account and ownership,
or for the purpose of being employed in the
foreign trade, including the trade between the
Atlantic and Pacific ports of the United States. 1
The one great change was in the case of tin plates,
which were scarcely manufactured at all in the
United States, but were imported in enormous
quantities (with an average value of 20 million
dollars in the years 1888-90), owing in part to
the growth of the canning industry. Since 1873
attempts had been made to develop the manu-
facture in America, but without success, for the
competition of South Wales was too strong. A
determined effort was now made by increasing
the duty from 1 cent to 2^ cents a pound (about
70 per cent, ad valorem), with the proviso that
after October, 1897, tin plates should be admitted
free unless in any one year the production of tin
plates in the United States should equal "one-
third the amount of such plates imported and
entered for consumption during any fiscal year
after the passage of this Act." The idea seems
1 Section 8.
THE SUGAR DUTIES 233
to have been that unless there was evident indica-
tion, by the end of six years, that the new
industry which it was proposed to try to create
had really established itself, the attempt should be
given up ; the proviso was a concession to the con-
sumers of tin plates, who were strongly opposed
to the proposed increase of duty, and anticipated
serious difficulties for the various canning in-
dustries. There can be no question that the
higher protection did enable the manufacture to
get a start and obtain a firm footing ; in the four
years 1887-90 the average value of the imports of
tin plates from Great Britain into the United States
was 4,279,000, and the quantity manufactured
there practically nil ; in the four years 1898-1901
the average value of imports from Great Britain
was only 807,000, and the average production in
the United States was 347,000 tons. 1
The most revolutionary change made by the
new Act had reference to sugar, on which the
duty hitherto in force varied from 1^ cents to
3^ cents per pound a fairly high rate. The
revenue from sugar was very large ; in the five
years 1886-90 it averaged about 53 million dollars
a year. There had been a number of suggestions
for the reduction of duty, and there was even a
Bill introduced by the Republicans of the Senate,
prior to the election of 1888, which proposed a
remission of about 50 per cent. The McKinley
1 Board of Trade Blue Book on British and Foreign Trade and
Industry, p. 132.
234 THE NEW THEORY OF PROTECTION
Tariff abolished the duty on raw sugar alto-
gether, but made refined sugar subject to a rate
of \ cent per pound. But in order to help the
producers of sugar in the United States, chiefly
in Louisiana, the Federal Government undertook
to pay a bounty amounting to 2 cents per pound
on the best qualities, for the fourteen years to July,
1905. At the same time a small surtax was imposed
on all bounty-fed sugar coming from other countries.
From the Treasury's standpoint the effect of this
change was to reduce the customs revenue from
sugar from fifty-four million dollars in 1890 to
seventy-seven thousand dollars in 1892, whilst at
the same time the amount to be paid in bounties
was over seven million dollars in 1892, and over
twelve million in 1894.
One other characteristic of the McKinley Act
should be noticed, and that is the use which it
made of detailed sliding scales with minimum
values, instead of simple ad valorem duties. Illus-
trations of the system have already been given
from time to time ; its further application greatly
complicated the Tariff, as the following example
shows. The Act of 1883 contented itself with the
simple statement that "penknives, pocketknives
of all kinds, and razors shall pay 50 per cent, ad
valorem" but in the Act of 1890 that direction
had grown into the following elaborate statement
as to the duties to be levied : " Penknives or
pocketknives of all kinds, or parts thereof, and
erasers, or parts thereof, wholly or partly manu-
COMPLICATIONS OF THE TARIFF 235
factured, valued at not more than fifty cents per
dozen, twelve cents per dozen ; valued at more
than fifty cents per dozen and not exceeding one
dollar and fifty cents per dozen, fifty cents per
dozen ; valued at more than one dollar and fifty
cents per dozen and not exceeding three dollars
per dozen, one dollar per dozen ; valued at more
than three dollars per dozen, two dollars per dozen ;
and in addition thereto on all the above, fifty per
centum ad valorem. Razors and razor blades,
finished or unfinished, valued at less than four
dollars per dozen, one dollar and seventy-five cents
per dozen ; and in addition thereto on all the above
razors and razor blades, thirty per centum ad
valorem.'" 1 Not only does this greatly increase
the difficulty of customs administration, but it
offers a very strong temptation to under- valuation
on the part of importers.
The complications of the tariff, and some defects
in the existing organisation, rendered a rearrange-
ment of the customs system desirable, and the
task was accomplished by the Customs Adminis-
1 The following table shows the effect of this change in the amount
of the duty (Worthington Ford, in Political Science Quarterly, vol.
xiii. No. 2. p. 283). :
Actual ad val. duty.
"l883 1890 ^
per cent, per cent.
Penknives, etc., valued at not more that 50 cents
per doz. . 60 ... 74'06
valued over 50 cents, and not
exceeding $1.50 per doz. . 50 ... 96 '17
valued over $1.50 and not ex-
ceeding $3 per doz. . . 50 ... 9474
valued over $3 50 86 '95
236 THE NEW THEORY OF PROTECTION
trative Act of June, 1890, which established the
system still in force. Under that Act all goods
imported must be accompanied by an invoice con-
taining a declaration by the purchaser or manu-
facturer with "a full statement of the time when,
the place where, and the person from whom the
purchase was made, and the actual cost thereof
and of all charges thereon " ; and such declaration
must have been produced to, and countersigned
by, the United States consul or commercial agent
at the place where the goods were purchased or
manufactured. The invoice must be sworn to by
the importer ; the goods are then valued by an
" appraiser," and if the duty is ad valorem and the
valuation by the appraiser exceeds the valuation
on the invoice, double duty is levied on the differ-
ence. Appeal lies to a general appraiser, then to
Boards of General Appraisers, and then to the
Federal Courts.
This elaborate machinery is almost inseparable
from any system of ad valorem duties, and con-
sequently most nations have preferred the simpler
method of specific duties. The main advantages
of ad valorem duties are that the tax always bears
the same relation to the value of the commodity
on which it is imposed, and is perfectly intelligible
even to the non-expert ; the effect of specific
duties, on the contrary, can only be determined
by a trade specialist, and unless they are frequently
changed they are apt to become much heavier or
much lighter than was intended at the time of
SPECIFIC AND AD VALOREM DUTIES 237
their imposition a striking illustration of this from
the early history of the German Zollverein has
already been given. 1 To prevent such occurrences
the tariff must be frequently readjusted, but this
involves much labour and a certain amount of
uncertainty to foreign traders. 2 Moreover, unless
the tariff is extremely detailed (as most continental
tariffs are) it is impossible to keep the specific
duties from weighing more heavily on the cheaper
than on the better qualities of goods. 3 These
considerations, as we have seen, induced an
American Congressional committee in the thirties
to declare strongly in favour of the ad valorem
system, and, after various changes, the United
States seems definitely to have decided to use
ad valorem duties extensively. Yet the fact that
most protective nations have not imitated the
United States in this respect suggests that there
are some very strong objections to its policy. The
machinery for collection has to be much more
elaborate than when specific rates are employed
at every port, however small, there must be a
(more or less) competent appraiser. Secondly, it
is not easy to secure that the valuations at the
various ports are uniform ; complaints on this
point were frequent in the United States at one
time, and other countries which use the ad
valorem method seem to have the same experi-
1 See p. 6.
2 Most foreign tariffs, however, are for long terms of years.
3 An instance is the single British tax on tea, which is the same
for all qualities.
238 THE NEW THEORY OF PROTECTION
ence. Arrangements can, it is true, be made for
appeals, but these usually mean much trouble to
the importers. Thirdly, the temptation to under-
valuation is strong, and fraudulent declarations
are encouraged ; the elaborate precautions taken
and penalties provided by the Customs Adminis-
trative Act in the United States only show how
deep-seated this evil may become. On the whole,
then, it appears clear that, balancing advantages
and disadvantages, specific duties are the most
desirable form of duty, and the example of the
United States will probably never be widely
followed. 1
1 For an account of another most important part of the McKinley
Tariff Act the clauses relating to Reciprocity see Chapter VIII.
CHAPTER VII
THE WILSON AND DINGLEY TARIFFS
THE passage of the McKinley Tariff Act was
followed by an immediate and complete reaction.
A month after it came into force the election for
Congress took place, and resulted in a tremendous
defeat for the Republican party. The reaction
continued, and the Presidential campaign of Novem-
ber, 1892, ended in the return of the Democratic
candidate, Cleveland, who represented the anti-
protectionist policy. The Western States went
almost solidly Democratic ; and the new " farmer's
party," the Populists, also detached many votes
from the Republicans. The Democrats even
secured a small majority in the Senate, and so for
the first time since the period before the Civil
War, they had complete control of the Federal
Government. The causes of the change in public
opinion are not very clear ; the new Tariff had not
been sufficiently long in force for any definite
opinion to be formed as to its effects ; but no one
could allege that the issue had not been definitely
set before the country. The Democrats in their
platform for the Presidential election had declared
239
240 THE WILSON AND DINGLEY TARIFFS
that it was " a fundamental principle of the Demo-
cratic party that the Federal Government has no
power to impose and collect tariff duties, except
for revenue purposes only," and denied that there
had been any increase of prosperity under the
McKinley Tariff. Their candidate himself was
more moderate ; in his letter of acceptance of the
party nomination, Cleveland wrote : " Reform is
still our purpose. Though we oppose the theory
that tariff laws may be passed having for their
object the granting of discriminating and unfair
governmental aid to private ventures, we wage no
exterminating war against any American interests.
We believe a readjustment can be accomplished,
in accordance with the principles we profess, with-
out disaster or demolition. We believe that the
advantages of freer raw material should be accorded
to our manufacturers, and we contemplate a fair
and careful distribution of necessary tariff burdens
rather than the precipitation of Free Trade." The
Republicans in their turn asserted that " the pros-
perous condition of our country is largely due to
the wise revenue legislation of the Republican
Congress," and claimed that the fall in the price of
manufactured commodities was in fact due to the
tariff. The new President considered his large
majority as a mandate of tariff reform, but the
hopes which he had formed were doomed to dis-
appointment. His task was complicated by two
circumstances ; one being the small and uncertain
Democratic majority in the Senate, and the other
THE TARIFF OF 1894 241
the silver question. The problem which the last
presents lies outside our subject ; it is necessary
here only to state that the Republicans had
yielded in 1890 to the demand for the freer coin-
age of silver, and that the excessive issues of silver
currency under the Silver Purchase Act of that
year had produced a rapid fall in prices, and a
good deal of commercial confusion. President
Cleveland and his advisers thought themselves
compelled to propose the repeal of the Purchase
Act ; they carried it after a hard struggle, but in
so doing they threw confusion into the ranks of
their own party, which contained a strong section
in favour of "free silver." These difficulties and
others weakened the Government seriously, and
though it had comparatively little difficulty in
carrying its scheme for tariff reform (subse-
quently named the Wilson Tariff, after the Chair-
man of the Committee of Ways and Means) in
the lower House, it was not able to overrule
the sweeping amendments made by the Senate 1
amendments which gravely modified the pro-
posals, and in some cases made them of no effect.
Nevertheless the Wilson Tariff did make con-
siderable changes. One of the most important
was in the treatment of woollens, which had been
the critical part of the McKinley Act ; raw wool
was henceforth to be admitted free, and the elabo-
rate duties on woollen manufactures were swept
1 As sent back by the Senate to the House of Representatives, the
Bill contained 684 amendments (Stanwood, ii. p. 340).
R
242 THE WILSON AND DINGLEY TARIFFS
away and replaced by the simple arrangement of
ad valorem duties of 50 per cent, on the best
goods, 40 per cent, on dress materials, and 25 per
cent, on blankets and flannels. Naturally the
specific duties, compensatory for the duty on raw
wool, were abolished, but though the manufac-
turers were caused some trouble by the change, it
cannot be said that they were treated unfairly.
As regards other textiles, there were large reduc-
tions on the cheapest kinds of cotton goods, and
smaller ones on the finer qualities ; and here again
the tariff was greatly simplified by the abolition of
the mixed specific and ad valorem duties. There
were small reductions also on silks and linens. The
President had intended that all raw materials
should be admitted free, and had carried the
House of Representatives with him ; the Senate,
however, could not be induced to go so far. The
chief illustrations of this were furnished by iron
ore and coal. The House of Representatives had
abolished the duty on both of these commodities ;
the Senate was content to reduce the duty in each
case from 75 cents to 40 cents a ton. The duty on
pig-iron was lowered from $6.72 to $4 a ton, on
steel rails from $13.44 to $7.84 a ton, and even
on tin plates from 2f cents to 1 cents per pound.
The general policy was then to reduce taxation on
all commodities which could in any way be regarded
as raw materials, and to substitute ad valorem for
specific duties as widely as possible.
One other serious change was in the case of
CHANGES IN THE SUGAR DUTIES 243
sugar. The clauses affecting that commodity in
the McKinley Tariff had caused very considerable
dissatisfaction : for one thing, the financial results
had been somewhat unsatisfactory, and for another,
it was widely believed that the duty on refined
sugar and the bounties were largely in the interests
of the Sugar Trust one of the earliest of those
organisations which now play so great a part in
American industrial life. The Democrats now
proposed to admit refined sugar as well as raw
sugar free, and to abolish the bounty system, but
the Senate made many amendments admittedly in
the interest, and under the influence, of the Sugar
Trust. An ad valorem duty of 40 per cent, was
imposed on raw sugar ; refined sugar was made
subject to a rate of ^ per cent., and the surtax on
bounty-fed sugar, imported into the United States,
was retained. The House of Representatives was
unable to overrule the Senate, and " on the whole,
the refining monopoly, while it lost something,
came out of the struggle victorious, and was left
in little less secure control over the trade after the
Act of 1894 than under the Act of 1890." *
Altogether the new tariff accomplished little ;
none of the high hopes which the Democrats had
formed after the Presidential election were realised.
The President himself was grievously disappointed ;
in order to save something of his policy, he allowed
the Act to pass, but he would not give it his signa-
ture ; it became law merely because he took no
1 Taussig, pp. 313-14.
244 THE WILSON AND DINGLEY TARIFFS
action in the time required by the Constitution.
The weakness of the Democrats, the confusion in
the party, the disruption caused by the silver
question, the conflict between the President and
the Senate, and the Treasury difficulties with
which the Cleveland Administration failed to cope,
brought about a reaction as sharp as that of
1890-2, and again placed the Protectionists in
power. The Democrats had hoped to establish an
income tax, to meet the deficiency resulting from
the reduction of duties and to enable them to
continue the removal of the customs restrictions,
but the Supreme Court now reversed its decision
of the Civil War period, and decided the income
tax to be unconstitutional.
But at the election of 1896, the country was not
concerned mainly with the question of Protection
or Free Trade. The advocates of free silver had
grown in force astonishingly, and had completely
captured the Democratic party machine ; in their
election platform the Democrats declared for " the
free and unlimited coinage of both silver and gold
at the present legal ratio of 16 to 1, without wait-
ing for the aid or consent of any other nation," 1
and added that "until the money question is
settled we are opposed to any agitation for further
changes in our tariff laws, except such as are
necessary to meet the deficit in revenue caused by
the adverse decision of the Supreme Court on the
1 A reference to the argument that this would be practicable only
as the result of an international agreement.
PRESIDENTIAL ELECTION OF 1896 245
income tax." To prevent all misconception as to
their policy, the Democrats chose as their candi-
date the foremost platform representative of free
silver, and the Populist party also gave him their
support. The Republicans had intended to fight
the election mainly on the tariff issue, and had
therefore chosen McKinley as their representative.
But they were compelled by force of circumstances
to drop that question for the time, and to go to
the electors chiefly as the opponents of the revolu-
tionary monetary proposals of the Democrats.
And there can be no question that this was the
chief cause of their overwhelming victory ; it is
true that they had announced their intention to
amend the tariff, but " the tariff gave way to the
free coinage issue, and the election ultimately
turned upon that almost exclusively." 1 The
Democrats were broken up, large numbers of the
party in the Eastern States either abstained from
taking part in the election or voted for McKinley.
The Republican candidate was elected by a very
considerable majority, and the Republicans found
themselves supreme in the House of Representa-
tives, and masters of the Senate by a few votes.
The new President could scarcely claim that the
nation had given a definite judgment on the tariff
problem, and, moreover, he owed his election in
part to the votes of those Democrats who could
not support the extreme views represented by his
opponent. But nevertheless the President and
1 Stanwood, ii. p. 376.
246 THE WILSON AND DINGLEY TARIFFS
his advisers made up their minds that they were
justified in carrying out tariff changes immediately.
The country had experienced a considerable com-
mercial crisis in 1893 and the following years, and
the Treasury had to meet a large deficit. The
facts that the crisis had commenced in 1893, whilst
the McKinley Tariff was still in force, and that
the deficit was largest in that year and had been
growing smaller ever since, 1 had no weight for
them ; and the President now invited Congress to
provide adequately for the wants of the Treasury,
and suggested that the duties imposed for this
purpose "should be so levied upon foreign pro-
ducts as to preserve the home market so far as
possible to our own producers ; to revive and
increase manufactures ; to relieve and encourage
agriculture ; to increase our domestic and foreign
commerce ; to aid and develop mining and build-
ing ; and to render to labour in every field of
useful occupation the liberal wages and adequate
rewards to which skill and industry are justly
entitled." The result was the so-called Dingley
Act, which became law in July, 1897, after a
rapid progress through both Houses of Congress.
It imposed duties higher than under any preceding
tariff.
The most important feature of the new tariff
was the return to the duties on certain raw
materials, especially wool. The import of that
1 In the financial year 1893-4, the deffcit was 70 million dollars ;
in 1894-5, 43 million ; in 1895-6, 25 million ; in 1896-7, 18 million.
THE TARIFF OF 18.97 247
commodity had tripled between 1893 and 1896,
and the supply of woollen manufactures from
abroad had also doubled. It was therefore re-
solved to reimpose on clothing and combing wool
the rates of the tariff of 1890, and on carpet
wool graded duties higher than in any other period.
The manufacturers were strongly opposed to the
change, but political considerations and the desire
to do something to counteract the effect of the
appeal made by the silver party to the farmers,
prevailed with the Executive. Largely for the
same reason, a duty of 15 per cent, ad valorem
was imposed on hides, which had been free since
1872 ; and the rates of 1890 on flax were also
restored.
In regard to textiles, the restoration of the wool
duty was followed inevitably by an increase of
the protection given to woollen manufactures, and
the old principle of a combination of specific com-
pensating duties and ad valorem protective duties
was again applied, with its great administrative
complications and difficulties. 1 On the chief class
of woollens imported the protective ad valorem
rate was increased, so that it had advanced from
25 per cent, in 1875 to 55 per cent, in 1897. On
cottons the duty was somewhat lower than in
1 " It will be observed that under the Act of 1897 on dress goods
the customs officers must ascertain first, whether the warp consists
' wholly of cotton or other vegetable material ' ; if so, whether the
goods are worth more than 7 cents a yard ; if not, whether they are
worth more or less than 70 cents a Ib. All these circumstances affect
the rate of duty, and obviously increase the difficulties of administra-
tion and the opportunities for evasion " (Taussig, p. 334).
248 THE WILSON AND DINGLEY TARIFFS
1890, but a good deal higher than in 1894, and
here again the combined specific and ad valorem
duties were adopted. The same complicated method
was applied to silks and linens, with a marked in-
crease in the amount of the duties. Raw hides
were taxed for the first time. There were advances
also in the case of china, earthenware, and glass,
by a return to the duties of 1890. In the case
of metals, there was little change so far as iron
ore, pig-iron, steel rails, and copper were con-
cerned ; but the duty on coal was raised from
40 cents to 67 cents a ton (which was 8 cents
less than in 1890). The rates on certain manu-
factures of iron and steel, such as cutlery, and
on lead and lead ore were restored to the points
of the McKinley Tariff. The duty on tin-plate
was increased only slightly, from 1 cents to
1^ cents. In the sugar duties the ad valorem
duty of 40 per cent, imposed by the Act of 1894
on raw sugar was now replaced by a specific duty
of about double that amount ; there was also an
increase, in fact, on refined sugar, though the
Sugar Trust did not secure anything like the
advantage for which they had striven.
From the administrative point of view, the new
tariff was even more complicated than its predeces-
sors. The elaborate clauses concerning knives, pen-
knives, and razors in the McKinley Tariff have
already been quoted ; the clause referring to the
same commodities in the Act of 1897 will serve
to show how the complication had increased :
INCREASED COMPLICATION 249
" Penknives or pocketknives, clasp knives, prun-
ing knives, and budding knives of all kinds,
or parts thereof, and erasers or manicure knives,
or parts thereof, wholly or partly manufactured,
valued at not more than forty cents per dozen,
forty per centum ad valorem ; valued at more than
forty cents per dozen and not exceeding fifty cents
per dozen, one cent per piece and forty per centum
ad valorem; valued at more than fifty cents per
dozen and not exceeding one dollar and twenty-
five cents per dozen, five cents per piece and forty
per centum ad valorem ; valued at more than one
dollar and twenty-five cents, per dozen and not
exceeding three dollars per dozen, ten cents, per
piece and forty per centum ad valorem ; valued at
more than three dollars per dozen, twenty cents per
piece and forty per centum ad valorem ; Provided,
That blades, handles, or other parts of either or
any of the foregoing articles, imported in any
other manner than assembled in finished knives or
erasers, shall be subject to no less rate of duty
than herein provided for penknives, pocketknives,
clasp knives, pruning knives, manicure knives,
and erasers valued at more than fifty cents and not
more than one dollar and fifty cents per dozen.
Razors and razor blades, finished or unfinished,
valued at less than one dollar and fifty cents
per dozen, fifty cents per dozen and fifteen per
centum ad valorem; valued at one dollar and
fifty cents per dozen and less than three dol-
lars per dozen, one dollar per dozen and fifteen
250
per centum ad valorem; valued at three dollars
per dozen or more, one dollar and seventy-five
cents per dozen and twenty per centum ad valorem.
Scissors and shears, and blades for the same, finished
or unfinished, valued at not more than fifty cents
per dozen, fifteen cents per dozen and fifteen per
centum ad valorem ; valued at more than fifty cents
and not more than one dollar and seventy-five
cents per dozen, fifty cents per dozen and fifteen
per centum ad valorem ; valued at more than one
dollar and seventy-five cents per dozen, seventy-
five cents per dozen and twenty-five per centum ad
valorem." l As another illustration, the duties on silk
piece goods may be quoted. They are as follows :
SILK PIECE GOODS. per Ib.
(1) Containing 20 per cent, or less in weight of silk, if in
the gum . . ... $0.50
If dyed in the piece . ... .60
(2) Containing 20 to 30 per cent, in weight of silk, if in
the gum . . ... .65
If dyed in the piece . ... .80
(3) Containing 30 to 45 per cent, in weight of silk, if in
the gum . . ... .90
If dyed in the piece . ... 1.10
(4) Containing 30 per cent, or less in weight of silk, if
dyed in the thread or yarn, black . . . .75
Other colour . . . .90
(5) Containing 30 to 45 per cent, in weight of silk, if
dyed in the thread or yarn, black . . . 1.10
Other colour . . . 1.30
It should be added that the McKinley Tariff in-
augurated an elaborate policy of drawbacks, by a
1 Quoted by Ford in Political Science Quarterly, vol. xiii. No. 2,
pp. 284-5. * Taussig, p. 339.
DRAWBACKS 251
sweeping clause which provided that "where im-
ported materials on which duties have been paid,
are used in the manufacture of articles manufac-
tured or produced in the United States, there shall
be allowed on the exportation of such articles a
drawback equal in amount to the duties paid on
the materials used, less 1 per cent, of such duties."
The Dingley Tariff has continued the system, but
the "conditions and regulations are cumbersome
and often difficult to comply with," l and the sys-
tem admittedly hampers the manufacturers for
export.
1 S. N. D. North, in Annals of the American Academy) January,
1904, p. 7
CHAPTER VIII
RECIPROCITY UNDER THE AMERICAN
TARIFF CONCLUSION
IT will have been noticed that hitherto little has
been said of the international commercial relations
of the United States, and no reference has been
made to any treaties similar to those which have
played so important a part in continental Europe
during the last half-century. The explanation of
this fact is that until quite recently the United
States have stood almost altogether aloof from
such a treaty system, and the slight attempts
made from time to time to enter it have been ill-
fated. It is true that various agreements made
by the United States have contained the "most
favoured nation" clause, but the effect of that
provision is much more limited than in European
treaties, for it has been construed by American
legists to apply merely to privileges voluntarily
granted by the United States to any country, and
not to anything given in return for reciprocal
advantages. That is to say, that if the United
States, in return for certain remissions of duty on
American goods made by Germany, give corre-
252
THE CANADIAN TREATY 253
spending reductions on certain of their imports
from Germany, they are not bound to extend the
same reductions to any third nation with whom
they may have a treaty containing the "most
favoured nation " clause. 1 It is unnecessary to
point out that this interpretation practically de-
stroys the value of the clause in question, since
the privileges granted by the United States with-
out return are not likely to be numerous or im-
portant ; but it simplifies the making of reciprocity
treaties, since it enables the Federal Government
to consider simply the effect of the treaty on the
trade between the two contracting countries -
it escapes the complications arising under the
European method.
The earliest attempts at reciprocity were not
very satisfactory ; the proposal for a treaty with
the Zollverein in 1844 was rejected by the Senate,
and it was not until ten years later that a com-
mercial agreement of any kind was actually made.
That was with Great Britain for Canada, and it
remained in force for twelve years ; it arranged for
the admission of a large number of agricultural pro-
ducts from either country into the other free of duty ;
it also gave certain fishing privileges to American
seamen, and provided for mutual freedom of trans-
port. It seems to be agreed that on the whole
Canada profited rather more than the United
States, at least in the latter part of the treaty
period, and the United States had by 1866 become
Mayo-Smith and Seligman, pp. 34-5.
254 RECIPROCITY UNDER AMERICAN TARIFF
completely dissatisfied. One cause of this was
certainly the fact that the Canadian provincial
governments increased the duties on manufactured
goods to make up for the financial losses sustained
by them owing to the reductions on raw materials.
In 1866, partly because of this, and partly for
political reasons (notably the sympathy of Canada
for the Confederates), the United States renounced
the treaty. A number of other contemplated
agreements with other countries failed. The
negotiations with Hawaii in 1855 were abandoned ;
treaties prepared by the Executive with Mexico
in 1859 and 1883, with Hawaii in 1867, and with
Canada in 1874, were rejected by the Senate, and
arrangements made in 1884 with Spain, for Cuba
and Porto Rico, and with Dominica were aban-
doned by the Executive. One treaty alone was
made with Hawaii in 1875, but the adoption of
that in the United States was determined rather
by political than economic considerations ; it was
a step on the road to annexation.
The first definite and general provision for re-
ciprocity was made by the McKinley Act of 1890,
at the instigation of Elaine, the Secretary of State,
who had been the moving spirit in the summoning
of the Pan-American Congress which met at
Washington in October, 1889. Eighteen countries,
including the United States, were represented
there, and considerable attention was given to the
suggestions for an American Customs Union. It
was agreed that a union for customs purposes on
UNITED STATES AND SOUTH AMERICA 255
the lines of the German Zollverein was altogether
impossible for many reasons economic and politi-
cal ; and absolute free trade between the various
countries was held to be, for the time, out of the
question, since most of them were largely de-
pendent for their revenues on the customs duties.
The committee which reported on the proposals
could only urge the making of separate treaties
with reciprocal reductions of duty. Even this
report did not secure unanimous support ; the
representatives of four countries voted against it,
and Chili and Argentina especially urged that so
long as the United States insisted on the mainten-
ance of their high duties reciprocity was impossible.
But Elaine was not altogether discouraged, and
he thought that commercial agreements, which
might extend the United States markets in South
America, might be obtained in another way. 1 He
put forward his idea when the McKinley Tariff
was under discussion, and a clause in that Act,
inserted in the Senate, provided that the President
should be authorised to impose certain duties on
sugar, molasses, coffee, tea, and hides (which were
duty free) coming from countries which levied on
agricultural or other produce of the United States
duties to an extent, in his judgment, " reciprocally
1 " I do not doubt that in many respects the Tariff Bill pending in
the Senate is a just measure, and that most of its provision are in
accordance with the wise policy of Protection. But there is not a
section or line in the entire Bill that will open the market for another
bushel of wheat or another barrel of pork " (Blaine, in letter quoted
by Stanwood, ii. 278).
256 RECIPROCITY UNDER AMERICAN TARIFF
unequal and unreasonable." Taussig has pointed
out that this method offers decided economic
advantages over that commonly pursued, namely,
" the simple remission of duties to a favoured
country, duties remaining on goods coming from
countries not favoured. Such a remission is likely
not to redound to the advantage of the domestic
consumer. Unless the favoured country can easily
supply the whole market, or other countries are
quickly admitted to the lower duties, prices are
not affected, and the foreign producer reaps the
whole benefit of the remission." 1 Under this
clause treaties were made with a large number of
the Central American States Brazil, Dominica,
Salvador, Nicaragua, Honduras, Guatemala, with
Spain for Cuba and Porto Rico, and with Great
Britain for most of the West Indian Islands and
British Guiana. In most of these cases the
United States got a very considerable return for
the mere promise to retain the enumerated articles
on their free list. Thus Brazil admitted wheat,
flour, pork, agricultural and mining machinery,
coal, and railway material free, and reduced the
duties on a number of other commodities. Cuba
made thirty-nine classes of articles free, and gave
a reduction of 50 per cent, on seventeen classes
and 25 per cent, on fourteen classes. 2 The fact
that Germany and Austria-Hungary were largely
interested in the export of sugar enabled the
American Government to make terms with those
1 Taussig, p. 279. 2 Osborne, p. 64.
RECIPROCITY UNDER THE DINGLEY ACT 257
countries also. Germany abandoned the prohibi-
tion in force for some years of American meat,
and gave the United States the benefit of the
conventional tariff on agricultural products ; from
Austria-Hungary they secured "most favoured
nation " treatment. 1
These arrangements did not continue long
enough to enable any definite opinion to be formed
as to their effect on trade, since the reimposition
of the customs duties on sugar by the Wilson
Tariff of 1894 practically destroyed the system,
which was dependent on the general freedom of
that commodity. Fresh provision for reciprocity
was made by two clauses in the Dingley Act of
1897, but not on the lines of 1890. Under section 3
of that Act, the President was authorised, in return
for concessions by other countries, to reduce by a
definite amount the duties on certain articles speci-
fied in the clause. The list was a curious one ; it
included only argols, brandies, champagne, and
other sparkling wines, still wines, and vermouth,
pictures, and statuary. Section 4 provided that
the President might make treaties (which, how-
ever, needed the approval of Congress) with re-
ductions on duties up to 20 per cent, on any or
every article ; but such treaties must be made
within two years after the passing of the Act.
This latter clause has been practically inoperative ;
some eleven treaties were negotiated under it,
1 The penal duties provided for by the clause in the Act of 1890
were actually applied against Haiti, Venezuela, and Colombia.
258 RECIPROCITY UNDER AMERICAN TARIFF
mainly affecting Central or South American States
and the West Indies, but they all fell through
owing to the impossibility of carrying them through
the Senate. Action under section 3 could be taken
merely by Presidential proclamation without any
necessity for Congressional approval, and four such
treaties have been made with France in 1898,
with Germany, Italy, and Portugal in 1900. 1 In
return for the very small concessions indicated
above, the United States secured from France the
minimum tariff rates on a large number of agricul-
tural products, from Germany the full conventional
tariff, from Italy low rates on machinery and some
raw materials, and from Portugal " most favoured
nation " treatment, with fixed rates for agricultural
products and machinery generally. It is difficult,
if not impossible, to estimate the results of these
treaties ; and the very small list of articles on
which reductions may be made by Presidential
proclamation is a considerable obstacle to any
extension of the system at present.
Recent events in the United States have drawn
attention away from the tariff. The last Presi-
dential election was fought mainly on the question
of the Spanish War and the new foreign policy of
the American Commonwealth ; and the Democrats
were further handicapped by their adherence to the
silver policy, which had caused them disaster four
years earlier. The Republican party still proclaims
the maintenance of the tariff to be one of its
1 Osborne, p. 69.
POLITICAL PARTIES AND THE TARIFF 259
chief objects, but it is willing to extend the system
of reciprocity.
In his message to Congress in 1901, President
Roosevelt indicated clearly the policy which he
himself was prepared to follow. He wrote :
" Reciprocity must be treated as the handmaiden
of Protection. Our first duty is to see that the
protection granted by the tariff in every case
where it is needed is maintained, and that reci-
procity be sought for so far as it can safely be
done without injury to our home industries. Just
how far this is must be determined according to
the individual case, remembering always that every
application of our tariff policy to meet our shift-
ing national needs must be conditioned upon the
cardinal fact that the duties must never be re-
duced below the point that will cover the differ-
ence between the labour cost here and abroad.
The well-being of the wage-worker is a prime
consideration of our entire policy of economic
legislation." The Democrats on their side have
been inclined to avoid the direct tariff issue, and
to turn their hostility against the trusts. Inci-
dentally, this enables them to attack the protective
system, which, they claim, fosters the trusts, and
by eliminating a certain amount of competition
renders it easier for those organisations to secure
a monopoly in the home market, and exploit the
consumer. 1 Some of the Republicans at least,
1 Cf. Beardsley, " The Tariff and the Trusts," in Quarterly Journal
of Economics, May, 1901.
260 RECIPROCITY UNDER AMERICAN TARIFF
including the President himself, share this hostility
to the trusts, but believe that their evil effects
can be removed without tampering with the tariff.
They claim that much of the astonishingly rapid
progress of the United States in the last few
years in manufactures 1 is due to the steady ad-
herence to Protection, and they argue that that
system does not necessarily, by giving the manu-
facturers a practical monopoly, tend to check im-
provements in the methods of production, but
rather that it encourages them by offering the
producers greater security and inviting them to
the conquest of the home market. 2 And the
1 The Census estimate of the value of the manufactured products
of the United States was 9,372 million dollars in 1890 and 13,014
million in 1900.
2 "In fact, history shows that either result may ensue. It would
seem, for instance, that in France, under the system of absolute
prohibition against competing imports which prevailed throughout
the first half of this century in fact, up to the great commercial
treaty of 1860 not a few manufacturers failed to make use of proved
and familiar processes, and were inferior to British rivals. On the
other hand, there were industries in France itself which had reached
out into foreign markets, thus giving conclusive proof of not being
behind the times. In the United States it would doubtless be possible
to find examples of the former sort : a benumbing influence has some-
times been felt. But these are exceptions. As a rule, if American
manufacturers have been unable to meet foreign competition, it has
not been because of inert routine. ... In the United States the Free
Trader is shown by economic history to be in the wrong on this
particular point : if protected industries have continued to need pro-
tection, as so often they have, the explanation is not to be found in
the retention of antiquated processes. So far as the question of
economic method is concerned, here again it is clear no abstract
reasoning can suffice : the history of each people and the facts of
each case must be investigated, and generalisation from a priori
reasoning must be shunned " (Taussig, in " Iron Industry in the
United States," in the Quarterly Journal of Economics, August, 1900,
pp. 496-7).
AMERICAN INDUSTRIAL PROGRESS 261
Americans can claim with justice that they show
no signs of any enervating influence exercised
upon them by Protection ; in the new Schools of
Commerce their Universities have preceded the
British Universities in their response to new
national needs ; in the conduct of business their
manufacturers have shown extraordinary energy
and ability ; and the policy of taking care of the
home market and concentrating attention upon
that, in the assurance that foreign trade will then
take care of itself, has been in their case most
successful. It is impossible to estimate how far
this development has been influenced by the
economic policy which on the whole has been so
consistently followed ; it may fairly be assumed,
however, that given the peculiar character of
their people and the vast and varied resources
of what is not a country but a continent, the
United States, once they entered upon the path
of industrialism, were certain to advance with a
rapidity over which tariffs, whatever their nature,
could exercise comparatively little control. But
the time now seems to have arrived when Pro-
tection has accomplished its work ; and if the
principle formulated in the President's message
already quoted be followed if Protection is only
to be given to industries in which the cost of
production is greater in the United States than
in other countries then there must be consider-
able reductions in the tariff. For the cost of
production of most iron and steel goods and of
262 RECIPROCITY UNDER AMERICAN TARIFF
the cheap kinds of cotton goods (to mention only
a few conspicuous instances) is now certainly not
higher in the United States than elsewhere. And
reciprocity treaties, which the President advocates,
as did his predecessor, also mean the lowering of
tariff walls. But the most effective popular argu-
ment for the withdrawal of a certain amount of
industrial protection is the rise of the trusts.
These combinations are a necessary outcome of
known economic laws and of the special conditions
of modern industry ; but without attempting to
fight the inevitable, one may fairly recognise that
their growth is aided by restrictive tariffs on foreign
imports since one of their chief aims is the elimi-
nation of competition and the consequent control
of prices. 1 And it may be safely asserted that
the highly protective policy of the United States
under the Dingley Tariff does give the trusts
opportunities better than any they enjoy in less
protectionist states to obtain virtual monopolies,
which enable them to force prices up to the
highest rate the market will bear. It is to the
growing feeling against what are believed to be
abuses of their power that probably we must
chiefly look for any considerable movement in the
United States against the policy now in force.
1 The economy of production on a large scale is no doubt a power-
ful stimulus to combination, but it may be doubted if this consideration
alone would have produced the giant trusts of America.
A BRIEF BIBLIOGRAPHY
TAUSSIG, F. W. Tariff History of the United States. 5th edition.
1903.
BOLLES, A. S. Financial History of the United States. 3 vols.
1886.
DEWEY, D. R. Financial History of the United States. 1903.
STANWOOD, E. American Tariff-' Controversies in the Nineteenth
Century. 2 vols. 1904.
TAUSSIG, F. W. State Papers and Speeches on the Tariff. 1893.
HILL, W. First Stages of the Tariff" Policy (Am. Econ. Ass.
Vol. viii. No. 6). 1893.
Goss, A. D. History of Tariff Administration (Columbia College
Studies).
YOUNG, EDWARD. Special Report on Customs Tariff Legislation
(House Exec. Docs., 42 Cong., 2nd Session, No. 109).
RABBENO, U. The American Commercial Policy. 2nd edition.
1895.
MAYO-SMITH and SELIGMAN. " Commercial Policy of the United
States, 1860-90 " (in Die Handelspolitik der wichtigern
Kulturstaaten. Publications of Verein fur Socialpolitik.
1892).
FISK, G. M. "Die Handelspolitik der Vereinigten Staaten,
1890-1900" (Beitrage Zur Nauesten Handelspolitik Deutsch-
lando, vol. i. 1900).
CONNOR, J. E. " Industrial Causes affecting American Economic
Policy since the Civil War."
OSBORNE, J. B. " Reciprocity in the American Tariff System."
(These last two in Annals of the American Academy of
Political and Social Science, vol. xxiii. No. 1.)
263
264- BIBLIOGRAPHY
BEARDSLEY, C. " The Tariff and the Trusts " (in Quarterly
Journal of Economics, vol. xv. No. 3).
HART, A. B. "Formation of the Union, 1750-1829."
WILSON, W. "Division and Reunion, 1829-89."
(These two in the Epochs of American History.}
BRYCE, J. The American Commonwealth. 3rd edition. 2 vols.
1895.
Twelfth Census of the United States (vols. vii. to xi. " Manu-
facturers ").
WRIGHT, C. D. Industrial Evolution of the United States. 1897.
NELSON, H. L. The United States and its Trade. 1902.
PART III
FRANCE
CHAPTER I
FRENCH COMMERCIAL POLICY FROM
1789 TO 1830
THE Revolution of 1789 first gave economic unity
to France. Until that time internal commerce
was hampered by innumerable tolls and feudal
dues, by the right of the various provinces to
impose customs duties against each other, by the
prohibition of the movement of commodities, par-
ticularly foodstuffs, from one part of the country
to another, and by the diversity of the provincial
tariffs upon foreign products. The transit of goods
through the country was so costly as to be almost
impossible. 1 The Constituent Assembly swept
away all these obstacles ; in 1790 it abolished the
internal tolls and the provincial tariffs, and it
established one common and uniform tariff against
foreign countries in 1791. The new duties were
fairly moderate ; they ranged from 5 to 15 per
cent, (or in a few cases 20 per cent.) on manu-
factured articles, and admitted most raw materials
free. It is true that there were a number of
prohibitions of import, but very few were of any
1 Levasseur, i. p. 34.
267
268 FRENCH COMMERCIAL POLICY
economic importance ; a and the prohibition of
exports, to any considerable extent, only came
when war was inevitable, and could be justified
as a war measure.
But this was not the whole of the economic
reform made by the Constituent Assembly. It
abolished such serfdom as still existed among the
rural population, and arranged for the cessation of
the remaining feudal dues ; it reformed taxation
by making all classes of the community liable ; it
suppressed the industrial privileges of the guilds,
and threw all trades and professions open to every-
one that cared to enter them ; it made an end of
trading privileges both at home and abroad ;* and
on the whole it gave France the opportunity of
the fullest and freest development of her industrial
and commercial resources. 3 But in 1792 war broke
out, and gradually the tariff policy of France
became more and more restrictive. All existing
commercial treaties, especially the one made with
Great Britain in 1786, were annulled, and the
1 Ame, i. p. 53.
2 The privileges enjoyed by the Indian Company were abolished
(Levasseur, i. 42).
3 " Elle avait trouve le cultivateur censitaire, corveable, ou meme
en quelques lieux serf, la terre chargee de droits feodaux ; elle fit 1'un
et 1'autre libres. Elle avait trouve 1'industrie genee par les maitrises
et jurandes, par la multiplicite des impots indirects, par les privileges ;
le commerce entrave par les compagnies privilegiees, par les barrieres
de douanes ; elle supprima les obstacles et deblaya le carriere devant
1'industrie et commerce. La loi du 2-17 Mars 1790 emancipa 1'in-
dustrie ; celle du 7 Janvier 1791 constitua la propriete des inventeurs ;
celle du 215 Mars 1791 fonda sur un tarif modere et uniforme les
relations commerciales de la France avec 1'etranger" (Levasseur, i.
p. 46).
ATTACK ON BRITISH TRADE 269
prohibition of the export of commodities was
extended ; and then the National Convention,
recognising that Great Britain was its most danger-
ous foe, entered on the attempt to cripple her by
destroying her foreign trade. In March, 1793, the
entry into France of certain commodities coming
chiefly from Great Britain was prohibited, and in
October of the same year, as that measure did not
suffice, the import, sale, and use of all commodities
made or manufactured in the United Kingdom or
in the British Empire was forbidden under ex-
tremely heavy penalties. Yet even this enactment
fell very far short of attaining the desired end, 1
and the Directory found it necessary to go still
further. It ordered that a large number of com-
modities, whatever their place of origin, should be
reputed to be British produce, and should be liable
to be seized as such wherever found. But this ex-
treme measure also proved insufficient ; certainly by
1802 the customs revenue had fallen to 42 million
francs (of which 11 millions were swallowed up by
the cost of collection), but an enormous smuggling
trade had arisen, and the French Government, in
spite of its efforts, could not prevent the constant
influx of British goods.
Under the Consulate, with Napoleon practically
holding supreme power, the same policy was
pursued, but its further application was delayed
for a time by the negotiations which preceded the
Treaty of Amiens, and the signature of that
1 Ame, pp. 36-7.
270 FRENCH COMMERCIAL POLICY
treaty in March, 1802. Though Napoleon
declined to accept the contention of the British
ministry that the signature of the treaty of peace
restored the commercial relations of the two
countries to their position under the agreement of
1786, he showed himself willing to make a fresh
arrangement, and negotiations commenced, only
to be brought to an abrupt end by the renewal of
war in May, 1803. After Trafalgar, Napoleon,
now become Emperor, began his supreme effort to
break Great Britain's industrial and commercial
power by isolating her from Continental Europe.
The Berlin Decrees of November, 1806, with their
sequel, the Milan Decrees of 1807 and 1808, pro-
hibited all commercial relations between the
countries under Napoleon's control (that is, the
greater part of Europe) and Great Britain, an-
nounced that that country was in a state of
blockade, and declared all vessels which had touched
at British ports to be lawful prize. Meanwhile,
the French tariffs were steadily rising ; there had
been a great increase in the duties on colonial pro-
duce in 1806, and in February and August, 1810,
they were raised to an extraordinary height. 1 There
were advances also on manufactured goods, but in
spite of this and the prohibitions, the manufacturers
were constantly asking for yet more protection. 2
The disorders of the early years of the Revolu-
1 Thus in 1806 the duty on sugar was 100 francs per 100 kilogs. ;
by the end of 1810 it was 400 francs. In the same period the duty on
coffee rose from 150 to 400 francs ; on cocoa from 200 to 1,000 francs.
2 Ame, i. pp. 57, 59, and 61.
GROWTH OF FRENCH INDUSTRY 271
tion had almost destroyed the good effect of the
liberating work of the Constituent Assembly ; up
to 1799 trade and commerce in France rather
declined than advanced. With the rise to power
of Napoleon, who really cared for industrial
progress, and with the re-establishment of internal
order, conditions began to improve, but the
Exhibitions of 1801 and 1802 showed that, despite
this improvement, industry had not yet risen again
to the level which it had reached before the
Revolution. 1 But between 1802 and 1806 there
was distinct, if gradual, progress under the foster-
ing care of Chaptel, the Minister of the Interior ;
and at the Exhibition of 1806 the Government
could point to the fairly prosperous condition of
French manufactures, particularly of woollen and
cotton goods. It could boast also of the increase
of coal mining (though this was chiefly in the
Belgian provinces), of the commencement of the
steel works at Creusot, of the improvement of
the highways and canals. The upward movement
continued for some years after 1806, and the
Napoleonic period may be said to have witnessed
the commencement of the industrial revolution in
France: it is true that machinery only came in
very slowly, and in this respect France lagged far
behind Great Britain, chiefly because fuel was
dearer and manual labour cheaper than in the
latter country ; but, nevertheless, there were many
improvements in industrial methods. The output
1 Levasseur, i. p. 455.
272 FRENCH COMMERCIAL POLICY
of the smelting works increased from 1,058,000
metric cwt. in 1789 to 1,623,000 in 1812, whilst
the production of bar-iron rose from 723,000
metric cwt. to 1,155,000 in the same period.
There was a considerable growth in the textile
industries, in spite of the way in which the cotton
manufacturers were hampered by the blockade of
raw materials ; in the productions of the chemical
and tanning industries under the stimulus of new
scientific processes ; in the manufacture of glass
and porcelain ; and in sugar refining, encouraged
by high prices and bounties. Foreign trade in-
creased up to 1806, but after that date, with the
extension of the "continental system," it rapidly
declined. The following table gives the movement
of foreign trade in million francs for the whole
period of Napoleon's Government of France :
Year.
Import.
Export.
Total.
1799
253
300
553
1800
323
272
595
1801
415
305
720
1802
465
325
790
1803
430
347
777
1804
441
380
821
1805
492
375
867
1806
477
456
933
1807
393
376
769
1808
320
331
651
1809
288
332
620
1810
339
366
705
1811
299
328
627
1812
308
419
727
1813
251
354
605
1814
239
346
585
1 Levasseur, i.
p. 493.
FAILURE OF NAPOLEON'S POLICY 273
But there was a reverse side to this. The
industrial development was essentially artificial.
It was the outcome, not so much of the enterprise
of French manufacturers, as of the compulsion laid
upon consumers to have recourse to them, and
their undisturbed sway in the home market.
Except in a few cases there was no considerable
improvement in their methods, and "after being
kept apart for a quarter of a century from all
regular contact with the products of the British
manufacturers, we found ourselves at the establish-
ment of peace even further behind than before the
war ; whilst machinery had gradually developed in
England, in France it had made very little pro-
gress." 1 Moreover, there was much over-specula-
tion in France, followed by extensive monetary
difficulties, and the bad harvest of 1811 made
things worse. The result was a commercial crisis
in the years 1811 to 1813. Napoleon recognised
that his attempt to destroy the economic bases
of Great Britain's power had failed, and that the
"continental system" had resulted only in con-
siderable disaster to the French ports. He tried,
therefore, in 1813 to improve matters by granting
licenses enabling certain goods needed for French
manufactures, such as cotton, tobacco, lumber, to
be brought in ships so licensed at a duty of only
50 per cent., on condition that the same ships took
an outward cargo of French products. 2 But it was
1 Ame, i. p. 67.
2 ee Pour cette annee (1813) ne pouvant plus esperer la paix de la
detresse de PAngleterre, et u'ayant a 1'attendre que des batailles qui
274 FRENCH COMMERCIAL POLICY
too late to save the situation ; the commercial dis-
order and general collapse discredited Napoleon's
statesmanship, as the disastrous Russian campaign
destroyed his military reputation.
The Restoration Monarchy was called on to deal
with an extremely difficult problem. The economic
policy of Napoleon had brought into existence a
small but powerful class of iron-masters and textile
manufacturers, who were bent on maintaining
their monopoly of the French market, and dreaded
the threatened invasion of British goods. The
landowners were anxious to keep up the high price
of grain. In April, 1814, the Comte d'Artois,
acting as Lieu tenant- General of the realm, issued
an edict greatly reducing the duties on coffee and
sugar, and practically abolishing those on raw
cotton. The cotton-spinners and merchants hold-
ing stocks of colonial produce were at once aroused,
and the opponents of the new policy were able to
carry all the manufacturers with them. In a
petition to the King in 1814, the Chamber of Com-
merce of Rouen went so far as to declare that
" prohibition is the outcome of political and social
rights. From the manufacturer who has made
use of all his financial resources in order to establish
a factory, down to the workman who finds there
the means of existence for himself and his family
allaient se livrer en Allemagne, voulant de plus rendre aux villes de
Bordeaux, de Nantes, du Havre, de Marseilles, quelque activite com-
merciale, Napoleon avait accorde une quantite de licenses telle qu'on
pouvait considerer comme presque retabli le commerce avec 1'Angle-
terre" (Thiers, quoted by Ame, i. p. 48).
THE TARIFF ACT OF 1816 275
all demand, with perfect reason, the right to be
the sole source of supplies for home consumption." 1
Though inclined to give up the system of pro-
hibition, and convinced that the economic progress
of France could only be secured by allowing foreign
competition, 2 the new Government was not able to
resist the pressure. Absolute prohibition was
maintained in a great many cases, and elsewhere
high Protection was adopted, and the record of
the economic policy of the Restoration Monarchy
is simply the story of a Government attempting to
hold the balance between the party which favoured
commercial liberty and the various well-organised
groups representing particular interests, and forced
again and again to go much further in the direc-
tion of Protection than it desired. The Tariff
Act of 1816 made it perfectly clear that for a
very long time France would adhere to the com-
mercial policy which she had adopted during the
war. 3
It would serve no useful purpose to describe the
tariff legislation of the Restoration Monarchy in
1 Quoted in Ame, i. pp. 68-9.
2 Saint-Cricq, the Director-General of Customs and the real guide
of the economic policy of the Restoration Monarchy, wrote : " Nous
aurions moins de progres a faire si une trop longue interruption dans
nos relations commerciales n'eut constitue une prohibition a 1'ahri de
laquelle on a pu negliger, sans danger, des moyens de perfectionnement
qu'une heureuse rivalte n'aurait pas manque de developper."
3 The Napoleonic Wars exercised the same influence upon sub-
sequent commercial policy in France as the Civil War in the United
States. In both, cases a system of high Protection was called into
existence (though for different reasons) by war, and the interests to
which it gave rise, and the manner in which people became accustomed
to it by its long duration, secured its continuance in time of peace.
276 FRENCH COMMERCIAL POLICY
detail ; it will suffice to give some illustrations of
the manner in which the policy of Protection was
carried out. To take the most conspicuous
example: in 1814 it was estimated that iron from
abroad could be delivered in France at from 30 to
40 per cent, below the French cost of production,
and the Government, in order to help their own
manufactures, proposed a specific duty on bar-iron
of 15 francs (plus 10 per cent. = 16 francs 50 cen-
times) per 100 kilo., which was calculated to be
about 50 per cent, ad valorem. The manufac-
turers were not satisfied they desired prohibi-
tion but they accepted the proposal, and in spite
of the opposition of the seaports it was carried.
The ministry intended it to be merely a temporary
measure to offset the disadvantages under which
the French iron-masters laboured, and to give
them time to improve their works ; and the duties,
it was thought, should therefore be gradually
reduced. 1 But by 1822 the invasion of British
iron, produced by better methods than the Russian
and Swedish products with which France had been
supplied up to 1814, had greatly reduced prices,
and the average had fallen from about 36 francs
(duty free) per 100 kilo, in 1814 to 22-23 francs in
1822. The French manufacturers asserted that
they still could not compete ; and in 1822, in spite
of the facts that the imports were falling and that
the native industry had admittedly made much
progress, the Government was compelled to in-
1 Brandt, p. 74,
THE CORN LAWS 277
crease the duty to 24 francs + ^ 26 -4 francs per
100 kilo. The net result was a duty on foreign
bar-iron of about 120 per cent, ad valorem ; and a
little later there was a slight further increase. 1 The
imports of British iron fell from 1,463 tons in 1823
to 330 tons in 1825. 2 In 1820 there had been
increases in the duties on steel and various kinds
of steel goods ; and in 1826 there were further
advances on iron plates, cast-iron, and wire.
Another, and even more important, example
was furnished by the agricultural duties, to which
the various Governments of France had always
paid considerable attention. In spite of the
advocacy of Turgot, it was not until the French
Revolution that the free movement of grain from
one part of France to another had been permitted. 3
Originally in 1814 it was proposed to prohibit the
export of corn and allow its free import, but in
September of that year, in order to prevent prices
at home from falling too low because the producers
were compelled to sell it within the French borders,
the whole country was divided into three zones,
and export was permitted when the prices there
had fallen respectively to 23, 21, and 19 francs per
hectolitre. In 1816 this principle was retained,
but a small revenue duty on imports was estab-
lished. By 1819, however, the reactionary royalist
party was rising to power and seeking to establish
itself on the agrarian interests ; and it secured a
reversal of the policy. The price of corn in that
1 Ame, i. pp. 145-7. ' Ibid., p. 149 n. 8 Ibid., p. 105.
278 FRENCH COMMERCIAL POLICY
year was lower than it had been for some time,
though not lower than the average for the period
1800-14 ;* the farmers feared the growing in-
vasion of Russian grain, stimulated by the bounties
given by the Government from November, 1816,
to September, 1817, to meet the distress caused by
the war of the Hundred Days and the second
military occupation of France. So in 1819 the
three-zone system was continued, but the importa-
tion of corn was made subject to a fixed duty, and
a surtax varying according to the amount of the
fall of home prices below a certain point ; and
finally the importation was to be prohibited alto-
gether when the prices in the three zones fell to
20, 18, and 16 francs per hectolitre. But this did
not satisfy the ultra-royalist agrarian party, and in
1821, finding themselves in a strong majority in the
Chamber, they forced on the ministry a law which
raised the limit at which the surtaxes on imports
were to commence, divided France into four zones,
and raised the points at which prohibition should
commence to 24, 22, 20, 18 francs respectively. 2
Another concession was made to the agrarians in
the case of wool. In 1814 the Government had
proposed an export duty of 30 francs per 100 kilo,
on the better kinds of washed wools, and 15 francs
on the same qualities of unwashed wools whilst
imports were to be free, or rather subject only to a
1 The average price for 1801-14 was 21-34 francs per hectolitre ;
in 1816 it was 28 31 francs, and in 1817, 36-16 francs. In 1818 it had
fallen to 24-65 francs.
2 Brandt, pp. 79-82.
GROWTH OF PROTECTION 279
small weighing-duty ; there was a sharp conflict
between the manufacturers of woollens, desiring
the free import and prohibited export of wool, and
the wool growers, whose wishes were naturally to
the contrary effect, but ultimately the Government
plan was carried. 1 But by 1820 political conditions
had changed ; the export duties on the better kinds
of wool were reduced, the prohibition hitherto
continued of the export of the common kinds was
abolished, and import duties were imposed of 60
and 20 francs per 100 kilo, on the finer kinds, and
15 and 5 francs on the commoner qualities. After
1819 imports declined, but in 1822 the duties on
the cheaper wools were again increased ; there
were further advances, with a more detailed classi-
fication, made for all kinds in the next three
years, and completed and confirmed in the Act
of 1826.
These instances may suffice to show the general
trend of commercial policy during the Restoration
period many other industries could tell the same
story. It was a policy of Protection which origin-
ally was continued from the Napoleonic era in the
interests of the manufacturers, but as the reactionary
and agrarian party gained the upper hand in Parlia-
ment, the system was generalised, 2 and extended
1 Ame, i. pp. 76-9.
2 One of the finest examples of care for native industries is furnished
by the Commission of 1820, which asked for the prohibition of dye-
stuffs made from woods, so that the French merchant marine might
get the extra amount of freight involved in carrying the wood instead
of extracts, which represented only 2 or 3 per cent, of the weight of
the " matiere premiere " (Ame, i. p. 129).
280 FRENCH COMMERCIAL POLICY
particularly to serve the purposes of agriculture,
though some compensation was offered to manu-
facturers in the form of bounties on exports, and
drawbacks. The culmination was reached in the
Act of 1826, which completed the whole scheme
of Protection, and seemed intended to make France
almost entirely self-contained. But there are two
other points in connection with French commercial
policy after 1814 which should be noted. The first
of these relates to sugar. Under the law of 1816
the colonial possessions of France enjoyed a con-
siderable advantage for the sugar which they sent
to her, and in 1819 they supplied 34 million kilo,
out of a total of 39 millions imported. But they
were still not content, and asked for a lower tax
on colonial sugar and the prohibition of all other ;
the Government would not go so far, but gave the
colonies a further preference of 5 to 10 per cent.,
according as the foreign sugars were or were not
imported in French vessels. This almost destroyed
the non-colonial imports, but as the colonies still
complained, there were further increases on foreign
sugars so as to raise the price of the whole supply
in the home market, and by July, 1822, the colonial
preference was 100 per cent. An incidental effect
of the high prices was a stimulus to the beet sugar
industry. 1
The other noteworthy point is the treaties made
with the United States in 1822 and Great Britain
in 1826. The Restoration Monarchy had com-
1 Ame, i. p. 130.
FRENCH FOREIGN TRADE 281
menced with the idea of developing the commercial
relations of France with the other Powers by means
of general treaties, 1 but in face of the strong pro-
tectionist movement this was felt to be impossible,
and, in fact, there were sharp conflicts with Prussia,
Russia, Sweden, and the Netherlands. In 1820
the United States replied to some French tariff
changes by increasing the dues payable by French
vessels ; France replied in the same way, and also
by granting bounties on the importation of cotton
in French bottoms. The two parties then, in
1822, came to an agreement, which put their ship-
ping on equal terms. The same arrangement was
made with Great Britain in 1826, with results on
the whole disadvantageous to the French carrying
trade. 2
The following table gives the movement of
French foreign trade between 1816 and 1830. The
figures for the earlier years are for the whole of
the imports and exports ; it was not until 1827
that the "special trade" (i.e. imports for French
consumption and exports of French produce) was
distinguished, and really it is only from that year
that there are any very reliable statistics. The
figures are million francs. 3
1 In 1814 the Ministry wrote to the Chambers of Commerce :
"Nous sommes a la vieille de reprendre avec les peuples qui nous
environnent nos anciennes relations. . . . Ne perdez pas de vue que
tout est reciproque ici ; que nous n'avons rien a exiger des autres
nations ; qu'il ne peut etre question que d'avantages mutuels a
negocier et stipuler " (quoted by Levasseur, i. p. 563).
2 Brandt, pp. 85-6.
3 Foville, pp. 266 seq.
282 FRENCH COMMERCIAL POLICY
General Trade.
Year.
Imports.
Exports.
1816
. 243
548
1817
. 332
464
1818
. 336
502
1819
. 295
460
1820
. 335
543
1821
399
405
1822
. 426
385
1823
. 362
391
1824
. 455
441
1825
. 534
667
1826
. 565
561
1827
. 566
602
1828
. 608
610
1829
. 616
608
1830
. 638
573
Special Trade.
Imports. Exports.
414 ... 507
454 ... 511
483 ... 505
489 ... 453
Towards the end of this period there came a
distinct reaction. There had always been a con-
siderable body of opposition to the policy of
extreme restriction, and this increased in vigour as
manufacturers felt the disadvantages of all-round
Protection, and as the interests of particular groups
exercised too evident an influence upon legislation.
The Ministry of Martignac was conscious of the
turn of public feeling, and appointed in 1828 a
commission of inquiry, which reported that in the
conditions of French industry a policy of " reasoned
Protection " was desirable, but that great care
should be taken to prevent the aid given to one
industry from damaging another. 1 St. Cricq, now
Minister of Commerce, prepared a scheme of re-
form, but its consideration was prevented by the
1 Levasseur, i. p. 591.
POWER OF PRIVATE INTERESTS 283
political confusion which ended in the overthrow of
the throne of Charles X. Surveying the economic
policy from 1814 to 1830 as a whole, few students
will be inclined to dissent from the judgment of
Levasseur, that it is not the policy of Protection
itself that is to be condemned for it was the
outcome of the particular conditions of France
and Europe, and of a particular habit of thought
but its aggravation and elaboration for twelve
years at the dictation of private interests. 1
1 Levasseur, i. p. 594.
CHAPTER II
THE MONARCHY OF JULY
THE new monarchy set up by the revolution of
July, 1830, was not likely to make any radical
changes in the now almost traditional economic
policy of France. Under the influence of the
reaction against the extreme Protection of the last
years of the Restoration Monarchy, Louis Philippe
and his advisers were themselves prepared to make
some amendments to the tariff; but they had
been placed in power by the middle classes who
desired, above all things, to avoid the disturbance
likely to be caused to trade and commerce by the
more drastic political changes advocated by the
republicans. The Government boasted of its origin ;
it accepted the task imposed upon it by its creators ;
and it deliberately endeavoured to administer the
country in their interests. 1 It is true that the
1 " La politique que nous soutenions et pratiquions ainsi avait son
principal point d'appui dans 1'influence preponderante des classes
moyennes : influence reconnue et acceptee dans 1'interet general du
pays, et soumise a toutes les epreuves, a toutes les influences de la
liberte generale. . . . Les classes moyennes, sans aucun privilege ni
limite dans 1'ordre civil, et incessamment ouvertes, dans Pordre politique,
au mouvement ascendant de la nation tout entiere, etaient, a nos
yeux, les meilleurs organes et les meilleurs gardiens des principes de
1789, de 1'ordre social comme du gouvernement eonstitutioimel, de la
284
SOME SLIGHT REFORMS 285
franchise was lowered, but in the existing economic
conditions of France this meant only the control
of the legislature by the middle' class, chiefly in-
terested in trade and commerce, and, whilst not
unwilling to see the protection given to the land-
owners reduced, quite resolved not to allow any
tariff changes likely to endanger its own position.
Throughout the whole period 1830-48 there were
few important modifications of the customs duties
though there were considerable changes for the
better in the administrative arrangements of the
customs service and the Legislature almost always
showed itself much less liberal than even the
Executive.
The earliest enactments under the Monarchy of
July were concerned chiefly with the transit and
entrepot trade. In 1831 and 1832 the restrictions
upon the transit of foreign merchandise through
France were mitigated, and the system of bonded
warehouses rearranged and developed. The
Chamber reduced the number of ports at which
the Ministry recommended that these warehouses
should be permitted, but the main conflict arose
over the proposal to authorise the establishment
of similar warehouses at certain internal trading
centres Paris, Lyons, and Strassburg. They had
existed there before, but that did not prevent the
seaports from making a determined opposition to
liberte comme de 1'ordre, des libertes civiles comme de la liberte
politique, du progres comme de la stabilite " (Guizot, Memoires,
vol viii. pp. 522-3, ed. 1867).
286 THE MONARCHY OF JULY
the system, since they believed that their own
trade would thereby be reduced. However, the
Government scheme was carried. 1
The next reform suggested by the Ministry did
not secure even so limited an acceptance. The
corn laws were working in a very unsatisfactory
manner ; the zones were badly arranged, and the
selection of the markets whose average prices were
to determine the opening or closing of the ports to
foreign grain was open to many objections ; the
constant changes and resulting uncertainty ham-
pered merchants ; there were great inequalities of
price between the various parts of the country ;
and although the average home production of corn
was slightly higher in 1827-31 than in 1822-6,
yet the average price showed a very con-
siderable increase. 2 The Government, therefore,
proposed that the absolute prohibition (in certain
cases) of the import of grain should be abandoned,
and replaced by an extension of the sliding scale
of duties ; that the country should be divided into
two great districts instead of four zones ; that the
price of bread instead of corn should be taken as
an index ; and that in cases of scarcity the surtax
1 Ame, i. pp. 181 seq.
2 The average production of corn was about 57 million hectolitre in
1822-6, and 58 million in 1827-31. The following table gives the
average prices in francs per hectolitre (Brandt, p. 230) :
1822 . 15-5 1827 . 18-2
1823 . 17-6 1828 . 220
1824 . 162 1829 . 226
1825 . 15-7 1830 . 224
1826 158 1831 22-1
FAILURE OF CORN LAW REFORM 287
on grain imported in foreign vessels should be
suspended. But friends and foes alike had come
to regard the grain duties as the corner-stone of
the whole protective system j 1 the manufacturers
made common cause with the agrarians, and only
the first of the proposals was adopted. But its
application was postponed until 1833 ; by that
time prices were falling, as a result of the
particularly good harvest of 1832 ; 2 the applica-
tion of the law was then adjourned until "the
revision of the tariff," and as that event did not
take place, the corn laws of the Restoration
Monarchy were still in force in I860. 3
This experience discouraged the Ministry (or
rather the various short-lived ministries of the years
1830-40) from attempting any more elaborate
legislation for some time. A number of schemes
were prepared in 1832 for the removal of the
prohibitions on certain qualities of cotton thread,
on cashmere shawls and Russian leathers, and
reductions on silks and cattle ; and in 1834 for the
free admission of more qualities of cotton thread,
iron cables, and rum, and reduced duties on
certain wools and iron bars ; but none of these
1 ' ' Ma conviction profonde est que le jour ou la Chambre et le
gouvernement auront abandonne la protection de 1'industrie agricole,
ce jour-la sera la vieille de celui ou ils abandonnerent la protection de
tous les produits industriels " (St. Cricq, in debate on the proposed
law).
2 The production of corn rose from 56-4 million hectolitre in 1831
to 80-1 million in 1832 ; the average price fell from 21-8 francs in 1832
to 15 6 in 1833.
3 Ame', i. p. 188.
288 THE MONARCHY OF JULY
came before the Chamber, and the only success
was a few unimportant changes made by royal
ordinance. The proposals of 1834 are chiefly
interesting because made by Thiers, who was then
for a brief period Minister of Commerce. As he
was destined to exercise later a great influence on
French economic policy, it is interesting to note
his opinion at this time that "employed as a
means of retaliation, the system of restriction is
disastrous ; as a means of preference, it is improper
(abusif); as an encouragement to an ' exotic '
industry which cannot be brought here, it is
powerless and idle. If used to protect a home
industry which is likely to succeed, it is good, but
only temporarily so ; it ought to come to an end
when the industry has completed its education,
when it has become an adult." 1 Thiers' successor
(and predecessor), Duchatel, held much more
radical views, but could accomplish nothing ; he
appointed in 1834 a commission to consider how
far the maintenance of prohibition was necessary
in the case of certain specified commodities
(particularly textiles, over which there was a fierce
conflict between the spinners and weavers), but the
appointment only called forth a great agitation on
the part of the threatened interests ; and practically
the matter dropped.
In 1836, however, the Chamber showed a more
liberal tendency, partly because of the influence of
the wine-growing districts. The duties on some kinds
1 Quoted in Ame, i. p. 191.
THE ACTS OF 1836 AND 1841 289
of wrought-iron, coal, and cotton were reduced ;
and the prohibitions of the import of some quali-
ties of cotton yarn, cashmeres, and Russian leather,
and of the export of such commodities as soap,
hides, and timber for shipbuilding, were abandoned.
Moreover, the free admission of raw materials was
allowed on condition that within six months an
equivalent amount of goods manufactured from
them was exported. The result was that the
Protectionists were alarmed, the manufacturers
and agrarians again drew together, and a current
of legislation in the opposite direction set in, 1
though without producing any important changes.
Finally, in 1841, there came the last considerable
enactment of the July Monarchy. The duty on
sewing needles, which had remained at 2 francs
per 100 kilo, since 1814, was quadrupled, with the
result that whilst the import of British needles
(which had an average value of 60-70 francs per
100 kilo.) was almost unaffected, the import of
the cheap German needles (with an average value
of 5-15 francs) collapsed altogether. This brought
France into conflict with the Zollverein, but the
retaliatory measures adopted by the Germans had
little effect. The law of 1836 had reduced the
duties on cashmeres about 33 per cent. ; but, on
1 " Let tarif etait soumis a des oscillations ou les hasards des in-
fluences individuelles se manifestaient plus souvent qu'une pensee
d'ensemble bien arretee, ce qui fit dire a M. Glaiz-Bizoin : ' La plupart
de nos industries re9oivent une protection, non en raison de leur
importance, mais en raison de 1'importance des personnes qui les
exercent ' " (Ame, i. 206).
U
290 THE MONARCHY OF JULY
the other hand, the duties on flax and hemp pro-
ducts were now increased. This was due chiefly to
the extremely rapid advance in the imports from
Great Britain, where great improvements in pro-
duction had been made about 1830. The weaving
industry in France was rising, and the imports of
foreign linen were falling ; the French manu-
facturers therefore desired the free or nearly free
admission of linen thread, and higher duties on
the manufactured article. The spinners, however,
were undoubtedly in difficulties, and they com-
bined with the agrarians to demand higher rates
on thread ; and they were sufficiently strong to
obtain their desire. Finally, the Act made some
changes in regard to machinery. The shipbuilders
complained that the duties on foreign machinery
(especially steam-pumps, which were subject to the
highest rates) hampered their industry; and they
now secured the free admission of machinery
intended for ships to be engaged in foreign trade.
But the home manufacturers were given a bounty
of 33 per cent, on all such machinery that they
made ; and as a further compensation, the duties
on other kinds were increased in 1844. On the
whole, then, the legislation from 1840 onward
(the period of the Ministry of Guizot) did not
depart to any notable extent from the old lines.
But during these years a series of events
occurred which were important less in their im-
mediate effects than as a foreshadowing of a
revolutionary change which was to come later.
COMMERCIAL NEGOTIATIONS WITH BELGIUM 291
Ever since Belgium had broken away from the
kingdom of the Netherlands in 1830-1 attempts
had been made by France to establish closer re-
lations with the newly independent state. There
can be no doubt that Louis Philippe desired, but
did not dare, to authorise the acceptance of the
crown offered to his son ; l but it is also clear that
there was strong opposition from the French
manufacturers, who believed that such action
would be followed by tariff changes which would
expose them to the powerful Belgian competition.
After the succession question was settled, pro-
posals for a customs union with France were put
forward tentatively from Belgium, which had
shown extraordinary industrial productivity, was
eager for large markets, and believed that the
newly formed Zollverein might close Germany
against it. But there was little enthusiasm on
either side ; the French manufacturers were
hostile, and many Belgians feared that commercial
union might mean the loss of their newly acquired
political independence. The negotiations con-
tinued at intervals, but nothing was done until
1842, when a treaty was signed which gave
Belgium some preferences on iron, coal, and
textiles, and secured for France reductions on
silk goods, salt, and wine. Probably had the
matter been decided by economic considerations
alone the French Chamber would not have ratified
the treaty, for the manufacturers were uneasy, and
1 Guizot, Memoires, ii. pp. 424-8.
292
THE MONARCHY OF JULY
the value of the Belgian concessions was lessened
by their immediate extension to the Zollverein ;
but ultimately the treaty, with some modifications,
was ratified in 1845 for six years, mainly for
political reasons and the desire to counteract any
movement of Belgium towards the Zollverein. 1
In 1843 also a treaty with mutual reductions was
made with Sardinia for four years, and also
approved by the Chamber chiefly on political
grounds ; and there were a number of other
treaties of no great importance, mainly with non-
European powers. Guizot had at one time some
hopes of securing a treaty with Great Britain, and
sounded some of the British ministers on the
subject ; but though they were not unfavourably
inclined, the scheme was felt to be impracticable ;
and political complications prevented a renewal
of the proposal.
At this point it will be convenient to set out the
figures of French foreign trade from 1830 to 1848
in million francs : 2
SPECIAL TRADE
Year.
1831 ..
Imports.
. 374
Exports.
... 456
Year.
1840
1832 .
. 505
... 507
1841
1833 .
. 491
... 560
1842
1834 .
. 504
... 510
1843
1835 .
. 520
... 578
1844
1836 .
. 565
... 628
1845
1837 .
. 569
... 515
1846
1838 .
. 656
... 659
1847
1839 .
. 651
... 677
1848
Imports. Exports.
747 ..
. 695
804 ..
. 761
847 ..
. 644
846 .,
,. 687
868 ..
. 790
856 .,
,. 848
920 .
. . 852
956 .
,. 720
474 .
.. 690
Ame, i. pp. 219-27. 2 FovUle, pp. 268-9.
CHARACTER OF THE JULY MONARCHY 293
(The figures for 1848 show the marked effects
of the internal troubles of that year.)
It will be seen that there had been a very con-
siderable upward movement, and that in spite of
high Protection the imports after 1840 greatly
exceeded exports. The Monarchy of July was
not a heroic Government ; it clung too much to
its " policy of resistance " ; its views were short
and its horizon narrow. But it did give France
order for a time long enough to enable the neces-
sary changes in industrial organisation to be com-
pleted ; it took an intelligent and active part in
the promotion and extension of railways, highways,
and canals ; it brought the national finances into
order ; it passed a good deal of useful legislation ; x
and it did very much for primary and secondary
education. Its great weakness was that it failed
to recognise the social changes arising from the
new economic conditions. It ignored the new
force the workmen and these turned to socialism.
Its faults were due not so much to itself as to the
conditions under which it had to work ; and its
greatest misfortune was that the merest accident
brought about its fall at the time when a movement
was in progress which might have enabled the
Monarchy of July to carry out the reforms con-
templated at the outset of its career.
During the eighteen years since the accession
of Louis Philippe the industries of the country
1 See the list of enactments given by Guizot in the last chapter
(vol. viii.) of his Memoires.
294 THE MONARCHY OF JULY
had made marked progress. The total consumption
of coal in 1830 was 2,494,000 tons, and the home
production 1,863,000 ; in 1845 the consumption
had risen to 6,343,000, and the production to
4,202,000. l The amount of pig-iron produced
increased from 224,000 tons in 1831 to 602,000
tons in 1847. Textiles showed a similar develop-
ment : it is estimated that in 1834 there were
1,500,000 cotton spindles employed in France, and
in 1844, 3,500,000 ; 2 the value of the wool consumed
at home averaged about 16 million francs in the
last years of the Bourbons, but had reached
30 million francs in 1847 ; in linen and silk there
was the same upward movement. In agriculture
the yield of corn averaged about 67 million
hectolitres for the years 1831-5, and, in spite of
a comparatively very poor harvest in 1846,
80 million for 1844-8. 3 The quantity of sugar
manufactured rose with remarkable rapidity ; it
was 6 million kilo, in 1830, and 53 million in
1847. 4
In view of this general progress of French
manufactures and agriculture alike, the extreme
Protection hitherto employed seemed no longer
necessary. A considerable part of the trading
community, particularly in Paris and the sea-
ports, 5 began to advocate the adoption of a less
restrictive policy ; and they were supported by
1 Foville, p. 208. . 2 Levasseur, ii. p. 125.
3 Brandt, p. 230. 4 Noel, p. 96.
6 The lead was taken by Bordeaux.
A FREE TRADE MOVEMENT 295
the wine-growers and the farmers of the Gironde. 1
The new movement received a great stimulus
from the success of the English Free Trade
agitation, as expounded to the French people in
Bastiat's work entitled Cobden et la Ligue ; and
soon a Free Trade Association was founded in
France, and gave expression to its doctrines in its
newspaper, Le Libre ExcJiange, and more scientific-
ally in the Journal des Economistes, which had
been established in 1841. The manufacturers, and
the agriculturists who look their side, in reply
formed a counter-association, and issued Le Moni-
teur Universcl to present their case to the public. 2
The question was eagerly debated, and the Ministry
though hampered by the popular suspicion that
Guizot was unduly favourable to Great Britain-
believed that it could at last take action in the
direction which some of its members had long
desired. A Bill was prepared, which made a con-
siderable number of important reforms in the
tariff; but it was still only in the discussion stage
when the revolution of February, 1848, brought
about the overthrow of the Monarchy of July.
1 Noel, p. 83.
2 Am, i. pp. 244-7.
CHAPTER III
THE SECOND REPUBLIC AND THE
SECOND EMPIRE
THE COMMERCIAL TREATIES
THE brief career of the Second Republic brought
no change in the economic policy of France. In
fact, even the Socialists, who at first shared the
government with the more moderate Republicans,
were inclined to make common cause with the
manufacturers and landowners for the defence of
the protective system ; l they seem to have believed
that its maintenance was necessary for the success
of those sweeping economic changes which they
were bent on accomplishing under the leadership
of Louis Blanc. Their attempts ended in disaster,
and intensified the alarm felt by the commercial
and industrial classes, already sufficiently harassed
by the disorders caused to business by the prolonged
political confusion ; and after a sharp struggle the
Socialist leaders were ousted from the Government.
1 " Le suffrage universel ne fut pas plus favorable, tout d'abord,
que le suffrage restreint au principe de la liberte commerciale . . .
une sorte de reaction violente contre les tendances liberates des
derniers jours du regime de Juillet se manifesta parmi les couches que
la Revolution venait de faire surgir '' (Noel, pp. 100-1).
296
SAINTE-BEUVE'S PROPOSALS 297
The Republicans were free to arrange a new con-
stitution ; they decided upon a single Chamber and
a President of the Republic both to be elected
by universal suffrage. Now the grant of universal
suffrage gave the decision into the hands of the
peasantry, and the immediate result was the election
of Louis Napoleon, partly because his name repre-
sented for France internal order and external re-
nown. 1 The subsequent transition of Napoleon
from President to Emperor presented few diffi-
culties.
The tariff changes made during this period were
few. The Constituent Assembly increased the
drawbacks given on textiles and a few other goods
for a time, in order to help the manufacturers to
meet some temporary difficulties. 2 Later the Legis-
lative Assembly made shipping agreements with
Belgium and some American republics, and renewed
the treaty with Sardinia. The tariff question was
not directly raised until December, 1850 ; in that
month Sainte-Beuve brought forward a series of
resolutions which proposed the abolition of the
protective duties on food and raw materials, the
abandonment of all prohibitions, the reduction of
the duties on iron after four years, the establish-
ment of maximum duties of from 10 to 20 per
cent, on all manufactured goods, and the cessation
of all shipping and colonial privileges. The result-
ing deficit in the national revenue was to be met
1 Seignobos, Histoire politique de F Europe contemporaine, p. 152.
2 Ame, i. p. 256.
298 THE COMMERCIAL TREATIES
by the imposition of an income tax. 1 The proposals
gave rise to an animated debate in 1851, and,
although their introduction was ill-timed, the fact
that they secured the votes of one-third of the
Legislative Assembly 2 showed that there was a
considerable Free Trade party in the country. The
opposition to them was led by Thiers, who based his
case chiefly on the higher cost of production in
France than in England, and the vital importance
to the French manufacturers of maintaining control
of the home market. 3
But with the establishment of the Empire a
change began. Napoleon III. was a close student
of English affairs ; he had been much impressed
by the reforms of Sir Robert Peel, and was not
unwilling to attempt to imitate them in France.
At the very outset of his reign the Foreign Minister
drew the attention of his colleagues to the fact
that the reform movement was not confined to
Great Britain ; and the Emperor and his ministers
soon resolved on sweeping changes. It would
have been extremely difficult to secure the con-
currence of the Legislature, so it was determined to
make use of the powers conferred on the Executive
Government by laws of 181 4 and 1836. The former
empowered the Government to suspend the duties
on foodstuffs and raw materials in case of emer-
gency, subject only to the approval by Parliament
1 Ame, i. pp. 267-8.
2 428 votes were given against further consideration of the pro-
posals^ 199 for.
3 Brandt, pp. 112-13.
IMPERIAL REFORMS 299
of the decrees issued for that purpose ; and the law
of 1836 authorised the free admission (by decree)
of goods intended to be still further worked up in
France. 1
The task was taken vigorously in hand.
Between 1853 and 1855 duties were reduced on
coal, pig-iron, iron, steel, wool, dye-woods, cotton,
etc. ; under the stimulus of a sharp rise in prices
the rates on cattle, meat, wines, and other food-
stuffs were lowered, and in 1853 the sliding scale
regulating the movement of grain was suspended ;
free admission was granted to materials for ship-
building ; and the restrictions on foreign shipping
were greatly reduced. These various decrees were
confirmed by the Legislature in 1856, but not
without considerable hesitation. 2 The Govern-
ment now went still further, and in June, 1856,
it proposed to the Legislature an enactment which
abolished all the existing prohibitions, 3 and re-
placed them by protective duties ranging from
30 per cent, ad valorem to double that amount.
At once there was a violent agitation against these
very moderate proposals for reform ; the manu-
facturing towns Roubaix, Lille, Rouen, Lisieux,
Elbceuf were particularly active in their hostility; 4
1 Devers, pp. 132-3. 2 Ame, i. p. 271.
3 There were still a considerable number of these, dealing with all
kinds of commodities woollen and cotton yarn and cloth, clothing,
leather goods, metal goods, refined sugar, chemicals, etc. ; many of
them were purely accidental, being remnants of the " continental
system." Few could be considered of any real importance to French
industry (Ame, i. pp. 287-8).
4 Ame, i. pp. 273-6.
300 THE COMMERCIAL TREATIES
and the Government deemed it advisable to with-
draw the scheme and to promise not to renew it
before 1861. The imperial policy met also with a
bad defeat in the case of grain. In 1853, in con-
sequence of a sudden rise of price, the sliding scale
had been suspended, and as prices continued to
rise until 1856, the suspension continued also ; but
when, in 1857, a fall commenced and the Govern-
ment made no attempt to re-establish the scale,
the farmers were aroused, and, in spite of the
opposition of ministers the old conditions were
restored in 1859. 1 By that time the attention of
Napoleon and his advisers was concentrated on
the Italian War, and the grave European com-
plications which it brought in its train ; and for a
time it seemed likely that no further economic
reforms would be attempted. In spite of some
failures, Napoleon had made considerable breaches
in the protective policy of France, and he and his
minister, Rouher, could point to the statistics of
French foreign trade as evidence of marked
national progress under their regime. The move-
ment of exports was particularly satisfactory ; the
following table gives the figures from 1849 to 1860
in million francs : 2
1 The following are the average prices in francs per hectolitre, 1851
to 1859 (Brandt, pp. 230-1) :
1851
14-5
1856
30-7
1852
17-2
1857
24-3
1853
22-4
1858
16-7
1854
289
1859
167
1855
293
Foville, pp. 269-70.
POLITICAL POSITION OF NAPOLEON 301
SPECIAL TRADE.
Year.
Imports.
Exports.
1849 -
724
938
1850 .
791
1,068
1851 .
765
1,158
1852 .
. 989
1,257
1853 .
. 1,196
1,542
1854 .
. 1,292
1,414
1855 .
. 1,594
1,558
1856 .
. 1,990
1,893
1857 .
. 1,873
1,866
1858 .
. 1,561
1,887
1859 .
. 1,641'
2,266
I860 .
. 1,897
2,267
Towards the end of 1859 Napoleon's position in
international politics had become extremely diffi-
cult. France was practically isolated in Europe :
the events of the Italian War had made friendly
relations with Austria impossible, without creating
any particular feeling of gratitude on the part of
Italy ; the acquisition of Savoy and Nice had
alarmed the European Governments, who habitu-
ally over-estimated the political ability and
military strength of Napoleon, and made them
believe that the Second Empire would endeavour
to emulate the deeds of the First ; the relations
between France and her ally of the Crimean War
were severely strained. The Emperor was anxious
to put an end to this isolation, he was desirous of
convincing the world that his aims were absolutely
pacific, and he readily welcomed the proposals that
he should give the best possible evidence of this by
making a commercial treaty with Great Britain.
The idea was not new, for, as we have seen, it had
302 THE COMMERCIAL TREATIES
been put forward long before by Guizot, and
suggestions in the same direction had been made
in 1852; 1 but it was now taken up with energy,
at first unofficially by Michael Chevalier, Cobden,
and others of their school, and then by the Govern-
ments. Ministers on both sides, however, were
only gradually convinced of the possibility of the
scheme ; 2 and on the French side it was necessary
that the negotiations should be carried on in
secrecy. It was quite true that tariff changes
made in consequence of a treaty, and as part of
that treaty, would not need the approval of the
French Legislature, and an agreement with Great
Britain would therefore be a way of accomplishing
some of the tariff reforms which Napoleon III.
and some at least of his advisers desired ; but,
though there was a not insignificant Free Trade
party in France, the Protectionists were much
more powerful, and, as they had shown in 1856,
could cause the Government much inconvenience
even if they could not entirely thwart the scheme.
It was not until the negotiations were complete
that Napoleon made his views public in a letter to
one of his ministers, in which he declared that
unless there is a constant increase of exchange
trade cannot flourish, that industry not subject to
competition remains stationary, and that in the
absence of growing industries, agriculture itself
1 Ame', i. p. 300.
2 For a detailed account of the negotiations, see Morley, Life of
Cobden, chap. xxix.
TREATY WITH GREAT BRITAIN 303
remains undeveloped. He therefore advocated
the abolition of the duties on cotton and wool,
gradual reductions on sugar and coffee, the im-
provement of means of transit, the abandonment
of all prohibitions, and commercial treaties with
foreign Powers. There was a great outcry from
the protected classes in France, encouraged by the
favourable reception given to the Emperor's pro-
posals by some of the British manufacturers, chiefly
in Lancashire ; but the treaty with Great Britain
was signed on January 23rd, 1860. The final
reasons on both sides were political. 1
The treaty did not do much more than indicate
the general lines of the arrangements to be made ;
the details of duties were left to be settled by
subsequent consultations. Both parties guaranteed
" most favoured nation " treatment to each other ;
both were left absolutely free to extend the same
reductions to other Powers if they thought fit, and
indeed it was understood from the first that Great
Britain would do so ; both reserved the right to
impose additional customs duties equivalent to the
excise levied on any commodity ; both agreed not
to prohibit the export of coal. As to actual reduc-
1 For the evidence of this on the French side, Morley, loc. cit., pp.
720, 725. On the British side Gladstone wrote : " A French panic
prevailed as strong as any of the other panics that have done so much
discredit to this country. For this panic, the treaty of commerce with
France was the only sedative. It was in fact a counter-irritant ; and
it aroused the sense of commercial interest to counteract the war
passion. It was and is my opinion, that the choice lay between the
Cobden Treaty and not the certainty, but the high probability of a
war with France " (quoted in Morley, Life of Gladstone, ii. p. 23).
304 THE COMMERCIAL TREATIES
tions of duties, the British Government undertook
to recommend certain abolitions and diminutions
to Parliament in Gladstone's forthcoming budget,
and France undertook to abolish all prohibitions
and to levy instead specific duties not exceeding
30 per cent, ad valorem up to October, 1864, and
after that 24 per cent. The actual specific duties
were to be fixed by joint agreement. The treaty
was to hold good for ten years, and could be con-
tinued, unless one year's notice of its termination
was given by either party, for another ten years.
The customs changes proposed by the British
Ministry were accepted by Parliament Gladstone's
budget of 1860 reduced the number of commodities
liable to duty from 419 to 48. For France the
most important diminutions were on wines : the old
duty was slightly more than 5*. 106?. a gallon ; after
January 1st, 1861, this was to be replaced by gradu-
ated duties ranging from 1 to 2 shillings. The
French calculated that on their wines this meant a
change from 159 francs per hectolitre to 27 '5 francs.
The duty on brandy was reduced 30 per cent.
On the French side the tariff changes were far
more numerous and important. Only the specific
duties on iron and coal were fixed by the original
treaty ; and in order to obtain guidance for the
settlement of the remainder, the French Govern-
ment appointed a commission to investigate first
the average prices in France of the commodities
now to be admitted, and secondly the specific
equivalents of the ad valorem duties which should
FRENCH TARIFF CHANGES 305
be imposed within the limits prescribed by the
treaty. The commission took a great amount of
evidence of all kinds, and the net result of its
deliberations was a report to the effect that whilst
mechanically the French industries were in many
cases far behind the British, yet they were suffi-
ciently well established to meet competition,
and probably would be likely to make radical
changes in their equipment and organisation only
if compelled to do so by that competition. Con-
sequently the French Government did not think
it advisable to impose duties up to the maximum
indicated by the treaty which in many cases
would have been practically prohibitive. 1 They
reached the 30 per cent, ad valorem limit only
for some metal products ; on linen, cotton, and
woollen cloths the average was only about 15 per
cent. ; on tools 10-12 per cent. ; on cutlery 20 per
cent. ; on glasswares 10 per cent. ; on china and
earthenware 10 per cent. ; on chemicals 15-10 per
cent. 2 This action of the French negotiators did
much to remove the reproach made in Great
Britain against the original treaty that it was
too one-sided, since under it Great Britain was
bound to abolish duties whilst France had only
to reduce them, and might still leave them at
almost a prohibitive height.
Napoleon and his advisers had hoped from the
1 Ame, i. pp. 310-15.
2 An elaborate discussion of all the duties, and the reasons for
them, is given by Ame, i. pp. 317-468,
X
306 THE COMMERCIAL TREATIES
first that once Great Britain had set the example of
a treaty, other nations would not be slow to follow
it. The expectation was justified ; and, indeed,
the industrial powers had no alternative if they did
not wish Great Britain to enjoy marked advantages
over them in the French market. Negotiations
were immediately set on foot by various Govern-
ments, and it was natural that the first completed
arrangements should be with Belgium. That
country granted to France reductions in the duties
on wines, silks, and leather goods ; and in return
was given the advantages of the "conventional"
tariff established by France for Great Britain, with
the addition of some changes in the rates on linen
goods and prepared hides. Both contracting parties
guaranteed " most favoured nation " treatment to
each other. This was, in fact, the general policy
pursued by France in all its treaties ; it granted in
each case the conventional tariff rates settled by
the British treaty, and generally added one or
two more reductions on commodities in which the
other contracting party was especially interested ;
then these additional reductions (which probably
would only benefit to any considerable extent the
country to which they were first given) were ex-
tended to all the contracting Powers under the
"most favoured nation" clauses. In return France
secured from the Zollverein in 1862 (thus closing
a long quarrel) reductions on wines, textiles,
and some miscellaneous commodities though the
arrangement was not ratified by the various
NEW GENERAL TARIFF 307
German states until 1865 ; from Italy (1863) small
reductions (for the Italian tariff was not very
protective) on silks, chemicals, glassware, and pre-
pared hides ; from Switzerland (1864) reductions
on wines, brandy, glassware, earthenware, chemicals.
In 1865 treaties on similar lines were made with
Sweden and Norway, the Hanse towns, Spain,
and the Netherlands ; in 1866 with Austria ; and
in 1867 with Portugal. 1
Whilst an elaborate conventional tariff was being
formed in this way, changes were being made in
the general tariff also. In 1860 and the following
years, either by legislative enactment or imperial
decree, the duties on a great number of raw
materials skins, wool, cotton, dye-stuffs, jute,
flax, hemp, coal, chemicals, and many others-
were either greatly reduced or abolished ; prohibi-
tions of exports came practically to an end ; bounties
on exports were abandoned ; transit facilities were
increased ; and finally, after long deliberation, in
1866 the preferential treatment of French vessels
in regard to shipping dues and the trade with the
Antilles and Algeria, and the surtaxes on goods
imported to France not in French vessels or vessels
belonging to the producing country, likewise ceased.
Finally it should be noted that at the very com-
mencement of the reform the French Govern-
ment abolished (in 1861) the sliding scale for grain,
and replaced it by freedom of export and a very
moderate duty on imports. 2
1 Details in Ame, ii. pp. 1-36. 2 Devers, pp. 139-45.
308 THE COMMERCIAL TREATIES
Clearly the result of all these changes was an
absolute break with all the traditions of French
commercial policy; what was the effect on the indus-
trial development of France ? It must not be sup-
posed that the opponents of the Emperor's action
were ever brought to approve it ; the Legislature
gave its formal assent to changes made often with-
out its knowledge, but the new policy was to the
end accepted only reluctantly and with disapproval
by the larger part of those classes who exercised
political influences. By 1868, when the power of
the Emperor had been severely shaken by failures
in foreign policy, whilst the effects of the commercial
crisis of 1864 had not yet ceased to be felt, and
political events in the United States and the
Germanic Confederation had harassed trade, and
the time for the extension or abandonment of the
British treaty was approaching by that year the
forces of the friends of Protection had recruited their
strength, and a demand was made for an inquiry
into the effect of the whole treaty system and the
changes which it had brought in its train. The
conflict continued for some time, but finally the
Ministry gave way, and two commissions were
appointed in 1870, only a very few months before
the outbreak of the Franco-German War and the
collapse of the Empire.
It is always arguable that the industrial and
commercial progress of France between 1860 and
1870 might have been greater and more rapid if a
higher tariff wall had been maintained ; or that
MOVEMENT OF FRENCH TRADE 309
progress was certain in any case, and that tariff
changes exercised little influence upon it. But
this is mere speculation, and all the evidence goes
to show that during the period from 1850 to 1860,
when moderate reforms were being made, France
commenced a rapid advance, which quickened con-
siderably with the introduction of more radical
changes of policy after 1860. First as to foreign
trade. The following table gives the figures from
1860 to 1869 in million francs : l
SPECIAL TRADE
Year.
Imports.
Exports.
I860 .
. 1,897
2,277
1861
. 2,442
1,926
1862
. 2,199
2,243
1863
. 2,426
2,643
1864
. 2,528
2,924
1865
. 2,642
3,088
1866 .
. 2,794
3,181
1867 .
. 3,027
2,826
1868
. 3,304
2,790
1869 .
. 3,153
3,075
The figures of French trade with the chief treaty-
states are also instructive. In 1857 British exports
to France were valued at 11,327,000 ; they de-
clined considerably in the next two years, but
in 1860 rose to 12,701,000; in the next year
they were 17,427,000, and they rose steadily to
26,597,000 in 1866 ; after that there was a de-
cline, due in part to a general commercial depression.
Our imports from France were 11,965,000 in
1 Foville, pp. 270-1. The figures for the year 1870 show a slight
decline owing to the war.
310 THE COMMERCIAL TREATIES
1857, and in 1860 17,774,000; they reached in
1866 37,017,000, and after that declined for a time. 1
With the Zollverein French exports remained
almost stationary, with the exception of 1866, when
there was a drop they were valued at 209 million
francs in 1862, and 214 millions in 1868 ; her im-
ports, however, rose from 129 millions to 266
millions. With Switzerland the exports rose from
137 million francs in 1862 to 261 millions in 1868,
and the imports from 58 millions to 132 millions.
The total trade with Belgium increased from 344
millions in 1860 to 611 millions in 1869. 2
The expectation that industry would receive a
great stimulus from the opening of foreign markets
and competition at home was amply justified ; and
the development was aided by the growth of means
of transit and transport. In 1850 there were 3,010
kilometres of railways in France ; by 1860 there
were 9,439 ; by 1869, 17,111. 3 In 1850 the merchant
shipping of France (2 tons and upwards) was re-
turned at 688,000 tons ; by 1860 the amount had
reached 996,000 tons, and by 1870, 1,072,000 tons. 4
The home production of coal was 4,040,000 tons in
1849, 7,600,000 in 1859, and 13,509,000 in 1869 ;
in the same period the total consumption increased
in almost the same proportion, from 6,434,000 to
21,809,000 tons. 5 The production of pig-iron was
414,195 tons in 1849 ; by 1859 it had a little more
1 Statistical Abstract for the United Kingdom, Nos. 13 and 27.
2 Noel, pp. 238-9. 3 Foville,, p. 307.
4 Report on British and Foreign Trade and Industry, p. 386.
6 Ame, ii. p. 387.
ECONOMIC PROGRESS 311
than doubled ; and by 1869 it amounted to 1,381,000
tons. 1 In 1849 only 9,000 tons of steel were manu-
factured, as against 23,000 in 1859, and 110,000 in
1 869. 2 The cotton industries were naturally affected
by the American Civil War, and the consequent
temporary cessation of supplies, but, nevertheless,
the consumption of raw cotton in France averaged
78 million kilo, for the period 1857-9, and 90 million
kilo, for 1867-9. 3 Between the same two periods
the average consumption of imported raw wool
grew from 36^ million kilo, to 93 million kilo. 4 In
the case of linens, the surplus of imports over
exports rose from an average of 25 million kilo, in
1857-9 to an average of 45 million kilo, in 1867-9,
in spite of a very large growth in French exports ;
the chief cause of this condition of affairs seems to
have been the slowness of the French manufacturers
to make use of jute. 5
In agriculture it was natural that the wine
growers should reap the greatest benefit. The
production is, of course, subject to fluctuations
due to natural causes, and the statistics of particular
years are scarcely an adequate indication of the
movement of the industry ; but it may be pointed
out that the estimated output of wine was 45 million
hectolitres in 1850, 15 million in 1855, 39 million
in 1860, and 69 million in 1865. 6 The exports of
brandy and spirits were 173,000 hectolitres in 1858,
1 Ame, ii. p. 397- 2 Ibid., p. 404.
3 Ibid., p. 422. 4 Ibid., p. 415.
5 Ibid., pp. 425-6. c Foville, p. 161.
312 THE COMMERCIAL TREATIES
224,000 in 1863, and 333,000 in 1867 ; after that
there was a decline. 1 The manufacture of home-
produced sugar was 132 million kilo, in 1859 ; after
being stationary for some years it leaped up to
210 million in 1865, and reached 242 million in
1869. 2 The quantity of corn grown, which had
averaged 82 million hectolitres for the years 1845-9,
reached 98 million for the years 1865-9, 8 in spite
of poor harvests in 1866 and 1867. Finally, it
should be noted that population was increasing
very slowly ; in 1849 it was estimated at 35,690,000,
and twenty years later at only 38,330,000, in spite
of the fact that the acquisition of Savoy and Nice
had added 689,000 persons to the inhabitants of
French territory in I860. 4 The proportion engaged
in agriculture diminished considerably ; in 1851
the rural population numbered 6,146 out of every
10,000 of the whole, whilst by 1866 the number
had fallen to 5,119.
It is evident, then, that in the twenty years
I of Napoleon's rule France had made very substan-
tial progress. By 1870 she had become a great
industrial power ; her commerce had expanded
largely, her manufactures were firmly established,
her agriculture was flourishing ; and her economic
strength was revealed to an astonished Europe
by the ease with which she bore the burdens cast
upon her by the war.
i Noel, p. 236. 2 Ibid., p. 236.
3 Brandt,, p. 231. 4 Foville, pp. 9-10.
CHAPTER IV
COMMERCIAL POLICY, 1870-81
THE Government of the Third Republic was called
upon to deal at the close of the war with a financial
situation of almost unparalleled difficulty. Thiers,
who had been entrusted with the conduct of the
Executive Government, estimated that to provide
for all necessary expenditure (including the great
debt-charges caused by the war indemnity) the
annual amount raised by taxation must be in-
creased by 556 million francs, or 22 million pounds
sterling an increase absolutely unprecedented. 1
By various forms of internal taxation he could
raise, he thought, about 350 millions ; and for the
rest he resolved to have recourse to the customs.
His own economic views had become frankly protec-
tionist, but his main anxiety at this time was to
secure revenue. He proposed in 1871 to increase the
duties on sugar and coffee ; to subject a number of
raw materials silk, wool, hides and skins, wood,
etc. to the duties from which they had been freed
by the reforms of Napoleon III. ; to re-establish
some export duties ; to impose harbour dues, and
1 Tliiers, Notes et Souvenirs, pp. 186-92.
313
314 COMMERCIAL POLICY, 1870-81
to renew the surtaxes on commodities carried in
ships not belonging to the country of origin. 1
Manufactured commodities it was not possible to
touch to any great extent, since most of the
treaties made under the Empire would continue in
force for a number of years.
The proposals had a varied reception in the
National Assembly. The revenue duties on sugar
and coffee were approved at once, and extended to
tea, cocoa, pepper, and some other commodities.
On the other hand, the proposed export duties
were dropped without the Government making any
strenuous effort to retain them. The shipping
surtaxes were imposed, and also the harbour dues ;
but in this connection difficulties were caused by
the commercial treaties. With one unimportant
exception, goods brought direct from the country
of origin were exempted from the surtax 2 if carried
in the ships of treaty states ; and even if brought
indirectly they were exempt if carried in Austrian,
Belgian, Dutch, Italian, Swedish, German, or Por-
tuguese vessels. The only country to whom these
privileges were expressly granted by treaty was
Austria ; but they were extended to the others by
force of the " most favoured nation " clause. For
the proposed change to be productive of much
revenue it must apply to all shipping, but this was
possible only if Austria would consent to abandon
its rights under the treaty of 1866. It might have
1 DeverSj p. 147.
2 The so-called " droits de pavilion.''
TRIERS' FINANCIAL PROPOSALS 315
done so, since it was interested only in the Medi-
terranean trade, and the French Government was
willing to meet its wishes so far as that was con-
cerned ; but it was subjected to strong pressure
from Prince Bismarck, and ultimately refused to
grant the French request. 1 The proposals of Thiers
in regard to shipping remained then ineffective,
except the harbour dues, which affected foreign
and French vessels alike.
But the great question was the taxation of raw
materials. The Ministry proposed to subject silk,
wool, cotton, flax, and jute to a duty of 20 per
cent, ad valorem ; and hides, timber, oil-seeds, etc.,
dye-stuffs, and all other raw materials hitherto
exempt, to various duties not to exceed 20 per
cent. 2 Clearly this would hamper the manufac-
turers, and the President (who made himself re-
sponsible for the new scheme, which was, in fact,
his work) proposed to remedy this first by the
grant of drawbacks, and secondly by imposing on
imported manufactured goods a compensating sur-
tax presumed to be equivalent to the amount of
the duty on raw materials. 3 But it was evident
that the calculation and arrangement of the draw-
backs would be a task of very great administrative
difficulty, and the Budget Commission proposed,
as an alternative scheme, the abandonment of the
high duties and drawbacks, and the substitution
1 Ame, ii. p. 318 seq. a Devers, p. 150.
3 The right of France to do this had been recognised in the com-
mercial treaties.
316 COMMERCIAL POLICY, 1870-81
of a uniform rate of 3 per cent, on raw materials,
and an equivalent surtax on manufactured goods.
It was estimated that this arrangement would pro-
duce some 60 million francs ; the Government had
counted on obtaining 165 million. There was
a long parliamentary conflict ; the manufacturers
(especially those of Lyons) resisted the President's
proposals fiercely ; and finally the matter was
referred to a new commission, which was directed
to investigate the probable effect of the proposed
taxation, and it was definitely stated in the resolu-
tion that the National Assembly would adopt duties
on raw materials only if it proved impossible to
provide adequate revenue in any other way. Thiers
resigned, but was persuaded to retain office. 1
In May, 1872, the commission reported. It
recommended duties of 5 per cent, on cotton (with
a drawback), and 2j to 2 per cent, on silk, wool,
flax, hemp, and jute (without drawbacks) ; and
its plans were adopted. It was an unsatisfactory
proposal, since until the expiration of the treaties
the new taxes would yield only some 42 million
francs a comparatively unimportant sum. More-
over, it was resolved that no duties should be
imposed on raw materials unless a corresponding
surtax was imposed on manufactured goods ; and,
whatever the actual powers of the French Govern-
ment under the existing treaties may have been,
the practical result was to render the new tariff
1 For his own account of these events see Thiers, Notes et Souvenirs,
pp. 259-62.
COMMERCIAL NEGOTIATIONS 317
law useless until the revision of the treaties or
the establishment of an entirely new set. 1
Already negotiations had commenced, first with
Great Britain. But there the French Government
encountered many difficulties ; the British ministers
were unwilling to recognise the right of France to
impose duties on imported raw materials unless
the same commodities were taxed when produced
at home, and they were not so favourable to the
idea of commercial treaties as they had been in
1860. France had difficulties with Belgium also ;
and in March, 1872, she renounced both the
British and Belgian treaties. Then fresh delibera-
tions began, and in November, 1872, a new con-
vention with Great Britain was signed. France
pledged itself not to increase the taxes on raw
materials imposed by the new tariff, and it aban-
doned some ; it exempted British ships from the
operation of the surtaxes up to 1879. In the
following February a new arrangement was made
with Belgium on similar lines. 2 Both of these
were only to be in force till the middle of 1877.
The numerous exemptions from the shipping
surtaxes, and the practical impossibility of doing
anything with the proposed duties on raw materials,
at last brought the National Assembly to recognise
the uselessness of the two enactments, and in July,
1873, both were repealed. Two months earlier,
Thiers had abandoned office ; and of all his elabo-
rate plans of 1871 only that unimportant part which
1 Ame, ii. p. 297. a Devers, pp. 155-6.
318 COMMERCIAL POLICY, 1870-81
concerned the harbour dues had been realised.
The deficit was met by a number of new internal
taxes of various kinds excises, stamps, etc., and
the taxation per head in France was higher than
in any other country of Europe. 1
It soon became necessary for the French Govern-
ment to consider what policy it should adopt when
the various treaties came to an end, and in order
to obtain some guidance on this point the Ministry
of Commerce invited, in April, 1875, an expression
of opinion from the Chambers of Commerce and
similar bodies. It asked three questions : Was the
general tariff in need of revision ? Was it desir-
able to continue the system of commercial treaties ?
Should the customs duties be specific or ad valorem ?
The great majority replied that the general tariff
did need revision, and preferred specific to ad
valorem duties ; the larger number were in favour
of the treaty system, but a strong minority (in-
cluding Rouen, Roubaix, and Turcoing) urged the
establishment of a simple autonomous tariff. 2 And
it is noteworthy that even amongst the supporters
of the commercial treaties, the greater part were
opposed to the insertion in them of the "most
favoured nation " clause. The task of preparing
a new scheme of duties was entrusted to the
Superior Council of Commerce, Agriculture, and
Industry a body formed a few years previously,
and composed of members of the Chamber of
Deputies, presidents of Chambers of Commerce,
1 Brandt, pp. 146-7. 2 Devers, p. 157.
NEW TARIFF SCHEMES 319
representatives of agriculture, industry, and bank-
ing, and some officials who, however, were not
entitled to vote. 1
The result was a scheme for a moderate tariff
which reproduced almost without alteration the
rates of duty established by the conventional tariff
already in force ; almost the only increase of import-
ance was on woollen goods. Ad valorem duties
were abandoned almost entirely ; whatever theo-
retical advantages they might have, experience had
shown that they caused endless difficulties. 2 At
the time of the treaty with Great Britain in 1860
an attempt had been made to get rid of them ; but
considerations of time, and the difficulty of calcu-
lating the specific equivalents, had caused many of
them to be retained. But difficulties as to the
valuations at the customs-houses were constant ;
and in spite of various administrative changes,
frauds by under-valuation were frequent. The
customs officials themselves were anxious to be
freed from a complicated and irksome task.
The plan so elaborated was not discussed by the
Chamber, owing to the constitutional crisis of
1877, but in the first month of the following year
Teisserenc de Bort, the Minister of Commerce,
brought forward a new scheme. It was much
more protectionist than the previous proposals,
1 The great work of Ame, who was Director-General of Customs,
was published chiefly for the guidance of the council at the instigation
of Leon Say, the Minister of Finances.
2 For German and American experience in this matter, see pp. 5-6,
168, 236-8.
320 COMMERCIAL POLICY, 1870-81
since it increased the duties by about 24 per cent,
on the average ; so that whilst the council had
practically recommended that the conventional
tariff should become the general tariff, and be
subject to reductions by treaty, the Ministry now
proposed merely to retain the existing arrange-
ments. But that did not satisfy the Legislature.
There was a marked revival of the agitation in
favour of Protection just as in Germany in the
same years ; in both countries the campaign was
led by the textile and iron industries, which were
able to act the more effectively since they were in
the hands of a comparatively small number of
powerful firms. 1 The silk industry alone was
ranged with the commercial classes on the other
side, and favoured the maintenance of the treaties,
to which the Protectionists were particularly
hostile. In agriculture the wine-growers sup-
ported the policy pursued since 1860, but the
great majority of the landowners were with the
opposition they were alarmed by the growing
invasion of American wheat and the continued
low prices. The imports and exports of corn into
France fluctuate greatly ; between 1861 and 1880
there was a surplus of exports over imports in five
years, and in the other fifteen the surplus of
imports over exports varied from 971,000 to
29,349,000 hectolitres. 2 The surplus of the im-
ports of corn over exports, which had never
previously exceeded 14 million hectolitres, reached
1 Brandt, pp. 152-3. 2 Ibid., p. 231.
MOVEMENT OF FOREIGN TRADE
321
nearly 18 million in 1878, more than 29 million
in 1879, and nearly 27 million in 1880. The
result was that prices did not rise, and even fell a
little, 1 in spite of poor harvests (the cause of the
large importations) in 1878 and 1879 ; and the
French farmers became alarmed. They threw
themselves into alliance with the manufacturers,
and the agitation was helped by the commercial
crisis which had commenced elsewhere in Europe
in 1873, but did not make itself felt in France till
some years later: it was marked, amongst other
things, by a general fall in prices, due in part to
the growth of means of transport and the fresh
developments of mechanical power in industry.
All over Europe and America industry was enter-
ing on a period of transition which tried manu-
facturers severely, and harassed commerce also.
Yet in spite of all these difficulties, French foreign
trade continued to make steady progress ; the
following table gives the figures from 1871 to
1880 in million francs 2 -it should be remembered
that prices declined sharply after 1872-3 :
Year. Imports.
SPECIAL TRADE
Exports. Year. Imports.
Exports.
3,576
3,436
3,180
3,231
3,468
1 Average prices per hectolitre were : 1877, 23-4 francs ; 1878,
21-2 ; 1879, 22-1 ; 1880, 22 2 (Brandt, p. 231).
2 Foville, pp. 271-2.
Y
1871
. 3,567
2,873
1876
1872
. 3,570
3,762
1877
1873
. 3,555
3,787
1878
1874
. 3,508
3,701
1879
1875
. 3,537
3,873
1880
322 COMMERCIAL POLICY, 1870-81
These various circumstances, and the example
of Germany, made the Senate and Chamber of
Deputies even more protectionist than the
Ministry. The Senate appointed a commission to
inquire into the commercial and industrial depres-
sion ; and the Chamber sent the ministerial tariff
proposals to a committee. Both held elaborate
inquiries extending over nearly a year, and during
that time the campaign in the country in favour of
Protection was carried on by the Societe des Agri-
culteurs de France and the Association de I' In-
dustrie franpaise pour la Defense du Travail
national ; the Free Trade party started a counter-
campaign, but without conspicuous success. Under
the guidance of Meline the commission of the
Chamber made radical changes in the proposals
submitted by the Government. It declared that
special advantages should be given to those
national industries which employed most labour ;
it asserted that the treaties of commerce had
clearly failed, since in the seventeen years after
1860 the total imports had exceeded the total
exports by 270 million francs ; it drew especial
attention to the " American peril " ; and it aban-
doned the hitherto avowed and moderate object of
the protective policy the possibility of French
manufacturers competing with foreigners on equal
terms and advocated the purest Protection. It
accepted the Government's recommendations in a
number of cases, but it made substantial increases
on woollen yarn, and for the agrarians on hides,
A PARLIAMENTARY CONFLICT 323
cheese, cattle, etc. The Ministry stood firmly by
the original proposals, and the new Minister of
Commerce, Tirard, announced that the commercial
treaties must be made ; that they had promoted
the economic progress of France ; that the chief
industries, particularly cotton and metallurgy,
were quite able to stand alone, with only the
moderate help given them by the treaty tariffs ;
and that the difficulties of agriculture were due
chiefly to inclement seasons. The leader of the
commission, Meline, urged that its proposed
duties were not intended to be universally applied
that, in fact, the increases were intended to
facilitate the work of the French diplomatists in
the negotiation of the new treaties, which he and
his friends recognised must be made. 1 There was
a long parliamentary struggle, but the Ministry
had its way, helped by the lack of union between
the industrial and agricultural wings of the pro-
tectionist forces ; nearly all the additions and
changes recommended by the commission were
rejected, and the agrarians secured only duties on
certain animals imported for food. There were
more difficulties in the Senate, which was favour-
ably inclined to protection for agriculture ; but
ultimately the original ministerial proposals, only
slightly altered, became law in May, 1881. The
new Tariff was far more elaborate and detailed than
any of its predecessors.
On the whole, it was a victory for the supporters
1 See the lengthy summary of the debates in Devers, pp. 162-72.
324 COMMERCIAL POLICY, 1870-81
of Free Trade. The new general tariff on manu-
factured goods exceeded the previous conventional
rates by an average of 24 per cent., but this was
intended only as a basis for negotiations ; coffee,
sugar, cocoa were taxed for revenue purposes only ;
raw materials and foodstuffs were free, or subject
only to small duties, and some articles had been
added to the free list ; ad valorem rates were
almost entirely abolished. The new system was
much more moderate than the one adopted a little
earlier in Germany ; and unlike the German
Government, the French ministers were prepared
to continue the policy of international commercial
agreements, subject to the approval, in each case,
of the Legislature. They laid down three principles
for their own guidance in the negotiations : (1) the
concessions to be made should not exceed as a
whole 24 per cent, on the general tariff; (2) specific
duties alone should be imposed ; (3) cereals and
cattle should not be included, since it was desirable
for the Government to have a free hand in cases of
emergency. 1 The negotiations began immediately,
first under the guidance of Rouvier, and later of
Tirard. Treaties were made in 1881 with very
little difficulty with Belgium, Italy, Portugal,
Sweden, and Norway, and in 1882 with Spain and
Switzerland ; in 1883 an agreement with Austria-
Hungary secured reciprocal " most favoured
1 Devers, pp. 171-2. It seems probable, however, that the last
principle was dictated partly by the desire to give agriculture, which
was admittedly in difficulties, as much help as possible.
THE NEW TREATIES 325
nation " treatment, and this was extended to
Russia and Turkey, to Germany under the terms
of the Treaty of Frankfurt, to Servia in 1883, and
to Holland in 1884. With Great Britain no treaty
could be made, partly because Great Britain would
not reduce the wine duties, and for financial
reasons would not guarantee that they should not
be increased ; and partly because no agreement
could be reached on the question of ad valorem
and specific duties. The negotiations broke down,
but by legislative enactment France granted Great
Britain "most favoured nation" terms in 1882.
The net result of the treaties was that the new
conventional tariff included some 1,200 articles,
whilst 300 remained subject in all cases to the
rates of the general tariff. 1 All the treaties pro-
vided for the equal treatment of French and
foreign shipping ; but as the French mercantile
marine was far from prosperous (it amounted to
996,124 net tons in 1860, rose to 1,072,048 in 1870,
and fell to 919,298 in 1880), 2 and the free import
of materials for shipbuilding had not apparently
been of much service, it was decided in 1881 to
give State bounties to shipbuilders, and to owners
for long-distance voyages. 3 In the ten years
1 For full details of those negotiations, see Rausch, pp. 186 seq.
2 Blue Book on British and Foreign Trade and Industry, p. 376.
The figures are for vessels of two tons and upward.
3 The bounties ranged from 60 francs per gross ton on steel ships
to 10 francs per gross ton on wooden vessels of less than 10 tons. On
machinery and boilers 12 francs per 100 kilo, were paid. The bounty
on voyages was li francs per net ton for every 1,000 miles of journey ;
on vessels bought from abroad the bounty was half this amount.
326 COMMERCIAL POLICY, 1870-81
1881-90 about 27 million francs were paid in
bounties on shipbuilding alone, and the mercantile
steam shipping increased from 356,636 to 747,512
gross tons. 1
It will be convenient to add here the figures of
French foreign trade from 1881 to 1891, in million
francs. 2
SPECIAL TRADE
Year. Imports. Exports.
1881 . . . 4,863 ... 3,561
1882 . . . 4,822 ... 3,574
1883 . . . 4,804 ... 3,452
1884 . . . 4,343 ... 3,232
1885 . . . 4,088 ... 3,088
1886 . . . 4,208 ... 3,249
1887 . . . 4,026 ... 3,247
1888 . . . 4,107 ... 3,247
1889 4,317 ... 3,704
1890 . . . 4,437 ... 3,753
1891 - . . 4,768 ... 3,570
1 Franke, p. 137. But the net tonnage of mercantile shipping rose
only from 919,000 to 944,000, Report on British and Foreign Trade and
Industry, p. 376. For a detailed discussion of French shipping and
the bounty system, see Franke, pp. 122-39.
2 Brandt, p. 226.
CHAPTER V
THE MOVEMENT TOWARDS PROTEC-
TION FOR AGRICULTURE
THE FRANCO-ITALIAN TARIFF WAR
THE agricultural classes had been disappointed by
the tariff of 1881 ; they had made considerable
efforts to secure the extension of Protection to
their own particular interests, but without success
except in a few almost unimportant instances.
Yet they were the most numerous class of the
community ; in 1882 the number of persons
connected with agriculture was over 18 millions,
as against about 9 millions for industry and
4 millions for trade. 1 Nearly one-half the total
population (actually 48 '8 per cent.) were dependent
on agriculture in one way or another. Moreover,
the great number of small holdings made agricul-
tural prices a subject of keen interest to a much
larger class in France than anywhere else ; in 1882
there were 5,529,917 holdings of 100 acres or less,
and of these 4,802,697 did not exceed 25 acres. 2
And there is no doubt that those farmers who
were engaged in corn growing were not doing at
1 Brandt, p. 168. 2 Ibid., p. 168.
327
328 THE FRANCO-ITALIAN TARIFF WAR
all well in the period from 1881 to 1890 ; in the
first five years prices fell. The following table
gives the average prices of corn from 1881 to 1890,
in francs per hectolitre :
1881 . 22-2
1882 . 19-3
1883 . 19-0
1884 . 17-8
1885 16-4
1886 . 16-5
1887 . 17-7
1888 . 18-8
1889 18.1
1890 18-9
Average prices between 1881 and 1890 were on the
whole considerably lower than those for the period
1861-70, and very much lower than those for
1871-80, and the average production per acre had
increased only slightly, 1 partly because of the
smallness of the holdings and the lack of capital
necessary for improvements ; on the other hand,
taxation had greatly increased since 1860, and
especially since 1870, whilst the average wages of
agricultural labour had increased 20 per cent. 2
The cattle-rearing industry was in a much better
position, but the wine-growers and silk-producers,
hitherto large exporters and therefore ranged on
the side of the Free Traders, were now entering on
a period of grave difficulties owing to the ravages
of phylloxera and other diseases. The production
of wine, which had reached in 1875 the exception-
ally high figures of 84 million hectolitres, sank to
34 million in 1881 and 25 million in 1886; as a
natural consequence the imports, which were
insignificant in 1876, reached 8 million in 1881
1 See the tables in Brandt, p. 231.
2 Foville., pp. 98-9.
DEMAND FOR AGRICULTURAL PROTECTION 329
and 11 million in 1886. 1 In the case of silk, the
growing competition of China and Japan made
itself felt acutely at the time when the French
producers were struggling to recover from their
disasters. The sugar-producers of Northern France
complained of the ineffective character of the
surtaxes on beet sugar, which did nothing to check
the influx of the bounty-fed sugar of Germany and
Austria-Hungary. 2 For all these various reasons
the agriculturists were distressed and dissatisfied ;
they were ready to follow the leadership of Meline
in his energetic campaign in favour of the exten-
sion of Protection to agriculture ; and the charac-
teristic feature of the tariff history of France, as of
Germany, in the decade 1881-90 is the develop-
ment of Protection in this particular direction.
The various agricultural interests were no longer
hostile ; they combined, and, as in Germany, were
able to force their policy upon the country, 3 in
spite of the activity of the "Ligue anti-pro-
tectioniste," led by Leon Say.
It will suffice to sketch the growth of this
legislation very briefly. In 1881 on sanitary
grounds the importation of American pork was for-
bidden, though there was some opposition to this
from the seaports. In 1884, as the result of strong
pressure from Northern France, the surtax on beet
sugar was raised from 3 to 7 francs, and various
excise changes made in order to encourage the
home producers. In 1885 the taxes on imported
1 Devers, pp. 183-4. ' Ibid., p. 176. 3 Ibid., p. 184.
330 THE FRANCO-ITALIAN TARIFF WAR
animals for food were raised on oxen from 15 to
25 francs, on cows from 8 to 12, on calves from 1^
to 4, on pigs from 3 to 6, on sheep from 2 to 3.
At the same time rye, barley, and oats, which had
been duty free since 1861, were subjected to a tax
of 1^ francs per 100 kilo., and the rates on flour
were raised from 1*2 to 6 francs. In 1887 the duty
on oxen was raised to 38 francs, on cows to 20, on
calves to 8, on sheep to 5 ; the duty on flour was
advanced to 8 francs, and on oats to 3 francs. 1
In the same year the customs duty on alcoholic
liquors was raised to 70 francs per hectolitre of
pure alcohol ; this was at first intended as a tem-
porary measure to deal with some passing difficulties
created by German tariff legislation, but ultimately
in 1888 the tax was continued indefinitely. In
1890, in order to give such help as was possible
to the wine-growers, an excise was imposed on the
manufacture of certain " wines " from raisins ; ad-
ditional customs duties could not be imposed owing
to treaty obligations.
In the case of wheat, the first enactment was in
1885. Under the tariff of 1881 the duty was
60 centimes per 100 kilo. ; the growers now asked
that the amount should be raised to 5 francs. The
Government, with Meline at the Ministry of Agri-
culture (established in 1881), was not unfavourable,
but the Chamber of Deputies was not prepared to
make so sweeping a change, and contented itself
with fixing the duty at 3 francs. But the Pro-
1 Devers, pp. 176-9.
THE CORN DUTIES 331
tectionists regarded this merely as the first step,
and immediately began to call for a fresh increase.
They urged that the prices realised in the home
market were not sufficient to cover the cost of
production, which amounted to 19-20 francs per
hectolitre ; prices were actually considerably below
this (see the table given above), although the import
declined rapidly after the new corn law came into
effect. In March, 1887, the duty was raised to
5 francs, but the Government was empowered
to suspend the law at any time by simple proclama-
tion. 1 The following table shows the home pro-
duction and surplus imports over exports of wheat
in hectolitres, and the average prices, from 1886 to
1892 : 2
Year. Production. Surplus Imports. Average Price.
1886 . 107,287,082 ... 9,586,987 ... 16-5
1887 . 112,456,107 ... 12,084,587 ... 17'7
1888 . 98,740,728 ... 15,356,830 ... 18-8
1889 108,391,770 ... 15,311,060 ... 18-1
1890 . 116,915,880 ... 10,466,448 ... 18'9
1891 . 77,657,568 ... 19,593,472 ... 20-5
1892 . 109,537,907 ... 18,833,960 ... 17'8
On the whole the duties seem to have raised
prices (there were further changes in 1891 and
1892), but not considerably the only substantial
rise was in the extremely bad year 1891. But
probably the best view as to the effect of the new
duties is obtained by a comparison with English
prices. In 1883 and 1884 the import duty on wheat
in France was Is. Id. a quarter; in the first year
- Franke, p. 13. Brandt, p. 231.
332 THE FRANCO-ITALIAN TARIFF WAR
the amount imported was 13*9 million hectolitres,
in the second, 14 '8 million ; but in 1883 the price
per quarter in France was only 2s. 8d. more than
in England, in 1884 it was 5s. 8d. In 1886, after
the duty had been raised from 60 centimes to
3 francs, the French price was higher than the
English by 7*. Qd. per quarter, but the average
price in France was still lower than in 1884, and
very much lower than in any previous year since
1865. In 1888, 1889, and 1890, after the increase
of the duty to 5 francs, the average prices in France
rose somewhat, but the excess of French prices
over English rose in the three years to lls. lid.,
12s. 4<d., and 12s. 2d. respectively. 1 It would seem,
then, to be fairly clear that the effect of the duties
was not so much to raise prices as to prevent a
fall in France similar to that which took place
in England, and to that extent doubtless the French
corn-growers benefited by the tariff changes. 2
The one considerable event in the history of
French foreign commerce during this period is
the tariff war with Italy. Relations with that
country had been decidedly strained for some time
past. Italy had entered in 1863 into the treaty
system established by Napoleon III. ; but at the
time the convention lapsed in 1875 she was
engaged in the preparation of a new general tariff,
and there were difficulties in the way of the re-
1 Report on British and Foreign Trade and Industry, p. 126. Probably
some allowance should be made for difference in qualities.
2 Cf. Franke, pp. 10-13.
EARLIER COMMERCIAL RELATIONS 333
newal of a commercial agreement. At last, in
1877, a treaty was signed, and promptly rejected
by the French Chamber by a narrow majority.
On July 1st, 1877, Italy's new tariff came into
force, and for some months the trade between that
country and the French Republic was governed
by the two autonomous tariffs ; but neither party
was content, and negotiations were soon renewed.
An arrangement was quickly reached, and this in
turn was superseded by the treaty of 1881, follow-
ing on the new French tariff of that year. The
new arrangements were to hold good until 1892,
but there was provision for the termination of the
treaty by either party in December, 1887 ; and a
year before that date the Italian Government gave
notice of its intention to use this power in the
case of all treaties by which it was bound. The
changed economic conditions of Italy, due to the
completion of unity, the abolition of internal
customs boundaries, and the growth of railways,
had rendered it desirable in the judgment of the
Italian Ministry that there should be a complete
tariff revision it was also in need of revenue ;
and the result of its deliberations was a strongly
protectionist set of duties, which averaged nearly
60 per cent, ad valorem? It had renounced the
treaties in order to give itself a free hand in tariff
matters, but at the same time it declared its
readiness to enter into a new arrangement with
France, and negotiations began in August, 1887.
1 Report on Tariff Wars, p. 14.
334 THE FRANCO-ITALIAN TARIFF WAR
By this time, however, the Italians had been
greatly annoyed by the increase of French import
duties on cattle, which had inflicted serious
damage on an important part of the Italian export
trade. 1 The French Government desired that
the basis of discussion should be furnished by the
treaty rates of 1881 ; Italy desired to start from
its new general tariff, and summarily rejected the
French suggestion. The diplomatic discussion
was then transferred from Paris to Rome, and the
Italians put forward their definite proposals. They
would consider only 89 articles out of the 272 on
which they had made reductions in 1881 ; and on
most of these 89, and especially silk and woollen
goods, they intended to make substantial in-
creases. 2 On the other hand, they desired from
France the guarantee of " most favoured nation "
treatment, and some reductions of duties, chiefly
upon cattle. These demands were rejected by the
French Government; an alternative proposal on
its part proved inacceptable to Italy ; and the
negotiations came to an end in February, 1888.
From the 1st March, Italy intended to apply
to French products her new general tariff; and as
the rates thus levied were somewhat higher than
the duties imposed by the French general tariff,
France established surtaxes on a number of Italian
commodities. Thus there was an increase on
1 The value of the Italian export of cattle to France was l
million pounds sterling in 1880, and only 240,000 pounds in 1889
(Report on Tariff Wars, p. 15).
2 Franke, p. 18.
END OF THE CONFLICT 335
wines from 15 to 20 francs per hectolitre, on
butter from 13 to 25 francs per 100 kilo., on eggs
from 10 to 20 francs, on dried fruits from 6 to 15
francs ; and such raw materials as silk, flax, hemp,
and skins, hitherto free, were subjected to small
duties. 1 Italy replied by some further increases ;
and each party imposed surtaxes on goods brought
in its opponents' ships. Diplomatic discussion
still continued, and in July Italy made fresh
suggestions ; it offered reductions of 50 per cent,
on its new general tariff, without, however, getting
near to the terms of 1881. The new scheme was
not acceptable to France, and the conflict con-
tinued. It lasted till the end of December, 1889,
when the Italian Parliament authorised the
abandonment of the war tariff against France ;
but it was not until January, 1892, that the
French Government dropped its surtaxes on
Italian products. From that time on the two
countries dealt with each other under their re-
spective general tariffs until 1899.
The consequences of the war to the commerce
between the two countries are unmistakable. The
following table shows the French exports to Italy
and Italian exports to France for the five years
preceding and five years following the commence-
ment of the war. It will be remembered that
practically, although the acute struggle was over
by the beginning of 1890, the conflict continued
to 1899, since until that year neither country
1 Report on Tariff Wars, p. 23.
336 THE FRANCO-ITALIAN TARIFF WAR
would grant the other its best terms ; the table
shows that the trade never recovered from the
blow of 1888. The figures are million pounds
sterling. 1
French Exports Italian Exports
Year. to Italy. to France.
1883 . . . 12-0 ... 17-1
1884 . . . 11-3 ... 14-7
1885 . . . 11-5 ... 10-5
1886 . . . 12-4 ... 12-4
1887 . . . 13-0 ... 12-3
1888 . . .6-2 ... 7-2
1889 .6-7 ... 5-3
1890 . . .6-5 ... 4-9
1891 . . .5-4 ... 4-9
1892 . . .6-7 ... 5-3
1899 .6-1 ... 6-3
The Italian Government admitted that the
export trade in wine had suffered badly ; that Spain
and Portugal had replaced Italy in the French
market. In 1887 France took from Italy 2,782,000
hectolitres of wine, and in 1888 only 817,000 ; in
the former year France took 78 per cent, of the
total Italian export, and in the latter year 45 per
cent. In that case there was a marked falling off
in the Italian exports ; in other cases there was no
such decline, since either new markets were found,
as in the case of some agricultural produce, or the
goods went to the same destination by a different
route. A striking illustration of this latter alter-
native is furnished by silk : in 1887 Italy exported
to France 28,178 quintals 2 of raw silk, and to
1 Report on Tariff Wars, p. 24. 2 A quintal = 100 kilo.
EFFECTS ON FRENCH TRADE 337
Switzerland 7,300 quintals; but in 1888 France
took only 9,188 quintals, whilst the amount sent
to Switzerland rose abruptly to 29,621 quintals.
On the other side, France suffered in regard to
her exports to Italy of colonial produce, silk and
woollen manufactures, and a number of other com-
modities. The value of the woollen goods taken
by Italy from France fell from 20 million francs in
1887 to 6'6 million in 1888 ; silk goods dropped
from 6*8 to 3'4 million, cotton from 5'3 to 1*6
million, yarns of all kinds from 3 to 1*7 million. 1
On the whole, however, the total of French exports
to all countries did not fall off, but, on the contrary,
they showed an increase ; so that France was able
to recoup herself elsewhere for the loss (chiefly to
Great Britain, and in woollen goods to Germany)
of much of the Italian market. Italy suffered
much more her total exports declined consider-
ably. The competitors of the two countries
reaped the benefits of the struggle ; to the com-
batants themselves it brought only difficulties and
a great amount of damage.
The elections of 1885 and 1889 had greatly
strengthened the parliamentary forces of the Pro-
tectionists, and they prepared to carry out their
policy. They had been able, owing to the agrarian
difficulties, to rally the agricultural classes to their
cause ; and their first efforts in 1890 were, as we
have seen, on behalf of the wine-growers. In the
same year, on the proposal of Meline, they secured
1 Franke, p. 20.
338 THE FRANCO-ITALIAN TARIFF WAR
increased duties on maize, rice, and meal. The
manufacturing classes had always been in favour of
Protection, and their zeal for it was stimulated by
the continued commercial depression after the
crisis of 1882, and the fact that the chief industries
of France were making only slow advances.
One of the chief reasons for this was doubtless
the very slight growth of the population, which
numbered 36,103,000 in 1872 and 38,348,000 in
1892 an increase of only a trifle over 6 per cent,
in twenty years. Consequently, in spite of the
development of railways and the extension of the
application of machinery to industry, the industrial
output did not make very satisfactory progress.
In 1872 there were 27,644 steam engines of 338,328
horse-power engaged in French industry ; by 1891
there were 58,967 of 916,086 horse-power. 1 Rail-
ways made, or in making, increased from 26,640 to
47,352 kilometres. 2 The following table shows the
movement of the iron and steel industry : s
PRODUCTION (in tons)
Pig-iron. Iron. Steel.
1872 . . 1,217,838 ... 883,348 ... 141,704
1891 . . 1,897,389 ... 833,409 ... 638,530
The production of coal and lignite was in 1872
16 million tons, and in 1891 26 million ; the
amount consumed was 23 million tons in the former
year, and 36 '5 million in the latter. The average
consumption of cotton in France was 98 '8 million
1 Annuaire Statistique de la France, 1896, p. 261.
2 Ibid., p. 373.
3 Ibid., p. 261.
OPPOSITION TO TREATIES 339
kilo, in 1873-5, and 111 million in 1888-90. 1 The
consumption of silk was estimated at 5*8 million
kilo, in 1872; 2 it fluctuated greatly, and in 1891
was 6*8 million (after being as high as 9*6 million
in 1888). Woollens made moderate progress. In
one industry alone the manufacture of alkali and
its kindred products was there marked success,
mainly owing to the discovery of the ammonia-
soda process by Solvay ; the output increased
from 525,000 tons on the average for 1874-8 to
1,023,000 for 1889-93. 3 Foreign trade was un-
satisfactory ; 4 France was declining in comparison
with her neighbours.
There was growing dissatisfaction in France
with the system of commercial treaties. Partly
the agriculturists and manufacturers were inclined
to high Protection, and were opposed to anything
which mitigated it ; and partly it was thought that
the treaties made for a definite term of years tied
the hands of the Government unduly, since no
alteration could be made during the period, how-
ever much economic conditions might change.
When at the end of 1889 the Superior Council
of Commerce invited the opinions of the Chambers
of Commerce and similar institutions on the sub-
ject, 96 out of 107 Chambers declared for the
renunciation of the existing treaties, and 62 were
opposed to any renewal. A substantial majority
1 Dictionnaire du Commerce (ed. Guyot and Raffalovichj, i. p. 1089.
2 Foville, p. 234.
8 Dictionnaire du Commerce, ii. p. 1357.
4 See the table on p. 326.
340 THE FRANCO-ITALIAN TARIFF WAR
of the other institutions consulted gave similar
advice. 1 On the other hand, it was felt to be
undesirable to isolate France completely, and there
was a general feeling in favour of the adoption of a
suggestion of Meline that there should be mini-
mum and maximum tariffs, the former to be
granted to those countries with which France made
treaties, and the latter to apply to all countries not
so favoured. This arrangement would differ from
the system adopted by Germany at about this
time in that the German " conventional " tariff
was unchangeable so long as the treaties endured,
whilst France would be able to raise her minimum
tariff whenever she thought it necessary. The
" most favoured nation " clause was extremely
unpopular.
The general arguments of the advocates of Pro-
tection were those with which we are already
familiar in other countries. They emphasised the
necessity of a policy of defence against growing com-
petition, especially from the United States ; they
urged that a policy of Protection for agriculture,
however much to be condemned in Germany,
where it was adopted in the interests of the large
landowners, was laudable in a country like France,
with its great multitude of peasant proprietors ;
they put forward the doctrines of national self-
sufficiency and security of the home market ; and
they argued that the restriction of imports would
stimulate native industries, create an increased
1 Franke, pp. 25-6,
THE ARGUMENT FOR PROTECTION 341
demand for labour and a consequent rise of wages. 1
The fears of some manufacturers that they would
be further hampered by the taxation of raw
materials were allayed by the promise of compen-
satory duties or drawbacks, and by the prospect
of an enlarged home market owing to the renewed
prosperity of the agricultural classes. But, indeed,
argument was almost unnecessary ; with the
farmers and manufacturers combined the Protec-
tionists were strong enough to overcome all oppo-
sition without difficulty.
1 See the summary of debates in Devers, pp. 186-206. Cf. Brandt,
pp. 182-5.
CHAPTER VI
THE TARIFF OF 1892 AND SUBSE-
QUENT DEVELOPMENTS
THE FRANCO-SWISS TARIFF WAR
CONCLUSION
THE preparation of the new tariff was entrusted
to the two Councils of Commerce and Industry
under the general guidance of the Ministry ; and
the resultant scheme was presented to the Chamber
of Deputies in October, 1890. It adopted the
plan of the maximum and minimum scales of
duties the former to be applied as a rule, whilst
the latter should be granted to those countries
which gave corresponding advantages to France.
The basis of the minimum tariff was declared
to be not Protection, but simply an attempt to
enable French industries to meet foreign com-
petition on equal terms. 1 In most cases it was
proposed to increase the old duties, but the Govern-
ment still declined to recommend taxation of those
agricultural products which were raw materials for
industry. The Chamber referred the plan to a
1 Devers, p. 186.
342
THE NEW TARIFF 343
standing commission for such matters, which had
been established at the commencement of the year
at the instigation of Meline ; and that commission,
under Meline's guidance, proceeded to make radi-
cal changes it increased the proposed duties con-
siderably, in particular on timber, wines, cattle, and
meat (in order to compensate the farmers for the
free admission of wool and hides) ; it made some
advances on manufactured goods ; and it recom-
mended the grant of bounties to the native growers
of flax and silk, since those commodities were to
be exempt from duty. It urged also that the
grant of the minimum tariff should not be made
in such a way as to prevent France from increasing
it at any time if she thought fit.
The discussions were long, not so much because
of the strength of the opposition (though under
the leadership of Leon Say that was able enough)
as because of the resistance of the Ministry 1 to
some of the proposals of the commission, and
differences between the Senate and the Chamber
the former made 176 amendments, of which 148
were ultimately accepted. Some increases on
agricultural products made by the commission
were adopted, but, on the other hand, the Chamber
rejected proposals for the taxation of silk-cocoons,
and established instead bounties for six years to
the silk-growers and weavers. 2 The commission
1 France was enjoying a period of ministerial stability under
Freycinet. Jules Roche was Minister of Commerce all through the
period of tariff discussion.
2 Franke, p. 37.
344 TARIFF OF 1892 CONCLUSION
recommended higher duties on wine than the
Ministry, and these were accepted ; but its changes
in regard to oil-seeds (in which the agriculturists
were greatly interested) were rejected. The altera-
tions made by the Senate were entirely in the
direction of increased rates. The new tariff be-
came law in January, 1892.
The new customs schedules dealt with 721
commodities, or groups of commodities, and were
much more detailed and elaborate than any other
continental tariff of the period. The minimum rates
could be imposed on all products of countries which
gave France similarly advantageous treatment ; but
non-European products coming from European
countries and European products not coming
directly from the country of origin were subject to
surtaxes. Specific duties were employed almost
alone ; the only exceptions were in the case of
chemicals. The new duties marked a very con-
siderable advance of Protection ; the average duty
on agricultural produce was 25 per cent, ad
valorem (the grain duties remained unaltered),
and the following table shows some of the changes
on manufactured goods. 1 It will be noticed that
the advances are chiefly on textiles. The new
tariff was very much higher than the conventional
tariff created in the same year for Germany by the
Caprivi treaties.
1 Braiidt, p. 193.
INCREASED DUTIES
345
22-375
... 24-500
50-540
... 62-620
13-100
... 16-100
15-300
... 15-310
20-80
... 28-80
400
1-50
... 1-50-3-50
6
5
6
6
7
, 7-50-10
DUTIES IN FRANCS PER 100 KILO.
Conventional Minimum
Tariff before 1892. Tariff of 1892.
Linen or hemp tissues 1 (unbleached) 22-375
Cotton tissues
Linen yarn
Cotton yarn
Combed woollen
Silk tissues
Pig-iron
Iron bars
Steel rails .
Tin plates .
At the same time the Act establishing bounties
for shipbuilding and subsidies to shipping was
renewed, and bounties given for the growing of
silk, flax, and hemp.
1 The rates given are the highest arid lowest. The scale is highly
complicated, as the following example (which is not exceptional) will
show.
Duties on tissues of linen or hemp, unbleached, weighing from 10
to 40 kilo, per 100 square metres, and containing in warp and weft
in a square of 5 millimetres each side, after division of the total by two.
6 threads or less ... 45 francs.
7 or 8 ... 65
9 or 10
11 or 12
13 or 14
15, 16, or 17
18, 19, or 20
21, 22, or 23
more than 23
There are similar groups for goods weighing more than 40 or less
than 10 kilo, per 100 square metres. For bleached cotton tissues there
are seven divisions, and six of these contain four separate rates of duty,
according to the number of threads in a square of the usual 5 milli-
metres. It is unnecessary to point out the trouble and cost of
administration resulting from so elaborate a classification, which is,
however, probably inevitable if the system of specific duties is to be
satisfactory.
346 TARIFF OF 1892 CONCLUSION
France was able, without much difficulty, to
make arrangements with most of the European
Powers, by which she granted them the advantages
of her minimum tariff, and secured their lowest
tariff rates in return. There were some difficulties
with Spain, and against Portugal and Italy the
maximum scale was adopted. But the most
serious conflict was with Switzerland. That Re-
public had undertaken in 1890 the revision of its
general tariff, partly in order to secure additional
revenue for the Federal Government. When the
tariff of 1892 was under discussion in France, the
Swiss authorities intimated that they could not
accept the French minimum scale as a return for
concessions on their side, and consequently they
asked for reductions on sixty-two articles, chiefly
industrial products. The French Ministry was not
unwilling to give way, on account of the import-
ance of the Swiss market ; but the protectionist
movement in France was too strong, and the
proposals of the Minister of Commerce were rejected
by the Chamber. Consequently in January, 1893,
the Swiss Government subjected French goods to
its new general tariff, and imposed even higher
duties on some 200 commodities. France in its
turn levied its maximum tariff on Swiss goods, but
its war rates were much lower than those employed
by Switzerland. 1
The war lasted for a little more than two years
and six months. But both sides soon became
1 Franke (p. 48) regards this as the chief cause of France's defeat.
EFFECTS OF THE TARIFF WAR 347
weary of the struggle, and were alarmed at its
effects. Negotiations began in the latter part of
1894 ; but Switzerland adhered to its refusal to
accept the French minimum tariff in return for
its own conventional rates it insisted on a number
of special reductions, and as France was anxious
to come to terms, she at last agreed to give
Switzerland lower rates on twenty -nine com-
modities. In return she received the benefits of
the Swiss conventional rates, with the "most
favoured nation" clause. Legislation in the two
countries in July and August, 1895, confirmed the
new arrangements, which remained, however, ter-
minable by either party at any time. 1
The effects of the war were severe on both
sides. The following table gives (in million francs)
the French exports to Switzerland, and Swiss ex-
ports to France, for the four years preceding the
war, and the four years after its commencement:
French Exports to Swiss Exports to
Year. Switzerland. France.
1889 230-5 ... 101-5
1890 . . . 242-8 ... 104-2
1891 . . . 234-8 ... 103-4
1892 . . 227-9 ... 91-9
1893 . . . 172-8 ... 74-9
1894 . . . 129-9 ... 66-6
1895 . . . 163-2 ... 67-3
1896 . . . 179-9 ... 75-4
The figures for 1895 show the beginning of an
improvement, since the war only lasted for seven
months of that year ; since then the upward move-
1 See Report on Tariff Wars, pp. 1-6, 77-85.
348 TARIFF OF 1892 CONCLUSION
ment has on the whole continued, but up to 1901
the trade between the two countries had not returned
to the level of 1891. 1 France's export trade suffered
most in the case of wine (which dropped from
19 '3 million marks in 1891 and 15*6 millions in
1892 to 1*4 million in 1894), sugar (which was also
almost entirely destroyed), cattle, and clothing.
Switzerland, on its side, lost in silk and silk goods
and cottons. But France lost much the more
heavily, and the result of the war was so much
a victory for Switzerland that she secured some
preferences over other nations in the French
market, without giving France any such preference
in return.
We may now examine the general movement
of French trade and industry since 1892, and
notice some of the subsequent developments of
commercial policy. First as to French foreign
trade. The following table gives the figures in
million francs for the period 1892 to 1901 :
SPECIAL TRADE
Year.
1892 .
Imports.
. 4,188
Exports.
3,461
1893 .
. 3,854
3,237
1894 .
. 3,850
3,078
1895 .
. 3,719
3,374
1896 .
. 3,799
3,401
1897 .
. 3,956
3,598
1898 .
. 4,471
3,511
1899 -
. 4,518
4,152
1900 .
. 4,698
4,109
1901 .
. 4,715
4,166
Report on Tariff Wars, pp. 84-5.
FRENCH FOREIGN TRADE 349
Comparing these figures with those given for
the years 1881-91 on p. 326, we obtain some
interesting results. Excluding the year of the
tariff changes, 1892, we find that the average
imports were for 1883-91 4,344 million francs,
and for 1893-1901 4,175 million a slight de-
crease. But it is noteworthy that imports were
unusually high (4,767 million) in 1891 ; with the
introduction of the new tariff there was a drop,
but not a considerable one. Then in 1896 re-
covery began, and by 1901 imports had reached
again nearly to the height of 1891. So that the
legislation of 1892 did realise its purpose for a
time it did check imports for some years, but
not for long. Its only permanent effect seems
to have been in staying the import of foodstuffs,
as the next table shows. 1
IMPORTS OF FOODSTUFFS (million francs)
1889 1,441
1890 . . 1,445
1891 - . 1,652
1892 . . 1,400
1893 . . 1,061
1894 . . 1,198
1896 . . 1,007
1897 . . 1,029
1898 . . 1,505
1899 . . 951
1900 . . 819
1901 . . 802
1895 . . 1,035
When we contrast this with the growth of similar
imports into Germany and Great Britain during
the same period, there can be no question as to
the effectiveness of the Protection given to agri-
culture that is, so far as the keeping-out of
foreign supplies is concerned.
1 Franke, pp. 61-2,
350 TARIFF OF 1892 CONCLUSION
When we turn to the exports, we find that the
average for 1883-91 was 3,393 million, and for
1893-1901 3,623 million a fair increase, but not
comparable to the expansion of the exports of
France's neighbours, Great Britain and Germany.
The growth is in raw materials and manufactured
goods ; the export of foodstuffs shows an average
for the latter period of 692 million, as against 782
million for 1883-91. But even these showed a
marked recovery at the end of the century ; from
759 million in 1892 they sank to 591 million in
1895, rose to 721 million in 1897, fell in the follow-
ing year, and then rose to 769 million in 1900 and
778 million in 1901.
Next as to agriculture, which the tariff of 1892
was particularly intended to benefit. The follow-
ing table gives the home production of corn and sur-
plus of imports over exports in million hectolitres,
and the average prices in francs per hectolitre :
3. Average Price.
20-6
17-9
16-5
15-2
14-4
14-8
18-8
19-9
15-6
1.5-5
There has been a marked increase in the average
amount of land under wheat cultivation, and a
1 For previous years see p. 328,
Year.
Production.
Surplus In
1891 .
. 77-2
27-3
1892 .
. 109-5
25-7
1893 .
. 97-8
13-3
1894 .
. 122.5
16-5
1895 .
. 120-0
6-4
1896 .
. 119-7
2-2
1897 .
. 86-9
6-9
1898 .
. 128-3
26-2
1899 '
. 128-4
1-7
1900 .
. 114-7
1-6
FURTHER PROTECTION FOR AGRICULTURE 351
substantial increase in the average production.
Prices have shown, with the exception of the years
1897 and 1898, a tendency to a continued fall,
with the result that the growers have not reaped
all the advantage which they apparently antici-
pated when they secured the increased duties in
the eighties ; all that can be said is that the fall
would have been much greater without the tariff.
But the farmers were not satisfied, especially when
the fall of prices continued after 1892 ; they began
to make fresh demands on the Legislature, and
in 1897 they obtained an increase in the duty from
5 to 7 francs per 100 kilo. the duty on flour was
increased at the same time. Similarly, as a result
of the continued fall in the prices of meat, the
cattle-rearers began to agitate, but they secured no
advances of duties until 1903, when the rates on
fresh and salted meat, and on live cattle, were
raised substantially. 1 Between 1894 and 1898
there was a decline in the price of butter, with the
result that the duty, hitherto 6 francs per 100
kilo, was raised to 20 francs without checking the
fall for long. 2 In this connection it should be
added that the wine duties were rearranged and
increased in 1899. Since 1892 the tendencies seem
to have been towards enlarged production of wine,
1 Blue Book on British and Foreign Trade and Industry, pp. 128-9.
2 The average price of butter per kilo, was in francs :
1892
3-90
1896 .
2-67
1900
3-24
1893
4-20
1897 .
2-77
1901
2-89
1894
3-25
1898 .
3-06
1895
2-80
1899 .
3-31
352 TARIFF OF 1892 CONCLUSION
a decline in exports of the cheaper kinds, and a
greater home consumption. The average of this
last was 36 '2 million hectolitres in the years 1884-
91, and 477 million in ISOS^igOO. 1 Probably the
duties were of some use in helping the wine-
growers through the crisis caused by the phyl-
loxera. Finally, the quantity of beet sugar manu-
factured in France was 523 million kilo, in the
years 1892-3, and 869 million in 1899-1900. 2
The industrial progress of France has been much
more marked, at least in some branches. The
quantity of coal produced, 3 which was 25*2 million
tons in 1893, rose steadily to 33*3 million in 1900,
whilst the consumption advanced uninterruptedly
from 34*4 million tons to 46'7 million. The out-
put of pig-iron increased in the same period from
2 million tons to 2 '7 million, whilst iron and steel
advanced from 1*5 million tons to 1*9 million, and
were much higher than this in 1899. The cotton
industry made considerable progress ; the follow-
ing table shows the average consumption of raw
cotton in million kilo., omitting the year 1892
(when, however, the amount was unusually high
178-6 millions) : 4
1884-7 106-7
1888-91 124-6
1893-96 143-2
1897-1900 . . . . . 174-6
1 Franke, p. 82.
2 Statistical Abstract for the Principal and other Foreign Countries,
1903, p. 324. 3 Excluding lignite.
Annuaire Statistigue de la France, 1900, p. 542,
SHIPPING LEGISLATION 353
After 1893 the imports of cotton goods showed a
tendency to fall somewhat rapidly, whilst exports
fluctuated ; and it certainly appears that the
French manufacturers have been strengthening
their hold on the home market. The silk industry
remained almost stationary, both in total produc-
tion and in exports (these latter averaged 244 -5
million francs for the period 1892-6, and 265
million for 1897-1901), in spite of the greatly
increased duties levied in 1899 on silk goods
coming from Asia a measure directed chiefly
against Japan. The woollen manufacture, so far
as can be judged from the statistics of foreign
trade, is also not in a very flourishing condition,
but apparently it is increasing its control of the
home market, since the imports of raw wool show
no falling off, whilst in manufactured goods im-
ports and exports alike have a downward
tendency. 1
Two other points in French commercial policy
should be noticed. The first is the shipping legis-
lation ; we have already seen that in 1881 bounties
were established on shipbuilding and long-distance
voyages. From that year up to 1892 there was
real progress in shipping the tonnage of French
mercantile steamships more than doubled, and the
share of French vessels in the over-sea trade of
France was 30 per cent, on the average for
1881-92, as against 26 per cent, for 1877- 80. 2 But
1 The export of raw wool has, however, risen considerably.
a Franke, p. 139,
? A
354 TARIFF OF 1892 CONCLUSION
shipbuilding made no such advance ; the following
table gives the tonnage built in France and bought
from abroad :
Tonnage built Tonnage bought
Year. in France. from abroad.
1881 . . . 11,559 ... 5,006
1882 . . . 12,692 ... 4,938
1883 . . . 9,183 ... 5,974
1884 . . . 16,507 ... 8,279
1885 . . . 10,591 ... 5,800
1886 . . . 9,800 ... 9,224
1887 . . . 7,293 ... 4,953
1888 . . . 18,197 ... 11,492
1889 . . . 10,230 ... 14,574
1890 . . . 10,391 ... 25,891
1891 . . . 17,800 ... 8,816
1892 . . . 11,026 ... 5,759
The movements of 1888-90 had caused dis-
satisfaction amongst the shipbuilders, and in 1892
they demanded an increase in the bounties on
building, the continuance of the voyage bounties
to French-built ships, and the abolition of the half
bounties given to ships purchased from abroad.
The shipowners were strongly hostile to this last
suggestion, and asserted that the prices of the
French yards were much too high owing to the
limited competition, and that the number of yards
was altogether inadequate. Both the Ministry and
the tariff commission of the Chamber agreed with
them ; but the Chamber itself accepted the pro-
posals of the shipbuilders by the law of 1893. But
the controversy was not ended ; there were renewed
complaints from the shipowners, and in 1897 the
Government inaugurated an elaborate inquiry,
DECLINE OF FRENCH SHIPPING 355
which lasted until the end of 1898. The investiga-
tion showed that since 1893 there had been general
retrogression the building of steam vessels was
practically stationary from 1892 onwards, and the
average for the years 1892-9 was only 498,000
tons as against an average of over 500,000 tons for
the period 1886-91. On the other hand, the
building of sailing vessels was increasing, and the
total tonnage of French sailing vessels in the
mercantile marine rose from 397,000 tons in 1893
to 451,000 tons in 1899. The share of French
ships in French over-sea trade dropped to 25 per
cent, in 1893 and 1894, was 24 per cent, in the
three following years, and sank to 22 per cent, in
1898. 1 It is not suggested that this decline was
due to the law of 1893, except in so far as it
discouraged the purchase of vessels from abroad ;
the causes of the decline are rather to be sought
in the defects of the French shipbuilding yards,
the cost of materials, 2 the unsatisfactory character
of many of the French exports considered as
freight, the heavy dues, and a number of other
difficulties with which the shipowners had to cope.
But after long discussion it was resolved to con-
tinue the old system, but to extend the arrange-
ment again to ships purchased from abroad. An
Act of 1902 established a new and increased scale
of bounties.
1 These figures are taken chiefly from Franke (pp. 122-46), who
follows the report of the inquiry.
2 It was estimated that the cost of huilding an ordinary small
steamer was 80 per cent, higher in France than Great Britain.
356 TARIFF OF 1892 CONCLUSION
The other noticeable point is the arrangements
made for the French colonial possessions by the
Act of 1892. They are divided into two classes.
The first includes Indo-China, Madagascar, French
Guiana, New Caledonia, the French West Indies,
and a few others. In all these the tariff on
foreign products is commonly identical with the
rates levied by France ; but French goods are
admitted free. Goods coming from these colonies
into France are in general exempt from duty ; but
" colonial produce " coffee, cocoa, tea, pepper,
etc. are for financial reasons subject to half the
ordinary (minimum) rates, and sugar and its de-
rivatives pay special duties for the sake of the
home producers. The second group includes
French Congo, Ivory Coast, Dahomey, Guinea,
Senegal, Somaliland, and the French possessions
in India. Imports from these into France pay
the minimum tariff rates as a rule, but there are
a number of commodities, such as coffee, cocoa,
timber, palm oil, etc., which may be imported into
France either freely or at reduced rates up to a
certain amount. French imports into these
possessions are duty-free. The Algerian tariff
is almost identical with the French ; it is treated
as if it were a member of the first group, but may
impose a duty on French sugar.
This brings our survey of French tariff history
to an end. Since 1872 France has had part in the
economic development of the world, but compared
with Great Britain, Germany, or the United
THE ECONOMIC POSITION OF FRANCE 357
States, her part has been only small. It is true
that the disasters of the Franco- German War had
crippled her at the outset of that period, but her
marvellously rapid recovery then only encouraged
expectations which time has disappointed. In
the great industrial and commercial expansion of
the last decade of the nineteenth century France
had little share ; her coal and metal industries
show progress which is satisfactory only if the
growth elsewhere be ignored ; on her textile in-
dustries (if cotton be excluded) even so moderately
favourable a judgment seems hardly possible ; her
shipping is stationary. Agriculture is doing fairly
well, with the aid of strong Protection, and
opinions as to the condition of the peasantry are
divided ; but there is little movement forward.
One reason for this uncheering economic position
of France is certainly the slow growth of popula-
tion, which in the thirty years up to 1901 in-
creased only 3 millions, as against 10 millions in
Great Britain and 15 millions in Germany. It
may be that this is a result of the system of
peasant holdings and the French law of succes-
sion ; l but whatever be the cause, a remedy must be
found if France is to retain her place as a great
nation. Other reasons for her economic stagnation
for such it really is can be indicated : the racial
character of the French, and the fact that they
are essentially not a business people ; their in-
1 Cf. Coubertiii, L' Evolution frani^aise sous la troisieme Itepublique,
pp. 392-7.
358 TARIFF OF 1892 CONCLUSION
difference towards colonisation and foreign trade ; l
the undue attention to a home market which is
not extensive ; and the dulling influence of the
protective tariff on the initiative and energy of
the manufacturers, hampered as they are also by
the taxation of many materials. Protection in the
United States seems to have had no such effect,
and probably the reasons for the difference
between the two countries must be sought in
national character and the extent of the home
market. The causes of economic progress and
retrogression are so numerous and complex that
it is almost impossible to discover the effect of
any particular force ; and in the case of France
the task is peculiarly difficult. But of the French
tariff legislation it can be said with some con-
fidence that, whatever it may have done to main-
tain agriculture and even there it is arguable
that it has encouraged the continuance of old-
fashioned methods it has wrought little good
and in various ways much harm to industry and
commerce.
1 " Le grand mal en France, c'est 1'esprit casanier. Le Fra^ais ne
sort pas de chez lui " (Hanotaux).
A BRIEF BIBLIOGRAPHY
AME. fitude sur les Tarifs de Doudne. 2 vols. 1 876.
BRANDT, A. VON. Beitr'dge zur Geschichte der franzosischen Handcls-
politik. 1896.
DEVERS, A. "La Politique Commerciale de la France depuis
I860" (Verein filr Socialpolilik. Vol. li. 1892).
RAUSCH, E. Franzosische Handelspolitik vom Frankfurter Frieden
bis zur Tarif reform von 1882. 1900.
FRANKE, B. Der Ausbau des Heutigen Schutzzollsystems in Frank-
reich. 1904.
LEVASSEUR, E. Histoire des Classes Ouvrieres et de I' Industrie en
France (1789 a 1867). 2 vols. 1867. (New edition now
appearing.)
NOEL. Histoire du Commerce Exterieur de la France. 1879-
PIGEONNEAU. Histoire du Commerce de la France. 2 vols. 1889-
MORLEY, J. Life of Richard Cobden. Popular edition, 1903.
WOLOWSKI. La Liberte Commerciale et les Resultats du Traite de
Commerce de I860. 1869-
BUTENVAL. Politique ficonomique et Negotiations Commerciale du
Gouvernement de la Republique Franqaise, 1871-73. 1874.
FUNK-BRENTANO et CHARLES Dupuis. Les Tarifs Douaniers et les
Traites de Commerce. 1895.
Foreign Office Report on Tariff Wars. (Cd. 1938. 1904.)
FOVILLE, A. DE. La France ficonomique. 1 890.
RAMBAUD, A. Histoire de la Civilisation contemporaine en France.
5th edition. 1898.
Annuaire Statistique de la France.
359
INDEX
"Act of Abominations," 161-3 .
Adams, leader of American Whigs,
180
Agrarians, protectionist attitude in
Germany, 106
Agrar- und Industriestaai, 114
Alsace-Lorraine, admitted to Zoll-
verein, 51
American Customs Union sug-
gested, 254
Argentina opposed to reciprocity
with United States, 255
d'Artois, Comte, reduces duties in
France, 274
Austria-Hungary, attitude towards
Zollverein, 25-30
conditions necessary for joining
Zollverein, 35
treaties with France, 1866, 307 ;
1883, 324 ; with Zollverein, 1853,
32; 1865, 44; 1868, 50; with
German Empire, 1891, 86
Autonomous and conventional
tariffs, 40, 45, 96, 318
Baden supports protection, 24
Bastiat, Uobden et la Ligue, 295
Bavaria, customs union with Wiirt-
temberg, 9
suggests treaty with Austria
excluding Prussia, 44
supports protection, 24
Belgium, treaties with France,
1842, 291 ; 1861, 306, 317 ; 1881,
324; with Zollverein, 1844, 18;
1865, 45 ; with German Empire,
1891, 87
Benton, leader of American Demo-
crats, 180
Berlin Decrees, 270
Bismarck, dependent on free trade
party, 53
economic policy, 56-60, 75-7, 82
leaves office, 82
Blaine proposes reciprocity clauses
in McKinley Tariff, 254
Bort, T. de, tariff scheme, 1878,
319-20
Bounties, advocated by Hamilton,
147
on French shipping, 325-6,
353-5
Bremen, supports free trade, 23
enters Zollverein, 79
Brentano, leader of German free
trade economists, 113
his views, 132-3
British Guiana, treaty with United
States, 256
Brunswick, joins Steuerverein, 15
joins Zollverein, 17
supports Prussian policy, 24
Buchanan, president of United
States, 195
Bund der Landwirte represents
German agrarian movement, 108
Billow, Prussian finance minister, 4
van Buren, M., leads Jackson party
in United States, 162
president of United States, 180
Calhoun, leads Southern opposition
to United States tariff of 1832,
169
proposes distribution of surplus
revenue, 177
Canada, treaty with United States,
1854, 253
Caprivi, German chancellor, 82
overthrown by agrarians, 100
Carey, M., American free trade
advocate, 161
Central American States, treaties
with United States, 256
Central Union formed in Germany,
53
Centre party, rise in Germany, 82
Chaptel, influence on French in-
dustrial development, 271
Chevalier, M., and the Anglo-
French treaty, 302
Chili, opposed to reciprocity with
United States, 255
Clay, H., leader of American pro-
tectionists, 161
introduces Compromise Bill, 172
3 6i
362
INDEX
Clay, H., forms Whig party, 180
Cleveland, first presidency of
United States, 217
advocates reduction of tariff,
218-19
second presidency, 239
policy, 240-1
Cobden and the Anglo-French
treaty, 302
Compensating duties, 204-5, 215,
230, 242, 247
Conrad, criticism of Wagner, 119
views on economic policy, 131
Continental system, 5, 49-50
Darmstadt Conferences, 1820-1823,
8
Delbriick, carries out German free
trade policy, 51
Democratic party in United States,
its rise, under Jackson, 161-2
hostility to National Bank, 176
policy, 180
victory at elections of 1844, 184
break up, 193
secures presidency after long
interval, 217
committed to free trade, 219
secures complete control of
Federal Government, 239
confusion and defeat caused by
silver question, 245, 258
attitude towards trusts, 259
Dietzel, quoted, 124-5
Drawbacks, 143, 250-1, 315
Duchatel, attempts to moderate
protection in France, 288
Duties, specific and ad valorem,
5-6, 168 ., 236-8, 318-19, 345 n.
Economic Congress, founded by
Prince-Smith, 37
Fichte, Geschlossene Handelsstaat,
66, 74
Fillmore, president of United
States, 193
Food supply, the world's resources,
115-16, 122
Force Bill, introduced in American
Congress, 1833, 172
France, agriculture, 286 ., 294,
300 n., 311-12, 327-8, 350-2
agriculturists demand protec-
tion, 320, 328-9, 351
attack on British trade under
Revolution and Napoleon I.,
269-70
colonial preference on sugar, 280
France, colonial tariffs, 356
Constituent Assembly, economic
reforms of, 267
Corn laws, 277-8, 286, 300, 307,
330-2, 344, 350-1
economic position, 357-8
economic progress, 271-3, 293-4,
308-12, 338-9, 350-3
exports, vide imports
financial difficulties after Franco-
German War, 313
food prices, 278, 286, 300, 321,
328, 331-2, 350-1
free trade movement at end of
July Monarchy, 294-5
free trade policy of Napoleon
III., 298-9
imports and exports, 1799-1814,
272 ; 1816-1830, 282 ; 1831-1848,
292 ; 1849-1860, 301 ; 1860-1869,
309 ; 1871-1880, 321 ; 1881-1891,
326; 1892-1901,348
July Monarchy, economic re-
forms of, 285-8
work of, 293
overthrown, 295
maximum and minimum tariffs,
340,342
Napoleon I., economic policy
of, 269-74
Napoleon III., economic policy
of, 298-300, 302-3
reaction of political position
upon economic policy of, 301, 306
fall, 308
opposition to commercial treaties,
339
population, 312, 338, 357
protection adopted, 270
protection, effects of, 275, 358
reactions against, 282, 294-5,
298
returns to, 296, 313, 327-8,
342-3
relations with Germany, 41
Restoration Monarchy, economic
policy of, 274-5
shipping legislation, 325-6, 353
shipping, decline of, 355
tariff of 1791, 267 ; 1806-1810,
270; 1816, 275; 1836, 289; 1841,
289 ; 1848, 297 ; tariff proposals
of Ste.-Beuve, 297-8 ; tariff re-
forms of Napoleon III., 299,
304-5, 307; tariff proposals of
Thiers, 312-17; proposals of 1875-
1876, 318-19 ; proposals of Bort,
1877, 319-20; tariff of 1881,
323-4 ; tariff changes, 1881-1892,
INDEX
363
329-31 ; tariff of 1892, 342-6 ;
tariff changes after 1892, 351
France, tariff wars, with the Zoll-
verein, 15, 39; with Italy, 332-7;
with Switzerland, 346-8
treaty system, under Napoleon
III., 306; in 1881, 324; after
1890, 340
- treaties with Great Britain,
1786, 268 ; with Belgium, 1842,
291 ; with Sardinia, 1843, 292 ;
under Napoleon III. with Great
Britain, 39-40, 302-5 ; with other
states, 305-7 ; with Great Britain,
1872, 317 ; in 1881-1884, 324-5 ;
in 1892, 346 ; with United States,
258 ; with Zollverein, 41-2, 306
Franco - German War, economic
effects of, 50-1, 54
Franco-Italian tariff war, 332-7
Franco-Swiss tariff war, 346-8
Frankfurt, favours free trade, 23
Treaty of, 50, 325
Free trade, arguments for, 132-3
argument in Walker's Report,
185-7
petition to American Senate,
165-6
Gallatin, A., author of free trade
petition, 166 n.
German Empire, agrarian party, 84,
88,89,106-8,111-12,119,120,130-2
autonomous and conventional
tariffs, 96
constitution, 49
crisis of 1873, 54-5
economic development, 100-5
economic theories, 63-74, 113-35
exports, vide imports
food prices, 83, 88, 103, 106,
121-2
- foreign commercial relations,
1880-1892, 80-2
grain duties, 61, 80, 87, 108-9
imports and exports, 1872-1879,
103; 1880-1891, 78; 1893-1902,
104
social legislation, 74-7
socialist indifference to tariff
controversy, 61
socialist opposition to food
taxes, 112
tariff after 1870, 51-2 ; of 1880,
61; of 1891, 86-8; of 1902,
bases, 107-10; criticism, 110-11
tariff wars, with France, 15, 39;
with Russia, 88-96 ; with Spain,
97-8
German Empire, treaties with
Austria, 1868, 50; with France,
1870,50 ; with other powers, 1868-
1869, 50-1 ; after 1880, 80-2 ; with
Austria, 1891, 86-7; with other
powers, 1892-1894, 87-8 ; effects
of these, 96-8; with Great Britain,
98 ; with the United States, 99 ;
difficulties of negotiation under
tariff of 1902, 111-12
treaty system, theory of, 84-6,
107, 129-31
Germanic Confederation, condition
after 1815, 3
ended, 48-9
weakness, 8
"Grangers "association formed, 207
Great Britain, relations with France,
1882, 325
relations with German Empire,
98
treaties with France, 1826, 280 ;
1860, 39, 303-5; with United
States, 1815, 151-2; with Zoll-
verein, 1841, 16
Greater Germany party supports
protection, 36
Guizot, conservative policy, 284 n. ,
290
desires commercial treaty with
Great Britain, 292
Hamburg, supports free trade, 23
enters ZoUverein, 79
Hamilton, " Report on Manufac-
tures," 145-7, 167 n.
Hanover, joins Steuerverein, 14
treaty with Prussia, 29
enters Zollverein, 34
Hanse towns, economic policy,
12, 23, 79
form Middle German Com-
mercial Union, 11
treaty with France, 307
enter Zollverein, 79
Harrison, W. H., president of
United States, 181
Harrison, B., president of United
States, 220
Hauptagrarien, conflicting interests
with N^ebenagrarien, 112
Hawaii, treaty with United States,
254
Hayne, leader of Southern party
in United States, 169, 171
Hesse-Darmstadt, agreement with
Prussia, 10
Hildebrand, 67
Historical School, in Germany, 67-8
364
INDEX
Historical School, attitude towards
tariff question, 68-9
attitude towards theory of State
action, 73-4
Hohenlohe, German chancellor, 100
Holland, treaties with Zollverein,
15-16 ; with France, 1865, 307 ;
1884, 325
Insurance, compulsory in Germany,
76-7
International commercial inter-
course, growing difficulty, 115-17
probable extension, 123-5
International trade, criticism of
English theory, 125-6
Italy, commercial relations with
France, 332-3
tariff war with France, 334-7
Jackson, president of United
States, 162, 176
financial policy, 175
and " nullification," 172
party, 161
Johnson, A., president of United
States, 201
Journal des Economistes, 295
Karlsruhe Conference, 24
Kartels in Germany, 104-5
Knies, 67-8
Landowners in Germany, change
in economic opinions, 55
Lassalle, and State socialism, 73
" Leutenot," complaint of German
agrarians, 106
La ligue anti-protectioniste, 329
Le Libre Exchange, 295
Lincoln, election as president
causes secession, 197
List, F. , influence on tariff policy,
20
doctrines, 20-1, 65-7, 69, 72
Lotz, criticism of Wagner, 119
Louis Philippe, economic policy,
284-5
Luxemburg, joins Zollverein, 17
Maassen, author of Prussian tariff
of 1818, 4
work for Zollverein, 13
McKinley Tariff, vide United States
Manteuffel, action at Zollverein
Conference, 31
Manufactured goods, extent of
market, 116, 123-5
Maryland, bankruptcy of, 182
Maximum and minimum tariffs, 340
Meline, leads commission on tariff
proposals of 1878, 322
leads campaign for agricultural
protection, 329
proposes increases in tariff of
1892, 343
suggests maximum and mini-
mum tariffs, 340
Metternich, policy, 25-6
Middle German Commercial Union,
10-11
Middle School of German econo-
mists, 127
Von Mieg, work in formation of
Zollverein, 13
Milan Decrees, 270
Minimum valuations, 154. , 230,
234-5, 248-50
Moniteur universal, 295
" Most favoured nation " clause,
American interpretation, 252-3
French hostility, 318, 340
nature, 40
working, 42, 46, 81, 85, 90-1,
98, 306, 324-5
Monroe, president of United States,
157
Muller, A., criticism of Adam
Smith, 64
Napoleon I., attack on British
trade, 269-70
failure of commercial policy, 273
Napoleon III., economic opinions,
298
reforms of tariff, 298-300
political position, 301
commercial treaties, 301, 305-6
Napoleonic wars, effect on French
trade, 270-4
effect on United States trade,
149-51
Nassau, supports free trade, 24
Nebenagrarien, conflicting interests
with Hauptagrarien, 112
Nebenius, memorandum, 7
Neo-mercantilism, meaning, 129
dangers, 129-31
New York State, financial re-
forms, 179
Niles, Weekly Register, 161
Northern states of Germany,
favourable to free trade, 22, 37
treaty with southern states, 48
Norway, treaties with France, 1865,
307; 1881,324
" Nullification," adopted by South
Carolina, 171
INDEX
365
Oldenburg, joins Steuerverein, 14
treaty with Prussia, 29
Pan-American Congress, 254-5
" Patrons of Husbandry," 207
Pennsylvania, bankruptcy, 182
supports Democratic party, 184
Pierce, president of United States,
193
Polk, president of United States,
184
Populist party in United States, 239
supports Democratic candidate,
245
Portugal, treaties with France,
1867, 307; 1881, 324; with
United States, 258
Prince -Smith, leader of early
German free trade movement, 37
Protection, advocated by Bismarck,
58-60
advocated by German Historical
School, 68-71
advocated by agrarian party in
Germany, 113-18
advocated by Hamilton in " Re-
port on Manufactures," 145-7
advocated by Republican party
in United States, 196, 225-6, 259
advocated in France, 340-1
effect on industrial progress,
260-1, 273, 358
extended to agriculture, in
Germany, 62, 80, 108
United States, 228
France, 327, 329-31
and " infant industries,"66-7, 146
powers of American Congress,
159, 163-4, 169-71
temporary necessity of, 67, 72
true character, 71
Prussia, attitude towards Austria,
26-33, 38, 42-4
- conducts foreign relations of
Zollverein, 15
difficulties in forming Zollverein,
11-13
favourable to free trade, 5, 22-3
policy towards allies, 6-7, 9-10
at first renewal of Zollverein, 17
Tariff Act of 1818, 4-5
Railway policy of Bismarck, 75-6
Raw materials, possible exhaustion,
115, 122-3
Republican party in United States,
formation, 193
committed to protection, 196,
219, 220-1, 225
Republican party in United States,
end of long period of power,
210-11
passes McKinley Tariff after
victory of 1888, 220-1
defeat, 1892, 239
returns to power and passes
Dingley Tariff, 1897, 245-6
Roosevelt, economic policy, 259
Roscher, 67
Roumania, treaty with Germany,
88-9
supply of grain to Germany,
88-9
Russia, commercial relations with
Germany prior to 1892, 81, 89-
90
tariff war with Germany, 91-6
treaties with France, 1883, 325 ;
with Germany, 1894, 94-5
St. Cricq, prepares scheme of
tariff reform, 282
Sainte-Beuve, free trade proposals,
297
Saratoga Convention, 99
Sardinia, treaty with France, 292
Saxony, supports free trade, 23
joins Prussia, 12
supports Prussia against Austria,
32
supports Prussia on French
treaty, 43
Say, L., leader of French free
traders, 329, 343
Schacht, criticism of German tariff
of 1902, 108-11
Schmoller, leader of German Mid-
dle School, 113
Mercantile System, 69-71, 73
on German tariff of 1902, 111
on tariffs for negotiation, 128-9
Schumacher, favours tariffs for
negotiation, 129
Schwarzburg-Sondershausen, cus-
toms union with Prussia, 6
Sering, and agricultural protection,
131-2
Servia, treaties with France, 325 ;
with Germany, 88
Smith, Adam, influence in Ger-
many, 64
Socialists and tariff questions, 61,
112, 296
" Socialists of the Chair," 73
South Carolina, protests against
protective duties, 164
threatens to withdraw from
American union, 171-3
366
INDEX
Southern States of America, atti-
tude towards protection, 155,
158, 166
constitutional doctrines, 170-1
discontent with tariff of 1828,
164
economic distress after Civil
War, 200
exports, 164
resistance to tariff of 1832, 169
secede, 196
Southern States of Germany, sup-
port protection, 24, 53
plan common tariff, 8-9
reject French treaty, 43
relations to Austria, 27-8, 30,
32,36
North German Confederation,
48-9
Spain, treaties with France, 1865,
307 ; 1882, 324 ; with Germany,
98
Steuerverein, formation, 15
Stuttgart, conference, 9
Sweden, treaties with France, 1865,
307 ; 1881, 324 ; with Germany,
81
Switzerland, treaties with Zoll-
verein, 51 ; with Germany, 81,
87; with France, 1864, 307;
1882, 324.
tariff war with France, 346-8
Taylor, president of United States,
193
Thiers, economic views, 288, 298
financial policy, 313-16
Tirard, supports commercial
treaties, 323
negotiates treaties, 324
Tocqueville, La Democratic en
j4.m6rique, 167 n.
Turkey, treaty with France, 325
Tyler, president of United States,
181
United States, abolition of internal
taxes, 202
"Act of Abominations," 161
agricultural protection, 229
Bank, 175-7
Civil War, 197; effect upon
economic policy, 199-200
commercial crises, 152, 155-6,
178, 194, 209
commercial relations of states
after War of Independence, 141
commission to revise tariff, 1882,
214-15
United States, Compromise Act,
172-5
Customs Act, 1862, 198
Customs Administrative Act,
235-6
Dingley Act, 246-51
Distribution Act, 181
economic progress, 151, 188-91,
212, 221-4, 260
effects of war tariff on com-
mercial policy, 199-200
Embargo Act, 150
exports, vide imports.
financial reconstruction after
Civil War, 201-3
free traders and revenue duties,
165-6
growth of factory system, 151,
188
imports and exports, 1791-1807,
148 ; 1807-1814, 150 ; 1847-1857,
190 ; 1870-1875, 209 ; 1876-1882,
213 ; 1883-1890, 224
Internal Revenue Act, 198
McKinley Tariff, 228-35
- Mills Bill, 219
Morrill Act, 196-7
Morrison Bill, 217
" most favoured nation " clause,
interpretation of, 252-3
political parties and recent tariff
policy, 259-60
protection and trusts, 262
reciprocity under McKinley Act,
254-7
reciprocity under Dingley Act,
257-8
shipping, unsatisfactory condi-
tion of, 223-4
tariff acts, 1789, 143; 1816, 153;
1824, 157 ; 1828, 161 ; 1832, 168 ;
1841, 182; 1842, 183; 1846, 187
1857, 193 ; 1872, 208 ; 1875, 210 ;
1883, 215
tariff legislation to 1787, 141-2 ;
1792-1816, 147-8
tariff bill of 1867, 203-4
treaties with Canada, 253-4 ;
with Hawaii, 254 ; under McKin-
ley Act, 256-7 ; under Dingley
Act, 258
war tariffs, 197-200
Wilson Act, 241-3
Woollens Act, 204
Wages argument for protection,
160, 226-8, 259
Wagner, Agrar- und Industrie-
staat, 114
INDEX
367
Wagner, general argument for
agricultural protection, 114-18
- criticism of English theory of
international trade, 125-6
attitude towards State action, 74
discussion of his theories, 119-
25, 126
Walker, F. A., reforms United
States trade statistics, 209
Walker, Secretary to Treasury,
report, 185-7
Webb, S. and B., on theory of
international trade, 126-7
Wells, United States Commissioner
of Revenue, 207, 209
West Indian Islands, treaty with
'United States, 256
Whig party in United States, 180
De Witte, commercial policy, 91
Wiirttemberg, union with Bavaria, 9
supports protection, 24
Zollbundesrath, 49
Zollparlement, 49
Zollverein, autonomous and con-
ventional tariffs, 45
established, 11-13
formation proposed in 1819, 8
growth, 14-15, 17, 29, 79
organisation, 13-14, 48-9
- policy, 13-14, 20, 24-5, 34, 42,
45
possible policies, 36-7
relations with Austria, 12 .,
15, 25-8, 29-33, 35-7, 42-4
relations with other powers,
15-16, 39, 41-3
renewals, 17, 29-33, 42-4, 48-9
tariff, 14, 24-5, 33, 45-7
treaties with Austria, 1853,
32-3; 1865, 44; 1868, 50; with
Belgium, 1844, 18-19 ; 1865, 45 ;
with France, 41-2, 45 ; with
Great Britain, 1841, 16; 1865,
45, 98; with Holland, 15-16;
with United States, 243
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