will never be productive of much tax revenue; nor can we expect that municipal resources will be largely assisted by monopoly of special industries. Another feature in successful monopoly is its operation on articles of luxury. With the exception-if it really be an exception-of salt, this method of taxation is best applied to commodities that are at once luxuries and in general use; it in fact conforms to the rule that governs all taxation of commodities. The sumptuary element, if it may be so described, is also present. The alcohol monopoly has been advocated as much to restrain intemperance as to increase revenue, and the same idea reappears in the monopoly of tobacco. The one serious objection to the system is found in its violation of industrial liberty. The general value of freedom in industry is however always impaired by taxation. An excise duty can only be effective with the aid of constant watchfulness and interference on the part of the revenue officials. The system of control,' says Cliffe Leslie, which excise duties involve in the case of productions subject to them is scarcely a smaller violation of industrial freedom than absolute prohibition,'1 and the evidence that he adduces fully supports his statement. The difference, so far as infringement of liberty is concerned, between excise supervision and monopoly is merely one of degree, and if, as most economists and financiers maintain, taxation of commodities is necessary under present conditions, it follows that the choice between monopoly and excise taxation depends on the particular circumstances of each case. For instance, the French tobacco monopoly seems generally accepted as the only effective mode open for raising a sufficiently large sum from that commodity.2 The United States, who do not need revenue, can adopt the milder and less stringent form of a stamp duty.3 In deciding between the different methods of taxation, the following conditions are the most important, viz. (1) the rate of taxation-the heavier the rate of charge the greater the probability that monopoly will be necessary to enable it to be effectively collected; (2) the possibility of full supervision of private producers-the more difficult this is the stronger is the case for placing the industry entirely in the 166 Financial Reform," in Cobden Club Essays (2nd series), p. 224. 2 'Nous conseillons à tous les pays qui ont le monopole du tabac de le conserver. En fait de droits sur cette denrée les plus élevés sont les meilleurs, à la seule condition qu'ils soient les plus productifs pour le Trésor. Tant que nous aurons une grande armée et une grosse dette nous devrons maintenir le monopole du tabac." LeroyBeaulieu, Traité des Finances, vol. i. p. 706; cf. Stourm, vol. i. p. 393. 3 For the details of the tobacco tax in the United States, see an interesting article by F. L. Olmsted, Quarterly Journal of Economics, January 1891, pp. 193, et seq. hands of the state; (3) the elaborateness of the technical processes employed. Where much fixed capital is required, and where invention is active, it is not advisable to establish a state monopoly; (4) the extent of the industry. A complete withdrawal of any branch of industry from the hands of private producers is, in itself, an evil, and the larger the industry the greater the loss inflicted. Even on the supposition that cotton goods were the most suitable objects of taxation, a state monopoly of the English cotton industry would be too absurd to be thought of. Taking these conditions together, we find that there is a tolerably welldefined area within which alone the use of monopoly is admissible, and that it belongs to trained financial practice to wisely apply it within those bounds. The whole inquiry also illustrates the proposition that financial systems must be adjusted to suit special situations. There is no pure a priori system of taxation. Each state requires what is fitted for its special circumstances. The place of general principles is not to assist the financier in laying down hard and fast rules, but in indicating the forces that are likely to operate in all cases, but with varying intensity in each separate instance. [NOTE. Since the above article was written, public attention has been drawn to the opium monopoly by the debate and division on Sir J. Pease's motion (April 10th, 1891). The fact that monopoly is nothing but a particular form of taxation disposes effectually of the proposal, made on moral grounds, to substitute an excise or export duty for the present system. Even the permission of free cultivation without any taxation is met by Sir H. Maine's dictum that 'For moral purposes there is no distinction between what a despotic Government does itself, and what it permits its subjects to do.' We are not called on to balance the arguments for total prohibition, and for retention of the monopoly. But it may be noticed that the financial sacrifice of the former would, if the burden were borne by England, be smaller than is commonly believed. The Indian Budget estimate for 1891-2 puts the net receipts from opium at R.X. 5,301,700, or, taking the rupee at 1s. 54d. (the Budget figure), only £3,810,600, less than half of the Weight millions' of popular statements. Should the decline be as rapid in the future as it has been since 1880-1 the problem will soon solve itself.] C. F. BASTABLE THE MCKINLEY TARIFF ACT 1 THE protective system which the United States has adopted during the last generation is sometimes spoken of as if it were simply a phase of the general reaction against a liberal policy in foreign trade which has shown itself since 1873 in almost every country except England. In fact, however, the movement in the United States is a separate and distinct one. The reaction in other countries has been due to wide-reaching causes, such as brought about, under very similar circumstances, a similar result in the early part of the present century. The great inventions in textile manufactures and in the production of iron at the close of the eighteenth century brought about a sweeping change in the processes of production and in international trade. To that change the Continental countries accommodated themselves but slowly; and the difficulties of the transition led to opposition which took, in part, the form of protective duties. Similarly, we have had in this generation enormous changes in the arts of production, and above all in transportation, which have compelled a shifting and rearrangement of the protective machinery, and have inevitably caused discomfort and suffering to large classes in many countries. Among the attempts to stave off or mitigate the effects of these great changes, have been the productive duties imposed since 1873 in France, in Germany, in Austria, and in Italy. As the older movement was directed chiefly against the cheapened manufactures of Great Britain, so the present movement is directed chiefly against the cheapened agricultural products of new countries, and especially of the United States. Obviously, therefore, the protective movement in the United States stands by itself, and presents aspects of its own. In truth, the movement here has been very largely of an accidental sort, explicable mainly from political causes. The United States has simply drifted into its present position of high and pronounced pro 1 Reproduced (with some additions by the author) from the Giornale degli Economisti, Jan. 1891, by the kind permission of the editor of that Journal. tection. Before the Civil War of 1861-65, our tariff system was comparatively moderate and simple; not by any means a tariff based on the principles of free trade, but a tariff making a very moderate application of protection. During the colossal struggle of the Civil War, every financial resource was strained to the utmost. An enormous national debt was accumulated, a vast system of internal taxation introduced, an inconvertible paper money issued to excess, and a great increase in customs taxation brought about. The protective system in the United States, it may be safely said, would never have reached its present position but for the financial pressure of the Civil War. When the war closed no one expected that any one of the financial expedients to which it led would become permanent. The debt was steadily reduced, the currency was put on a specie basis, almost all the internal taxes were abolished; but the customs taxes remain, and indeed have rather been increased. For the first ten years after the war the general expectation was that these also would be reduced. The opponents of protection take a malicious pleasure in quoting from speeches made in 1870 and 1872 by men who are now unconditional protectionists, protests against the evils of high duties. The present attitude of the Republican party, committed as it is to the rigid maintenance and wider extension of the protective policy, was not clearly assumed until within the last ten years. As late as 1872, its leaders were active in trying to bring about a reduction of the customs duties; and in the campaigns of 1876 and of 1880 the protective question played no considerable part. The United States, then, has drifted into its present position; drifted into it because the customs taxes are those whose incidence is least easily followed, which alone find strong pecuniary interests to aid them, which alone hold out the promise of aiding domestic rather than foreign industry. The process of drifting can in no way be better illustrated than by the history of the movement during the last six years, culminating in the passage of the act of last year. In 1883, a general revision of the customs duties was made. That revision was made by the Republican party, and its original object was to make reductions of the duties. The reform of the tariff, of which much was heard in those days from Republican quarters, was on all hands understood to mean a lowering of the rates of duty. In fact the Act of 1883 did make some reductions on important articles, like pig iron and wool; slight reductions, it is true, but none the less significant of what was then understood to be the popular wish. It is true also that the protectionists into whose hands the remodelling of the tariff was put, could not resist the temptation to increase the duties on certain articles which were most affected by competition from abroad. But the unmistakable feeling of the public, and the undoubted expectation of public men, was that the duties should be reduced. In 1884 came the election of President Cleveland. The campaign of that year was conducted by the Republicans on the tariff question, which then, for the first time, was put forward by them as the main issue on which they wished to stand before the community. On the other hand, the Democrats and a large number of independent voters made the campaign turn largely on the personal qualifications of Mr. Blaine, the Republican candidate for the Presidency. The final election of Mr. Cleveland was no doubt due in large part to dissatisfaction with the personal character of Mr. Blaine, and to an expectation that his opponent would adopt a high standard in his administration of the Civil Service. Mr. Cleveland, however, was not indisposed to accept the issue which Mr. Blaine had endeavoured to make the decisive one in the campaign, and, after having been in office for two years, he sent to Congress, in December 1887, his well-known message on the tariff. In that he put himself squarely upon the ground that the existing duties were excessive and should be reduced, and, more particularly, that the duties on raw materials should be done away with. Mr. Cleveland's unqualified attitude committed the Democratic party more fully to the policy of reducing the duties, while, on the other hand, it compelled the Republicans, almost in selfdefence, to cling more closely than ever to the policy of high protection. During the session of Congress in the winter of 1887-8, the Democrats pushed through the House of Representatives, in which they had a majority, the so-called Mills Bill,1 making a general reduction of duties. There was no expectation that this Bill would be enacted, because the Senate still contained a majority of Republicans; it was meant mainly to be a concrete expression of the policy of the Democratic party. The election of 1888, therefore, in which Mr. Cleveland was the Democratic candidate, and Mr. Harrison the Republican candidate, turned mainly on the tariff issue. The contest was close; and the Republicans won by a narrow majority. Mr. Harrison 1 These measures get their names from the gentlemen who are chairmen of the committes preparing them. Mr. Mills, a member of Congress from the State of Texas, was chairman of the Committee on Ways and Means, which prepared the tariff bill in 1888. Mr. McKinley, a member from Ohio, is chairman of the same committee in the present Congress. |