Thus far the granting of postal subsidies for the establishment of steamship lines alone had engaged the advocates of State aid to American shipping. Now was agitated the institution of a general subsidy system as a means of fostering the rehabilitation of the merchant marine of all classes in ocean service, sailing-ships as well as steamers. The situation had become acute. Through the great loss of tonnage in the Civil War, and through the steadily advancing change from wood to iron in ship construction and from sail to steam propulsion, the American merchant marine had been brought distressingly low. From 1861, when the United States was standing second in rank among the nations in the extent of her ocean tonnage, to 1866, this tonnage had declined from 2,642,648 to 1,492,926 tons: a loss of more than forty-three per cent; while England, the first in rank and chief competitor, had in the same period gained 986,715 tons, or more than forty per cent. Moreover, of this increase in English tonnage, a large percentage had been in steamers, one ton of which class was estimated to be equal in efficiency to three tons of sailing-ships; while, by substituting largely iron for wood, England had gained a still further advantage in her much larger class of iron vessels, doubly as durable as those of wood.[[HD]]
The matter was brought up in Congress by a resolution of the House, March 22, 1869, calling for the appointment of a select committee, "to inquire into and report at the next session of Congress the causes of the great reduction of American tonnage engaged in the foreign carrying trade, and the great depression of the navigation interests of the country; and also to report what measures are necessary to increase our ocean tonnage, revive our navigation interests, and regain for our country the position it once had among the nations as a great maritime power." Of this committee Representative John Lynch of Maine was made chairman.
The committee gave a series of hearings mainly in Atlantic seaboard cities, and submitted their report on February 17, 1870, accompanied by two bills recommended for passage; the one, a bounty bill, the other, relative to tonnage duties. With these measures the history of years of effort to establish the principle of general ship-subsidies in the American economic system properly begins.
The Lynch bounty bill, entitled "An act to revive the navigation and commercial interests of the United States," made provision for the remission of duties upon the raw materials entering into the construction of sailing and steam-ships; for the taking in bond, free of duty, of all stores used in vessels in sailing to foreign ports; and for bounties, or subsidies, to American sailing and steam-ships engaged in foreign commerce, already built as well as to be built: the aid being extended to those already built because they had been sailed during the Civil War and since "at great disadvantage."[[HE]] The amount of duties to be remitted was to be equal to the amount per ton collected on the materials required for certain defined classes of ships: on wooden vessels, eight dollars a ton; on iron, twelve dollars a ton; on composite vessels (vessels composed of iron frames and wooden planking), twelve dollars a ton; on iron steamers, fifteen dollars a ton. Where American materials were used in the construction of iron or composite vessels, allowance was to be made of an amount equivalent to the duties imposed on similar articles of foreign manufacture. The bounties were thus classified: to owners of American registered ships engaging for more than six months in a year in the carrying trade between America and foreign ports, or between ports of foreign countries, a dollar and a half per ton upon a sailing-ship each year so engaged, and a dollar and a half upon a steamer running to and from the ports of the British North American provinces; four dollars upon a steamer running to and from any European port; and three dollars to and from all other foreign ports.[[HF]]
The intent of the second bill, "imposing tonnage duties and for other purposes," was the readjustment of the existing tax upon tonnage so that it should fall "more equitably upon the different classes of vessels affected thereby."[[HF]] It removed all tonnage, harbor, pilotage, and other like taxes imposed upon shipping by State and municipal authority (except wharfage, pierage, and dockage); and imposed a duty of thirty cents per ton on all ships, vessels, or steamers entered in the United States.
The committee's measures were ably advocated, but they finally went down in defeat.
In 1872 the Pacific Mail Steamship Company came forward with an offer to add another monthly mail-steamship service to Japan and China, for an additional subsidy of a half million dollars a year. At the same session a project to establish a subsidized line to Australia was introduced; another, for a subsidized line from New Orleans to Cuba. These failed, while the scheme of the Pacific Mail won. A bill authorizing such contract was enacted June 1, that year, after prolonged and warm debates, and by close votes in House and Senate. Two years afterwards it was discovered that bribery had been employed in securing the passage of that act; the charge being that a million dollars had been spent by a corrupt lobby in pushing the bill through.[[HG]] Upon these disclosures, and because the company had failed to fulfil its conditions, Congress, by act of March 3, 1875, abrogated the contract.[[HH]] In 1877 the first contract with the Pacific Mail for the Japan and China service, expired. During its ten years' term the company had received from the Government a total of $4,583,333.33.[[HI]]
With the Pacific Mail exposure the word subsidy became unsavory to the public taste, and for some years after no subsidy measure, however carefully guarded or respectably backed, could find favor in Congress. A second project for subsidizing a new line to Brazil, proposed by John Roach, the noted American shipbuilder, in 1879, was among those ventured, only to fail.