On March 31, 1865, the last tariff bill of the Civil War was passed, an amendment raising many duties, among others that on railroad iron. Nine days after it was passed Lee surrendered, and almost as soon as the news reached Washington orders went forth to stop many of the extraordinary measures which war had made imperative. It had been declared from the first that the high tariff and the direct taxes were simply and only measures for war revenue. In framing the tariff bill of 1862 the committee entitled it a bill to increase duties “temporarily.” Mr. Morrill, Mr. Stevens, and Mr. Fessenden all explained again and again that the increased duties were to compensate for excise taxes. There are repeated passages from their speeches of the same tenor as this from Mr. Fessenden in 1864: “The tariff is adjusted and was adjusted upon the simple principle with reference to the internal tax.” Sumner reiterated the idea whenever he had the chance. “I regard all our present legislation as temporary or provisional in its character,” he said in 1864, when an irate fellow Senator pointed out the growing hardihood of manufacturers in demanding protection and the danger of fastening high duties irrevocably on the country. “It is to meet the exigency of the hour.”
Nothing is clearer indeed than that in the minds of the men who devised them—in the minds of the people who paid them, the tariffs with which the country found itself in 1865 were temporary, just as the army was temporary, the internal taxes temporary, that with the end of the war they would come off. But a war does not “end” with the laying down of the musket. That is but the turning point in the fever. The consequences are left to take care of—tens of thousands of men to detach from army life and reassimilate into civilian life; thousands of maimed and weakened soldiers to find occupation and homes for; thousands of widows and orphans to care for. It is over forty years since Lee surrendered to Grant, but the army of the Civil War is still with us.
Nor does the laying down of the musket put an end to the cost. War means debt. It is fought on a nation’s credit—not wholly on its income—not on its surplus, and the debt remains. When the government at Washington came to consider its financial condition in 1865 after the so-called “end of the war,” it found itself with the colossal debt of over twenty-eight hundred million dollars ($2,808,549,437.55 to be exact). Interest on this must be paid. The principal must be paid. Tariffs and taxes might be “temporary,” but it was evident that they must be adjusted to take care of the war debt. How was it to be done? It was evident that between redeeming its pledge to make the taxes temporary and meeting its obligations the government of the United States had a very pretty financial problem on its hands.
CHAPTER II
AN OUTBREAK OF PROTECTIONISM
The Civil War wrought many changes in the people of the United States, and none more amazing than that in their attitude toward money—the amount they could spend—the methods by which it could be raised. Here was a people who in 1859 had looked with dismay on a debt of $58,000,000 facing confidently one of $2,800,000,000; a people to whom in 1860 raising an income of $62,000,000 had seemed difficult, actually provided in 1866 one of $559,000,000; a people to whom direct taxes had always been abhorrent and who had repudiated high tariffs, submitting patiently to both as one of the dire necessities of war. The war was over, but the debt and the extraordinary expenses remained, and to meet them harsh and sweeping taxation must be continued.
This was plain to everybody, but it was equally plain to those who studied the balance sheet of the treasury that many things could be done to equalize and reduce the taxation. The debt itself could be readjusted to be much less burdensome. As it stood it was made up of some twenty different kinds of paper;—bonds, treasury notes, certificates of indebtedness of all kinds due at nearly twenty different dates, and drawing almost as many different rates of interest. The paper currency which kept the money market in a constant state of unrest could be redeemed. Great economies could be made in the administration of the government. These things done and a careful estimate of essential expenses computed, nobody had any doubt but that the people would consent to the taxation required with as little grumbling as human nature usually meets taxes.
That the revision of the revenue was work for experts, not for politicians, had been realized before Mr. Lincoln’s death, and in March, 1865, a commission had been appointed to look into the whole subject and report. The head of this commission was a man who was to wield a big influence in the country in the next few years, and one to whom we owe more credit than he has ever received, David A. Wells. Mr. Wells was a New England man, who had first attracted attention by planning and constructing in the printing office of the Springfield Republican, where he wrote editorials, the first machine ever made for folding newspapers. He made money from his invention, and used some of it in giving himself a scientific training at Harvard as a special pupil of Louis Agassiz. In 1864 Mr. Wells, who had become interested in economic problems, wrote a pamphlet, called “Our Burden and Our Strength,” which attracted general attention, both here and abroad, and led naturally enough to his choice as one of the revenue commission referred to above. There were two other members on the commission, but from the beginning Mr. Wells dominated it, and his first report, made January 1, 1866, showed in a very clear way what was before the country.
By his calculations the taxes and tariffs then in force ought to yield in the year ending June 30, 1867, $435,000,000. Now the Secretary of the Treasury had estimated that we could get along that year on $284,000,000. Let us say three hundred millions, proposed Mr. Wells, and then let us set aside fifty millions a year for reducing the debt—that still leaves $85,000,000 to be taken off the taxes. Where should it be applied? To the internal taxes or to the custom duties? Mr. Wells knew the feeling of the people. They hated direct taxation, they preferred duties on imports, and he worked out a plan for taking the $85,000,000 off the former, but at the same time he called attention to various inequalities in the tariff which should be corrected. They came mainly from the lack of equalization between the two systems of taxation. The duties on imports were supposed to be arranged so as to compensate for the internal taxation; not infrequently, however, the tariffs were placed without proper consideration, and grave inequalities had resulted. These were of two kinds: either the tariff was less than the taxes, so that the manufacturer could not compete with foreign goods imported, or it was considerably higher than the taxes, so that he could put up his prices until they practically prohibited importation, thus cutting off revenue and heavily burdening the consumer. Certain cases of the first kind became familiar at the time from the fact that they touched everybody, and were explained clearly and in detail in Mr. Wells’s report. There was the matter of book-making. Everything which went to make a book was separately taxed,—paper, cloth, boards, glue, thread, gold-leaf, leather, and type,—and when the book was complete it was taxed 5 per cent on the selling price. It cost 59½ cents to make a book requiring a pound of paper. The same book could be made in England and delivered in New York, including duty (the duty on books was 25% on the value) for 26¼ cents. Little wonder that American book publishers sent their work abroad to be done or that the boys and girls of the time were using Webster’s Spelling Books made in England. The umbrella was another common article over which there was much trouble. Each item which went into the making of the umbrella—sticks, rods, handles, tips, bands, tassels, buttons, cover—was produced by a different establishment, and each paid its own tax. The cover usually was imported, and silk paid a duty of 60 per cent. The finished parasol paid a 6 per cent tax. Now the duty on an imported umbrella was 35 per cent on its value. Naturally umbrellas were imported in quantities and sold at a price lower than they could be made for at home.
But while there were cases where the tariff did not compensate for the tax there were more where it had been forced far beyond it. If these tariffs had increased the revenue, they might, under the circumstances, have been justified, but they did not do that. They limited importation and enabled the home manufacturer to put up his prices, and it was he, not the government, who got the extra money. At the same time it cost the government a great deal to collect the small sums realized on these over-protected articles, often more than the sum itself.
If the government could get on with $85,000,000 less than it could collect, it seemed obvious that it ought to begin cutting down those internal taxes which were so much too high for the tariffs. It seemed obvious, too, that unremunerative tariffs ought to be cut off. But no sooner did the talk of reducing tariffs on any article begin than there came a loud outburst from many manufacturing centres against any reduction. The internal taxes must come off at once—that they demanded, but no tariffs should be lowered. The cry to preserve the tariffs soon turned in many mouths to one to raise them. Copper (in blocks), which under the bill of 1864 had had a duty of 2½ cents a pound, now asked for double that. Iron rails which already were carrying a duty of 70 cents a hundred pounds and selling in New York for over $80 a ton, while they cost only about $32 in Wales, asked a higher duty. The salt miners of Michigan and New York, whose profits at the moment were enormous, demanded still greater protection. As soon as the House Committee of Ways and Means got to work on a tariff bill, which was early in 1866, an army of determined tariff lobbyists poured into Washington, declaring they must have more protection or they would perish.