CHAPTER XXXIII. BUSINESS DEPRESSION AND REVENUE REFORM. A LETTER ADDRESSED BY ABRAM S. HEWITT TO THE DE NEW YORK, December 26, 1883. EAR SIR: I am in receipt of your letter in which you say: "The Argus is now engaged in an inquiry into the causes and effect of the present depression of the iron industry. It is especially desired to be known what relation this state of thing bears to existing tariff conditions." You ask my opinion in reference to these points. I answer that the proximate cause of the present depres sion of the iron industry is to be found in the fact that the capacity for producing iron is in excess of its actual consumption, not only in this country, but in those foreign coun tries which are large producers of iron and steel. When the supply exceeds the demand prices fall. Establishments which cannot produce at the current prices without loss are compelled to suspend operations, and thus comes the actual depression to which you refer. The ultimate causes of such a state of things are unusually manifold; sometimes they are too obscure to be discovered with certainty. For example: The influence of abundant harvests, or of a failure of crops, upon the general condition of industry is unquestioned. Yet these very causes may produce prosperity in some branches of business while they produce depression in others. So in regard to the influence of tariff legislation. If duties are suddenly raised at a time when there is a demand for the foreign product, prices will go up and the iron business. will be prosperous. If, on the other hand, duties are reduced, so as to admit of a larger supply of the foreign product, the domestic business will be, for the time being, unfavorably affected, and depression will result. These, however, are only immediate and temporary effects. As a matter of fact, prior to 1878, under the highest tariff ever known in this county, we had a long period of depres sion in the iron business. But about that time railway enterprises were undertaken on a large scale, producing a sudden demand for more iron and steel than the world was prepared to supply. Prices advanced all over the world, and to these prices was added the very high rate of duty then prevailing upon foreign iron brought into this country. The profits of the domestic business became excessive, and the owners of existing works proceeded to enlarge their capacity to the utmost, in order to gather this harvest of great profits, while new capital was attracted into a field in which the returns were known to be abnormally large. The business being thus overdone, a glut of iron resulted, and the reaction has brought about a state of things even worse than that which existed prior to 1878. The evil from which we now suffer is, therefore, largely due to the fact that the war tariff imposed higher duties than were needed for protection, thus giving excessive profits to the manufacturers in a period when the profits would have been large enough without such high protective duties. We are suffering from unnatural stimulation, which aggravated the excitement when the public interest required that it should be allayed, and now aggravates the depression by the excessive capacity for production which it engendered. How long this depression will continue no man can predict. But inasmuch as eras of prosperity and depression succeed each other in cycles, it is certain that sooner or later we shall come again to the period when the demand for iron will exceed the supply. Unless our revenue legislation be meanwhile reformed, we shall then have a repetition of the experience through which we passed since 1878, an experience which shows that excessive profits are, in reality, of no real benefit either to the manufacturers, except in rare instances, or to the country at large, while the evils resulting from them are serious. They are especially injurious to the workingmen of the country, who are the chief sufferers when the inevitable re action to unnatural expansion narrows the field of employ ment for labor. The lesson to be derived from this experience is that the duties on all kinds of iron should never exceed the lowest possible point which, in time of depression, will protect the domestic market from the flood of foreign iron which otherwise might be poured into its lap. Such rates of duty, proaverage yield the largest vided they are specific, will on the amount of revenue, because when the price rises and the producer no longer needs protection, the consumer, who does need protection, can then supply his wants at a fair price in the foreign market without paying an increased duty, if he cannot get equally fair terms at home. Moreover, the experience of all commercial nations has shown that moderate specific duties afford the only safeguard against frauds in the revenue, as well from smuggling as from undervaluation in the invoices. The blind adherence to ad valorem duties in our existing tariff has only served to throw the importing trade into the hands of foreigners and to drive our reputable American houses from this business. The reduction of extra-protective duties to a reasonable standard of specific duties is therefore the only practicable means of avoiding an unhealthy expansion of business when it is active. Extra-protective duties merely result in overproduction, in the general derangement of industry, and in consequent suffering to the workingmen by the loss of employment and the reduction of wages. They must be made to realize that the only fund out of which their wages can be paid is produced by the money which is received for the product of industry. Out of this fund must first be paid the cost of the raw material and the next the remuneration for the capital employed in the work of production. What remains is the amount available for the payment of wages. Hence the cheaper we can get raw materials and capital the more we can pay for the labor engaged in manufactures. High rates of interest and high-priced raw materials mean, therefore, lower wages for labor, while cheap raw materials and cheap capital mean higher wages for labor. The workingmen thus have an interest direct and immediate, in removing the duty from raw materials, as well in the iron business as in every other branch of industry carried on in this country. By raw materials I mean fuel, all food products, all materials to which no process of manufacture has been applied, all metallic ores and all waste products which are fit only to be manufactured. So far as any relief can be provided by legislation for the existing state of affairs the remedy must be found, first, in freeing raw materials from all duties; and, secondly, in imposing rates of duty on manufactured products not more than sufficient to make good the difference in the amount paid for labor in the production of any given article in this country, as compared with the amount paid for the same labor in other countries with which we compete. For this purpose the incidental protection afforded by revenue duties will, as a rule, be found sufficient when any protection is needed. I am aware that this last proposition involves the protec tive idea to some extent, but to no greater extent than is the logical outgrowth of our past legislation. If we had never had protection we should not be required to pay any atten tion to the question of rates of labor, which are the result, not of protection, but of other conditions entirely independent of legislation. But the protective system has undoubtedly built up some branches of industry which otherwise might not, in consequence of the higher rate of wages, have existed. Inasmuch as this is their misfortune and not their fault, no sensible legislator would strike these industries down by the sudden abrogation of the protective system. We should, nevertheless, endeavor gradually to reduce its evils to a minimum, until in the progress of time it shall have given way, under natural laws, to a better and sounder condition of affairs. But in this assurance of inevitable progress there is to be found no justification for the further maintenance of duties which only tend to reduce the wages of labor without conferring benefit on any interest whatever; duties which only impair our ability to sell commodities in the open markets of the world, and hinder the natural and healthy growth of business. All such unnecessary and hurtful obstructions should be removed without delay, and it will be a mockery of duty if Congress should fail to open the way to "freer trade" and wider markets for our products through any fear of consequences to politicians who have not the courage of their convictions, or have no other convictions than the desire for office. The mere politician follows public opinion; the true statesman instructs it. His constant aim should be to make clear to those who depend upon their daily labor for their daily bread the real basis upon which their welfare rests, and then to trust to their intelligence and votes for support. Success on any other condition would be dishonor. Any party which expects to get power by playing the game |