source of revenue from indirect taxation.

Supplies of all kinds are now pouring into England from Germany and other countries, which, if taxed, would produce a magnificent revenue: but this measure has not

been adopted, owing to the prevailing fallacy that it would increase the cost of imported articles.

If you wish it I shall be glad to furnish you with overwhelming evidence that when a duty has been imposed, if not prohibitive, it has fallen on the foreign importer or his agent, and not on the consumer; and that the cost of the articles taxed has diminished instead of increasing. I can also furnish you with an explanation of the causes of this apparent paradox.

I remain, Sir,

Your obedient Servant,
Guilford L. Molesworth.

The Manor House,

Bexley, Kent,

October 22d, 1919.

Sir,

No. 10

In continuation of my letter of October 22nd, I now enclose the "overwhelming evidence" of the fall of prices under an import duty, and an explanation of the causes of this apparent paradox.

I remain, Sir,

Your obedient Servant,
Guilford L. Molesworth.

The Manor House,

Bexley, Kent,

November II, 1919.

EVIDENCE OF THE FALL OF PRICES

UNDER IMPORT DUTIES.

In a very large number of cases the imposition of import duties has been followed by a fall of prices, numerous examples of which are given in the following pages.

To shallow thinkers such a result appears impossible, but a little consideration will serve to explain the apparent paradox:

1. Before the import duty comes into force, there is a rush on the part of the foreign producer, or his agent, to send in as much produce as possible so as to escape the duty. This naturally has a tendency to depress prices, and the fall is rendered permanent by development and competition in the home market.

2. The home manufacturers, being protected from wholesale dumping

of surplus goods, are in a position to carry on their industry on a more satisfactory footing than before.

3. The foreign producer must sell his surplus produce, and the import duty is generally borne by him.

4. The revenue brought in from import duties-if the import duty be general and not partial-saves direct taxation, and the home producer is thus enabled to produce at lower rates than when than when heavily

taxed.

5. A foreign monopoly which has maintained high prices is often killed by an import duty.

The philosophy of the whole matter has been explained by that great American statesman, Alexander Hamilton, in his famous report of 1791, as Secretary of the Treasury:

But, though it were true that the immediate and certain effect of a tariff was an increase of price, it is universally true that the contrary is the ultimate effect, with every successful manufacture. When a domestic manufacture has attained to perfection, and has engaged in the prosecution of it a competent number of persons, it can be afforded, and accordingly seldom or never fails, to be sold cheaper, in process of time, than the foreign article for which it is a substitute. The internal competition which takes place soon does away with everything like monopoly, and by degrees reduces the price of the article to the minimum of a reasonable profit on the capital employed. This accords with the reason of the thing, and with experience.

EXAMPLES OF FALL IN PRICES.

The following cases afford a few instances proving that the imposition. of a tariff does not necessarily raise the price.

M. Thiers, in his speech of January 22, 1870, stated that a tariff on

linen and cotton thread had reduced the price of a kilogramme of liner thread from 7 to 3 francs, and that the price of cotton thread had been reduced in greater proportion. In introducing the tariff, M. Thiers said:

It is urged that all the protection accorded to industries constitute monopolies; and, to enrich a few monopolies, we burden the whole country. It is true there is a monopoly, but it is not in France—it is in England. I say this little mon opoly which you accord to French industry destroys the monopoly ci foreign industry.

Under the high protective tariff in the United States between the years 1860 and 1883, cotton hosiery was reduced to nearly one-half the prices of 1860.

In 1867 a protective duty was inposed on wool. In 1872 there were in the United States 143 looms produc ing 1,500,000 yards of Brussels tapestry. In 1880 there were 1070 looms producing 16,950,000 yards. The price fell from $2.30 in 1872, to $1.50 in 1880, and to 93c. in 1890.

Mr. Wycoff, United States Census Agent, stated that the average decline in the value of silk goods was not less than 25 per cent, probably as much as 30 per cent, in fifteen years.

Salt under a tariff fell in price from $1.80 in 1866, to 74c. in 1882

Mr. T. Dudley, formerly Unite: States Consul at Liverpool, gave the following rates of fall unde the protective tariff between 1861 and 1883: Cotton goods, 25 per cent: woolen goods, carpets, etc., 25 per cent; silk, 35 per cent to 40 per cent: crockery, 37 per cent. In 1860 the duty on crockery was 24 per cent: the tariff imposed a duty of 40 per

cent, which was afterwards raised to 55 per cent ad valorem; and now many kinds of crockery are sold in the United States at lower rates than in England.

The manufacture of steel rails in the United States commenced in 1867; at that date steel rails cost $150 per ton. The duty was changed to $28 per ton, and in 1872 the price had fallen to $112. In 1874 it fell to $49, in 1876 to $39, and in 1885 to $27.

The report of the Committee authorized by the Senate to investigate the result of the McKinley Act has stated that in twenty-eight months the retail prices of 214 articles of common consumption declined 64 per cent and that wages advanced 75 per cent.

From an official estimate prepared for the use of the Senate of the United States, it appears that:

The price of barley, protected in 1890, declined 30 per cent, giving additional employment to 40,000 per

sons.

The price of beet sugar, protected in 1897, declined 20 per cent, giving additional employment to 5000 per

sons.

The price of carpets, protected in 1861, fell 10 per cent, with additional employment to 6600 persons.

The price of lace curtains, protected in 1897, fell 10 per cent, giving additional employment to 3000 persons.

The price of gypsum, protected in 1897, fell 33 per cent, giving additional employment to 3700 persons.

The price of wire nails, protected in 1883, fell 25 per cent, with increased employment to 8000 persons.

The price of steel rails, protected

in 1870, fell 80 per cent, with increased employment to 18,000 per

sons.

The price of watches, protected in 1870, fell 50 per cent, with increased employment to 1880 persons.

The price of silk, protected in 1861, fell 25 per cent, with increased employment to 77,000 persons.

Wages paid to operatives employed in the manufacture of silk rose from $297,000 in 1850 to $25,276,000 in 1905.

The number of operatives employed in silk manufacture in Great Britain diminished from 130,723 in 1851 to 39,035 in 1901.

on

TARIFFS AND WHEAT PRICES.

Many of those who are not satisfied with our present fiscal policy object to giving their adhesion to the movement in favor of Tariff Reform, on the ground that they disapprove of the taxation of food. This is an objection which a careful study of facts would at once remove. It is based on the mistaken assumption that a tax foodstuffs must increase their price. Experience has proved that this is not the case. The price of corn is generally regulated by the laws of supply and demand, and by the general conditions of exchange, currency, transport and production. Tariffs, in their direct action, have but little influence on prices, unless they are excessive or prohibitory. Under a wellregulated system of moderate import duties, there is an action tending to the equalization of prices in different countries, and this is maintained by constant telegraphic communication of brokers with the principal markets of the world. A few examples will

In 1888 the duty on wheat in Italy was raised from one franc per quintal to four francs, and practically the price of bread remained unchanged, the tendency being rather to a fall than a rise, although large quantities of foreign wheat were imported into Italy. Similar results ensued in Germany in 1892, when the duty was raised, and the price of wheat fell 9 per cent. Also in France, in 1895, when the duty was raised, the price of bread fell 7 per cent.

Again, when the duty of Is. a quarter was imposed in Great Britain in 1902, the price of imported wheat fell slightly, and it was only after this useful tax had been wantonly flung

away by Mr. Ritchie's economic pedantry that the price of wheat rose. A valuable source of revenue was thus foolishly sacrificed, and the bur den of taxation, which had been borne by the foreigner, was transferred to the British taxpayer with out a single compensating advantage. In all these cases it is evident that the burden of taxation fell upon the foreign producer, not upon the consumer. In the colony of Victoria, i 1888, under an import duty of 9s. 81. per quarter on wheat, bread was cheaper than in New South Wales, which admitted wheat duty free; the reason being that the Victorian farmer was protected from the influx ci foreign surplus, and consequently was able not only to grow wheat with confidence, but, owing to the reduction of other taxation, caused by the revenue derived from foreign imports, he was in a position to grow wheat at a cheaper rate. The internal competition was thereby stim lated to an extent which tended to a

fall, rather than a rise, in prices.

Of course, if the duty be so heavy as to be prohibitive, the price will rise in times of scarcity, as was the case when a duty of 12s. 6d. was imposed in France, when the "outside level" of prices was as low as 27s. or 28s. The price of wheat in France has lately been lower than in England. Few people realize the fact that wheat is only one of the many factors which make up the retail price of bread.

THE TIN-PLATE INDUSTRY. In 1890, the year of the McKinley tariff, the duty of one cent per lb. on tin-plate imported into the United States was raised to 2.2 cents. The

price at that time was 3.5 cents; and it fell to 2.9 cents under the increased duty in 1894, and thereafter steadily fell, until in 1898, it touched the low price of 2.2 cents.

The benefit, however, was not confined to tin-plate; but it led to increased revenue and capital to the country, and increased prosperity, employment and wages to those industries that were affected by the tinplate industry.

The measure on which Mr. McKinley laid the greatest stress, in putting forward his bill, was the development of the 'tin-plate industry. In reply to his opponents, he said:

"They insist that we cannot make tin-plates; so they said about plateglass, and cutlery, and pottery."

Before the passing of the McKinley bill, there was an import duty of one cent per lb. on tin-plates; but this was insufficient to keep the Welsh manufacturers' combine from swamping the struggling industry in the United States. In 1890 (the year of the McKinley Act) the Welsh Tinplate Association had raised the price of tin-plates from 2.9c. to 3.5c. per lb., with the duty added. The import duty, therefore, was increased 2.2c.; and this, according to according to the theory of Free Traders, ought to have raised the price to 4.7c.; but, on the contrary, the price fell to 2.9c. in 1894, and thereafter it fell steadily, year by year, until, in 1898, it touched the low price of 2.2c. per lb.

to

The great development of the canning trade and the consequent demand, however, caused a rise in the price of tin-plates, and this tendency was increased by the great coal strike,

and also by a strike of the tin-plate operatives, who obtained a substantial increase of wages; so that in 1898 the price rose to 3.2c., but it has since fallen to 2.8c. in 1906, as against 3.5c. in 1891.

In the ten years succeeding 1891, the yearly import of foreign plates to the United States fell from 327,000 to 52,000 tons, whilst the domestic production increased from 1000 to

400,000 tons.

Now, to sum up the results:

(1) The tin-plate industry has been successfully developed, and the Welsh monopoly destroyed.

(2) Capital has been largely attracted to the United States.

(3) Revenue has been increased by the import duty.

(4) Increased employment has been afforded.

(5) Wages of the tin-plate operatives increased.

(6) Cost of tin-plates considerably reduced.

(7) A saving of nearly $2,000,000 yearly, compared with the cost when the consumer was dependent on foreign supplies.

(8) The payment which formerly went to the foreigner for tin-plates, now circulates, through the wageearners, amongst retail traders, and gives additional employment to industries allied to the tin-plate industry, such as chemical works, iron works, mining, etc.

(9) The canning establishments have increased.

(10) More employment has been afforded in canning.

(11) More fruit and vegetables have been canned.

(12) An export trade of tin-plates has sprung up in the United States.

McKinley estimated that if the tinplates consumed were made in the