Sugar: A Lesson on Reciprocity and the Tariff

I TRUST the reader will not be repelled by the figures which I place at the beginning of this paper. They are needed to give point and precision to what follows, and they illustrate some general principles which are important in these days of colonial preference and reciprocity treaties. It is to these principles and their bearing on some current problems that I wish chiefly to call attention.

THE SUGAR SUPPLY OF THE UNITED STATES (IN MILLIONS OF POUNDS: 15 = 15,000,000 LBS.)

The figures need a few words of explanation and comment. They show the most important sources of sugar supply for the United States. They do not state all the sources of supply, nor do they attempt to follow the course of trade year by year. For an elaborate inquiry, such as a statistician or legislator might desire, much greater detail would be necessary. For the present purpose it suffices to indicate the broad facts. The figures are given in round numbers (so many millions of pounds), and at five-year intervals between 1875 and 1900; thereafter for the years 1903 and 1906.

The various sources of supply I have divided into three large groups. In the first are those foreign countries with which we deal at arm’s length, — whose sugar is subject to duties at our full rate, and whom we show no favors. In this group belong Java, Brazil, the British West Indies, Germany, and other European countries which send us beet sugar, and some minor countries not here mentioned, and negligible for the present discussion. In the second group are those regions which we now put on a favored basis, — whose sugar is subject to duty, but not to duty at the full rate. This partly favored group contains Cuba and the Philippines. Finally, in the third group are those dependencies whose sugar we admit free, and the strictly domestic sources of supply, which of course pay no tax. Here belong Hawaii and Porto Rico on the one hand, Louisiana and the beet-sugar districts of the West on the other. Each of these groups has sent us regularly, throughout the thirtyfive years, substantial contributions. The amounts from the several countries show large fluctuations, the cause of which we need not stop to consider. One circumstance, important for the reasoning which is to come, the reader should bear in mind : that there have been always large imports from the full-duty-paying countries, such as Java, Brazil, Germany.

One word more by way of preface. “Sugar,” as it is here to be spoken of, is raw sugar. Almost all the sugar used in the United States comes to us first in the raw state, that is, with some admixture of impurities which are got rid of in our refineries. The only considerable exception is the beet sugar made within the country, which is refined and made ready for consumption at the beet-sugar factories. All other sugar, whether it be cane sugar or imported beet sugar, reaches us raw, and then goes through the hands of the refiners, — or rather of the refiner, since virtually all of it must run the gauntlet of the American Sugar Refining Company. With the operations of this trust I shall not trouble the reader. It is one of the earliest of the trusts, and a very characteristic specimen; but it is no part of our present subject.

Turn now to one among the last mentioned of our sources of supply, — Hawaii. The political and industrial history of that peacefully acquired dependency all centres about sugar;, while our own experiences with its sugar are highly instructive as to sundry aspects of reciprocity and colonial expansion, and as to the general controversy on protection and free trade.

The figures on the imports of sugar from Hawaii show an extraordinary increase. Beginning with insignificant amounts in 1870 and 1875, these imports advance by leaps, doubling on the average in nearly every quinquennial period. Between 1890 and 1895 (take note of this period, on which more presently) there was indeed a relaxation, almost a standstill. But after 1895 the upward movement was resumed. This comparatively small region sent us in 1906 over seven hundred million pounds; and 1906 happened to be a lean year, — in 1905 the amount was over eight hundred millions.

This extraordinary growth is the unexpected outcome of the reciprocity treaty of 1876 and of the close-knit relations with the Hawaiian Islands which that treaty brought about. No result of this kind was looked to when the treaty was made. The islands were commercially inignificant in 1876. They had supplied little but sandalwood for a long time after Cook’s famous voyage of discovery in the eighteenth century; then they had become an outfitting centre for the whalers. They were supposed to have a “strategic” position in the Pacific Ocean, and Pearl Harbor (a fine bay near Honolulu, but not a commercial port) was regarded with longing eyes by the naval men. There was said to be danger that British influence would become dominant in the islands, and that they would fall into Britain’s lap. The treaty made in 1876 was advocated in Congress chiefly on political grounds and attracted no great attention. By it Hawaii undertook to give no other power a lien or lease on any of its harbors. A later convention, of 1884, gave the United States the express right to maintain a coaling and repair station at Pearl Harbor; a right of which we have never availed ourselves. The treaty further provided for the free admission into the islands of sundry American products, and for the free admission into the United States of sundry Hawaiian products. Among the latter, raw sugar (not refined sugar, which still remained dutiable) alone proved to be of importance; but that, as events turned out, of signal importance.

Our import duty on sugar in 1876 was about two cents a pound. That has been roughly the rate of duty ever since the Civil War, — with some fluctuations (not important for the present discussion) in the various tariff acts, and with a brief period of free sugar under the McKinley Tariff Act from 1890 to 1894. On Hawaiian sugar, after 1876, this sum of two cents a pound was no longer collected: the sugar came in free. Who got the benefit of the remission ? There were three sets of persons who might conceivably have secured the gain: the American consumer who in the end used the sugar, the American refiner who bought it in the first instance from the Hawaiian planter, and the Hawaiian planter himself. The American consumer certainly did not get it, and does not now get it. In the early stages the people of California and the Pacific slope were the only consumers of Hawaiian sugar, and most of it is still used in that region. Refined sugar has never been cheaper there than elsewhere in the country; nay, for a large part of the time it has been dearer. The consumer still paid an extra price equal to the tax, though the government no longer collected the tax. Next, as to the refiners, who might possibly have pocketed the gain. If they had made up a compact purchasing syndicate, still more if their business had been in the hands of a strong monopoly, they might conceivably have bought the Hawaiian raw sugar at the low price of neutral markets, and sold the refined product at the higher American dutyweighted price. But refining in California in the seventies was still in the competitive stage. The competition of the refiners promptly brought the price of the Hawaiian sugar to the price of other sugar in the United States, — that is, to the ruling price in the world’s markets plus the two cents of duty. The practice which established itself at once in California was to pay for Hawaiian sugar on the basis of the New York duty-paid price. And this practice has maintained itself ever since, notwithstanding the progress of consolidation and combination among the refiners. Claus Spreckels became king refiner on the Pacific slope; the Sugar Trust gradually gathered in the whole industry in the rest of the country; the two great rivals quarreled and fought, made friends and combined; but through it all Hawaiian sugar has been treated like other imported sugar, that is, has been paid for as if it were subject to duty. In other words, the persons who got the benefit of the remission of duty were — the Hawaiian planters. They were able to sell their sugar in the United States at a price two cents higher than they could have got elsewhere, while no duty was paid on it by them or by any one else. The remission of duty has operated virtually as a bounty on Hawaiian sugar.

This — to proceed at once to the general principle involved — is the normal effect, almost the inevitable effect, of any partial remission of duty. The gain enures not to the domestic consumer, but to the foreign producer. If, for example, we were now to conclude a reciprocity treaty with Canada admitting Canadian wool free, the wool-grower in Canada would pocket the amount (ten cents a pound in our present tariff) so remitted. Other wool, from Australia and Argentine and elsewhere, would still have to be imported, paying the ten-cent duty; the ruling price in this country would still be the duty-paid price; and that price the Canadian wool-grower would secure for his wool. Or if England were now to impose a duty of a shilling a quarter on wheat in general, and yet admit wheat from Canada free, the British consumer would pay the extra shilling on all of his bread, but the Canadian wheat-grower would pocket the shilling on that portion supplied by him. This, of course, on the supposition that the Canadian wheatgrower could not send to England enough wheat to displace all other supplies. So long as other countries — the United States, or Russia, or Argentina — were called on to send to England part of the wheat she bought, and so long as duty had to be paid on that wheat, any duty-free colonial wheat would get a bounty of the amount of the duty. If indeed Canada could supply all the wheat imported by England, and could produce that wheat at a cost as low as in countries that now supply England, then importations from elsewhere would cease, and competition among the Canadian growers would keep the price in England down. And then, of course, “preference” would be merely nominal. Such an outcome obviously would be quite an impossibility now, and an improbability even with the utmost extension dreamed of for the wheat-growing regions of the Canadian northwest.

Reciprocity and preference are thus devices of doubtful effect. If partial in their operation, they bring a charge on the domestic consumer for the benefit of the foreign producer. But if of larger reach in their effect, they amount to the same thing as general reductions or remissions of duty. The latter is the usual effect of reciprocity arrangements. They are usually applied — perhaps not at the outset, but by a more or less gradual application of the most-favored nation principle — to a series of countries, and thus have the effect of a reduction of duties all around. Such was the outcome of the net-work of reciprocity agreements which overspread Europe for a generation after the famous Anglo-French treaty of 1860. Such is likely to be the outcome of the commercial treaties, and of the maximum and minimum tariffs, about which European countries are now higgling and which we in the United States are often advised to imitate. They are bluffs, so to speak, designed to bring about a relaxation of tariff pressure all around. But not all reciprocity arrangements are of this beneficial, or at least harmless, kind.

To return to Hawaii, which presents the most striking example of partial reciprocity. The extraordinary advance of sugar-growing in the islands (Oahu, on which Honolulu stands, is the most important of them) was the direct result of our bounty by way of remitted duty. Considerable parts of the island are fitted for this crop, having a climate sufficiently warm and equable, and the abundant precipitation which the sugarcane needs. With an extra two cents a pound added by the United States, profits were enormous. The planters who reaped these profits — that is, pocketed the bounty — were chiefly Americans, or of American extraction. Some were descendants of the American missionaries who had gained during the preceding half-century such remarkable success in converting and ruling the natives. Some were new arrivals, who hastened to exploit this rich opportunity. Among the latter was the astute Spreckels, who combined the profits of Hawaiian planting with those of Californian refining, and naturally became a dominant figure in the islands. The great planters succeeded the missionaries as the real power behind the pasteboard Hawaiian throne. There never was a more hollow royalty than that of the latter-day Hawaiian kings and queens.

This enviable situation with its mounting output of sugar, the rapidly growing population in the islands, high prices of plantations and high dividends on plantation stocks, had a rude shock in 1890. In that year our McKinley Tariff Act admitted sugar free of duty, — the one notable concession then made to the feeling that sometimes there might be a public gain from reducing taxes. Consistently with the protective principle, the Louisiana sugar-growers were placated by a direct bounty of two cents a pound. With the duty swept away, they would have to accept a price for sugar lower by two cents; the bounty of that amount left them as well off as before. But the Hawaiian planters, who also had to face the lower price, got no bounty. They had to accept for their sugar the rates of the open market, like the planters of Cuba, Java, Brazil. Hence great depression in the islands, and much soreness of heart. The hard times that ensued meant, to be sure, not that profits had disappeared, but that the extravagances of the past were gone. Sugar-growing simply got down to hard pan. But heavily-watered plantation stocks shrank, and planters’ expenditures could no longer be on a recklessly generous scale. It is said, too, that the methods of growing and grinding and extracting were vastly improved during those times of pressure and close calculation, — not an uncommon economic gain in periods of travail.

The uneasiness and discontent bred by this pressure led to the Hawaiian revolution of 1892, and to the treaty which the Harrison administration made for the annexation of the islands to the United States. It would not be just to say that sugar and reciprocity, and a desire to get once more under profitable cover, were the sole motives for the upsetting of the pasteboard monarchy. The queen Liliuokalani and her predecessor Kalakaua had not been creditable specimens of royalty, and doubtless were a good riddance. Among the planters themselves there was some division of opinion as to the expediency of annexation. None the less it is clear that the root of the movement was in the sugar situation, in the wish to get back somehow into the golden relations with the American market, This was certainly the case when annexation was finally accomplished. It will be recalled that the Cleveland administration, on coming into power in March, 1893, withdrew from the Senate the annexation treaty concluded by its predecessor, and caused the collapse for the time being of the whole movement. But the Hawaiian monarchy was gone for good, and the Hawaiian Republic (with a carefully guarded suffrage !) took its place. Very soon after, in 1894, the United States again imposed, in the Milson Tariff Act, a duty on sugar; not quite so high a duty as that before 1890, but high enough— Hawaiian sugar being always admitted free — to restore a handsome bounty for the island planters. Good times returned, and were rendered more secure by the final annexation of the islands in 1898. As soon as President Cleveland went out, the McKinley administration emphasized its adoption of directly opposite policies by renewing the negotiations for annexation. A treaty for annexation was concluded as early as June, 1897; but ratification by the Senate did not come until 1898, when the Spanish War and the Philippine conquest brought an added pressure. The favored position of Hawaiian sugar rested thereafter not on the basis of a revocable treaty (the treaty had become, after 1894, terminable at twelve months’ notice), but on the solid foundation of a complete incorporation in the American dominions. Sugar-planting, which had barely held its own from 1890 to 1894, now resumed its upward march. New plantations were opened, old ones enlarged their output, more and more sugar was poured into the United States, and the islands again boomed.

The increase of the Hawaiian sugar crop during the last ten years has taken place in a way that serves to illustrate still other economic principles. The tendency to diminishing returns in agriculture — the inability to add indefinitely to the output without an increase of cost — has shown itself as the sugar-growing resources of the island have been pushed further. The best plantation lands have now been in use for many years. As more sugar was got from the soil — even for the maintenance of an output at the existing rate — it became necessary to resort to high cultivation. The Hawaiian plantations, hence, are large importers and users of fertilizers. Therein they are in contrast with Cuba, where sugar land is abundant, and where, as one batch shows signs of exhaustion, the planter simply moves on to another virgin plot. Not only is there this pressure on the good sites in Hawaii: there is a tendency also to descend in the scale of cultivation, and to use poorer and poorer sites. Where the rainfall is insufficient or irregular, great irrigation plants have been established. In one notable case, it was proposed (I know not with what success) to use the falling water on one side of a mountain to generate electric power for pumping that water to the other side of the mountain, into a dry valley, — all in order to grow sugar.

To the economist, this seems sheer industrial waste; and waste of the sort which constitutes the earmark of an ordinary protective duty. The Hawaiian planters are now sheltered by the mantle of protection which we draw around all our sugar producers. So far as they can produce sugar as cheaply as their foreign competitors, the rise in price due to the duty (now roughly 1 3/4 cents a pound) is a clear extra profit. Such is the case with probably the larger part of the Hawaiian product; the American consumer here pays a plain bonus. The old-fashioned free-trader would say it was a case of robbing Peter to pay Paul. So far as the Hawaiian planter pushes his land to extra yield by expensive cultivation, or turns to land where the yield is by nature light, he may make little or no extra profit. Then the higher price simply enables him to carry on sugar-growing where he could not do it otherwise. The old-fashioned free-trader would say that in this case Peter was robbed in order to pay Paul for carrying on an industry that was not worth while. The only consolation this old-fashioned person would find in the situation lies in the probability that the operations have reached their term. It is said, apparently with good ground, that the sugar-growing capacity of the islands has been taxed to its limit, and that no considerable increase of output is to be expected in the future.

Still another aspect of the Hawaiian experience is instructive, — its labor problem. Cane-sugar-growing calls for hard labor in the hot fields. The lighthearted, easy-going Kanaka proved poor material for this sort of thing. Indeed, he has withered away in the contact with civilization. The number of the native Hawaiians — even if those of mixed blood be included — has steadily declined for the last half-century, and they now form less than a quarter of the total population of the islands. The Chinese coolie was soon resorted to, and was brought into the islands by the thousand. He came in under a “penal labor contract,” That contract doubtless was devised and administered with as much humanity as such things permit. But, as an agent of our Department of Labor remarked in a recent official report, it had “all the advantages of slavery without its disadvantages.” Some experiments in bringing Portuguese from the Azores had had no appreciable results; but the contractheld Chinamen supplied the planters with the labor needed for growing their sugar. But behold! Annexation, which solved one part of the planters’ problem, brought troubles of its own. The immigration of Chinese into American territory was prohibited by our laws; and the “penal” features of the old Hawaiian labor contract — those which enabled the planter to hold his coolies to the work, willy-nilly, throughout the stipulated term of years — were also void under American law. Therefore other laborers, hired under less rigorous agreements, had to be resorted to. The Japanese are available, — plentiful in numbers and tough workers. But they are, from the planters’ point of view, too intractable. They “make trouble;” they ask for higher wages; they even strike. And they push their way farther, using Honolulu as a stepping-stone toward our Pacific coast, — a movement equally umvelcome for the community which they leave and for that which they join.

There is a new ferment in the islands among the laborers, and a new uneasiness among the planters. These latter have a strong wish to get the Chinaman again, by securing from Congress a relaxation for the islands of the prohibition against him. Our Department of Labor has proposed, on the other hand, that the immigration of real farmers be encouraged, — men of European blood who will settle on plots of land of their own. Both proposals are futile. Congress would not admit the Chinaman, irrespective of any solid merit in the proposal for doing so. The American or European laborer, even if he could secure Hawaiian land, could find nothing comparable in attractiveness to what our own United States can offer. The islands no longer have the apathy of servitude, yet their unrest is not the healthy unrest of a true democracy.

These social conditions obviously are not consonant with the ideals and traditions of democracy. A great mongrel mass of sugar-plantation laborers, — Chinese, Japanese, the wasting Hawaiians, a very few Portuguese ; above them an oligarchy of rich planters, with their bankers and shipping agents and other associates, and a few hangers-on; all dependent on a single industry puffed to unnatural dimensions by legislative favor, — this is not a congenial addition to the American Commonwealths. Nor does there appear any prospect of improvement. The situation is not unlike that of the South before the war. It is much less promising than that of the present South, grave as this may be; for the present South has industries inherently strong, and in its race problem finds among the negroes at least hope and ambition to become worthy citizens of a democracy.

Most people think of an addition to a nation’s dominions as they do of an addition to an individual’s possessions. John Smith is more prosperous if he acquires more real estate; and the United States are supposed to be more prosperous if they acquire more territory. Hence we are willing to pay twenty millions for the Philippines, and think we do well to get Hawaii of its own offering and Porto Rico by right of conquest. In truth, they are doubtful boons. If indeed new acquisitions serve to open, for settlement and utilization by a vigorous race, territory that otherwise would have lain fallow, there is a real gain. Such was the result of the Louisiana purchase, and of the acquisition of Texas and of the Pacific coast. These expansions, too, made possible a great extension of the geographical division of labor. How much has the beneficent influence of unfettered trade between the different parts of our nation been increased by the vast area over which it is in effect! And even if there be no possibility of true colonization, the acquisition of tropical or semi-tropical countries may bring a gain if it promotes the free exchange of products under conditions of real advantage. But no such gains have come from our newly acquired dependencies. I see little in the whole Hawaiian episode but one long course of error. The American consumer has paid for thirty years (barring the brief respite while the McKinley Tariff Act was in force) a tidy sum annually to the Hawaiian planters. In recent times this tribute has amounted to twelve or fifteen millions of dollars a year. For this we have nothing of any real value to show, — unless it be that we have a steppingstone to the Philippines, another dependency hardly less unprofitable.

I have referred to Porto Rico. The situation is obviously the same so far as that island’s sugar is concerned. That, too, comes in free of duty, and that, too, sells at a higher price, just as if duty were imposed on it. The American consumer pays virtually a bounty to the Porto Rican planter also. This bounty has been in operation but a few years; yet its influence will be seen in the rapid growth of our imports of sugar from the island. In 1900 they were but seventy-two millions of pounds; in 1906 they were already four hundred and ten millions. Here, as in Hawaii, it is not the laborer delving in the canefields, but the capitalist planter, who chiefly pockets the bonus. And that capitalist, as in Hawaii, is usually one of our own money-makers. “Interests closely associated with the American Sugar Refining Company” — such is the sort of polite phrase the financial journals use — have invested in Porto Rico sugar plantations, and profit handsomely thereby.

Turn now to the Philippines. Under the legislation at present in effect, imports from the Philippines are admitted with a reduction in duties of twenty-five per cent; that is, they pay three-quarters of the ordinary rate of duty. They get a bonus, in other words, of one-quarter of the duty, or about 2/5 of a cent a pound. This is modest as compared with our largess to the Hawaiian and Porto Rican planters ; but it might be a neat source of profit. As yet, nevertheless, it has had no appreciable effect on our imports of sugar from the Philippines. This may be due to the unsettled industrial conditions which unhappily persist in so many parts of the archipelago. It is probably due still more to the special adaptation of the islands for growing their hemp, which seems to offer possibilities greater than those of sugar with only a moderate bounty.

Not a few persons to whom the Philippines present an unwelcome problem nevertheless maintain that, so long as we have them on our hands, we should deal with them generously. Their people are knocking at our doors: let us throw the doors wide open! Secretary Taft has pleaded steadily for complete free trade with this dependency. The hold which this proposal has obtained among both the opponents and the advocates of colonial expansion is probably due in large part to the notion, so long dinned into our ears by the protectionists, that an import duty is a tax, not on the domestic consumer, but on the foreign producer. So considered, the duties on Philippine products are reprehended as unfair now that the Philippines are part of ourselves. Rightly considered, however, the question is not whether we should tax them. The question is whether we should tax ourselves; and whether, in remitting duties, we really free ourselves, or maintain the burdens of taxation in such a way as to give the Philippines special favors. So far as the imports which they would send us free of duty are of the sort which they can supply in quantity sufficient for all our needs, remission of duty means complete remission. This brings benefit to the American consumer as well as to the Philippine producers. Such is the situation as to Manila hemp, which, as it happens, already comes in free. But why admit Philippine sugar free — retaining our general sugar duty — and so extend the policy which has brought such ill results in Hawaii ?

There are those, doubtless, to whom the altruistic side of a Philippine policy appeals, and who might be willing to pay a bonus on their sugar and other imports as one step toward the fulfillment of our moral obligation to do our best by the people of the islands. This is the only side of the case that appeals to me. I can see no economical or political or social gain from our ownership of the archipelago. But having forcibly secured possession, we are bound to do all that in reason we can toward uplifting the inhabitants. Good government, good education, good roads, a good monetary system, and, not least, examples of good character and morals, — these we can and should provide. And, unwelcome and unprofitable as the dependency may be, it is to be said that our administration of its affairs has been on the whole wise and helpful, and has supplied these things; a balm to our conscience for which we are indebted above all to Secretary Taft. But to give the islands favors by special privileges to their products, — to put their industries on an artificial basis, — this is not only costly for us, but in the long run bad for them. It is much better that they should develop industries that can stand on their own bottom. Hence indiscriminate free admission of all Philippine imports, irrespective of their relation to competing imports, and regardless of their effect on our own consumers, is not sound policy.

Finally, our relations with Cuba deserve consideration. After what has been said of the other regions, this one can be disposed of briefly. By the reciprocity treaty concluded with Cuba in 1903, we admit Cuban sugar with a reduction in duty of 20 per cent. It pays four-fifths of the full duty. It is thus put in nearly the same favored position as Philippine sugar. But, unlike the Philippines, Cuba, as has already been noted, sends us great and growing quantities. Its climate, especially on the southern side, its soil, its great area, its ease of access, make it the great natural source of supply. But it cannot grow all of our sugar, — at least not yet. Other countries must be called on to yield the immense amounts which our prosperous millions buy. Sugar still comes in from full-duty-paying countries as well, — from Java, Germany, Brazil, and what not. Cuban sugar, hence, sells at the duty-paid price, and so gets its bounty too: 20 per cent of the duty, or about 1/3 of a cent a pound. Now, sugarplanting in Cuba is profitable without any bounty at all. Under good management, it is highly profitable. With 1/3 of a cent extra it is even more highly profitable. The American money-maker has again not been slow to see his opportunity, and the American investments in Cuban plantations, considerable before, have been much increased in recent years. So tempting and so easily reached is the field that — given peace and security in the island—it is certain that the sugar crop will rapidly grow. As the figures show, it has already increased fast since 1900. Probably before many years the Cuban output, with that from Hawaii, Porto Rico, the Philippines, and Louisiana, and Western beet sugar, will supply all our needs. The foreign countries which now send in sugar that pays full duty will be crowded out. The price will then fall to the Cuban basis, —the effective duty will be four-fifths of the present full duty. The special advantage to Cuban sugar will then disappear, and (practically) that to Philippine sugar also. The only really favored regions — and those somewhat less favored than now — will then be the tax-free portions of our own domain, — Hawaii, Porto Rico, Louisiana, the beet-sugar districts in our Western irrigated lands.

This, however, is prediction, or guessing, as to the future. The present situation can be made out with very little guessing. Let us bring together the various items considered in the preceding pages and see where we stand.

The situation can be summarized in the form of a statement of account which we may suppose our government to submit to the sugar consumers, that is, to the taxpayers. In such a consolidated balance-sheet, the government would properly put on the debit side all that it has taken from the consumers in the form of the higher prices which its taxes cause them to pay. On the credit side it would show what has become of the money, — how much has flowed into the Treasury and so become available for public expenditure, and how much has gone elsewhere. An account of this sort for the year 1906 would stand as follows: —

U. S. GOVERNMENT IN ACCOUNT WITH U. S. SUGAR CONSUMERS FOR THE YEAR 1906

Let the reader take warning at once that this account is cooked — a little. It cannot be made out with such accuracy as the figures seem to exhibit. The very first and most important item — the total charge on the consumers, here put at $101,000,000 — cannot be stated with precision. Our duty on sugar is a very complex one, graded according to color and saccharine content. It ranges from less than a cent a pound on the cheapest and dirtiest sugar to nearly two cents a pound on sugar completely refined. The grade most largely imported — comprising, in fact, two-thirds of the imports — is chargeable at 1.65 cents per pound. I have tried to take a fair average, and have figured out a charge on the consumer such as is stated in the account. It is not perfectly accurate, but it is near enough.

And similar allowances need to be made on the other side of the account. The amount received by the sugar producers depends upon the higher price of their sugar due to the duty; which again depends on the quality of what they supply. The Cuban and Hawaiian planters send us raw sugar of excellent quality, and get the full benefit of the 1.65 cent rate of duty. Philippine sugar is much dirtier, is subject to lower duty, and is less raised in price. There is probably some allowance to be made also for the fact that, at certain seasons of the year, the Cuban crop dominates the market, and that for a while this is not raised in price by the full duty. Something also ought to be reckoned on both sides for the extra duty on refined sugar; though this, effective as it may be in swelling the profit of the sugar trust, is a very modest item compared with the burden from the duties on raw sugar.

But all these corrections would not affect the significance and the essential truthfulness of the account. The broad unquestionable fact is that our sugar duties cause the consumers to pay in the way of taxes one hundred millions of dollars, and that only one half of this goes into the Treasury as revenue, while the other half goes to the sugar producers. We hand over to the sugar planters and producers in Hawaii, Porto Rico, Louisiana and the Western States, Cuba, the Philippines, a round sum of fifty millions a year. All of this is not extra profit to them. A good part, to be sure, is really extra profit; it is so for those among them who could produce the sugar with sufficient profit even without the bonus. For some of the producers it serves as inducement to enter on an industry which they could not maintain except for the bonus. Whether it is worth while to give the inducement in such a case raises the essential question at issue between protection and free trade.

On mere fiscal grounds there is something to be said in favor of a duty on sugar, — not at the present comparatively high rate but at perhaps one-half that rate. But on mere fiscal grounds the tax should be collected on all sugar. Then the sums paid by the consumers would bring just so much revenue into the public treasury. This, in my judgment, would be the statesmanlike policy, to be adopted if our hands were free. But our political and international relations being what they are, it seems not within the bounds of the practicable. Next best, and almost as good, would be the cutting of the Gordian knot by admitting all sugar free of duty once for all. No doubt in view of the large capital investment, especially among the Louisiana factories, some mercy should be shown to the strictly domestic producers, — perhaps by a bounty, such as the McKinley Act gave, for a term of years long enough to enable them to accommodate themselves to the new régime. Even a permanent bounty to them would be much cheaper for the community than the present arrangement, and would have some advantages as a clarifying lesson on the true meaning of protection.

I am no devotee of natural laws in economics. Those who appeal in our day to natural law, or natural liberty, are apt to have in mind freedom from wholesome regulation, or license to prey on some one else. Nor am I unwilling to admit that public aid, by protective duties or otherwise, sometimes has good results. Inquiry in each particular case is to be made, soberly and without bias. But it seems clear to me that prima facie a protective duty brings a loss, and that any offsetting ultimate gain needs to be proved. In this case of sugar, precious little, if anything, can be made out in the way of gain. Certainly our remissions and preferences to the dependencies stand for so much pure loss. Reviewing the whole episode, I feel a great temptation to use again the old phrases, and to ask, with Adam Smith, for a return to “ the obvious and simple system of natural liberty.”