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system of apprenticeship to trade had al-ally kept.* Such a disproportionate excess most ceased to exist; skilled labour was of income over expenditure could not in difficult to obtain at any rate of wages, and the nature of things be permanent, and the when obtained was no longer that of native time had now come when the tide which but of naturalized citizens. All parts of had thus far floated the country over all its the country continued to grow in popula-perils had reached its highest point and had tion, but the growth of the cities was out begun to ebb. The year 1867 was everyof all proportion to that of the rural dis- where one of stagnation and disaster. The tricts. The currency acted as a violent United States suffered no more, or even spur to speculation, and as a screen for less, than many other countries; but there unfair profits. Taxation amounted to 21. was a general fall of about 10 per cent. in 7s. (gold) a head, against 21. 5s. in Great prices, and a sharp pressure on profits and Britain, and 17. 13s. in France. Smug-wages - the premonitory symptoms of a gling had become a system, and fraud a return to the natural conditions of industry. habit. Rents and the prices of staple arti- Congress, meanwhile, had on the 2nd of cles of consumption had risen nearly 90 per March 1867 made another reduction in cent. in six years. Exports had diminished taxes to the extent of about 8,000,0007., and imports increased in value, while the accompanying this gift by extravagant difference had been paid in United States appropriations calculated to counteract all bonds. Flour could be imported from Europe at a profit. The shipping interest was almost destroyed, not merely by the war, but by the cost of materials and the absence of freight.
The flush of returned peace, the flood of money poured out from the Treasury and the heavy investments sent from Europe to purchase American securities, carried the nation easily over its first year of repose before the Government had thought it necessary to adopt a single measure for the prevention of its threatened difficulties. The revenue furnished a surplus* of 7,600,0007. for the financial year which ended on the 1st of July 1866. The only law which Congress passed for reducing the taxes dated from July 13th, fifteen months after the war had ceased, and gave relief to the amount of about 13,000,000l. on articles of first necessity, without touching the system itself which was now beginning to rouse deep popular discontent. The second year began so prosperously for the Treasury that Mr. M'Culloch, in his annual Report of December 1866, was able to promise a surplus for the 1st of July 1867 of not less than 30,000,000l., a promise that was liter
attempts at enforcing economy for some time to come and to make proper reforms impossible. By the close of the year 1867, the growls of popular dissatisfaction became so energetic that there was no longer a possibility of neglecting them, especially since the general election of 1868 was close at hand, and there was great danger that the dominant party in Congress might lose its control of power unless some attention was paid to the public interests. Popular forbearance had been severely tried. After three years of experience, the fact was no longer to be disguised that the whole revenue system was a mass of corruption, intolerable even in America, where public opinion tolerates abuses such as would excite in England a revolution. This statement may seem exaggerated and unfair, but our language is weak when compared with the official reports of the authorities who, next to the President, were trusted with the execution of the laws. Mr. Rollins, the Commissioner of Internal Revenue, in his Report of December 1867, speaks as follows of his own department.
309,226,813 Direct tax
67,119,369 Internal revenue
esigns upon the revenue and its officers, could fore of necessity have defrauded the Govbe truthfully written, the very safety of our ernment, and the public must have paid to institutions might well be questioned. The fraudulent distillers and their agents at failure to collect the tax upon distilled spirits, and the imperfect collections from several other objects of taxation, are attributable more to the frequent changes of officers, and to the inefficiency and corruption of many of them, than to any defect in the law. I write this in the advocacy and the defence of every worthy, honest officer, but I write it with shame. The legal evidence of its truth may never be found, but the moral evidence is patent to every thoughtful observer. There is reason to believe that more public dissatisfaction arises from the failure to secure the tax upon spirits than from all other causes combined, and unless some remedy is obtained, I apprehend further lemoralization extending through other sources of revenue, and corrupting even the business
relations of individuals.'
Mr. Wells spoke still more strongly :
The necessity involved imperils not only the revenue, and consequently the public credit, but even the very existence and maintenance of republican institutions. What a spectacle is to-day presented to the country of the law in repeated instances breaking down; of a large proportion of the assessed internal-revenue taxes remaining uncollected, or collected for the benefit of some other recipient than the national Treas ury; and of fraud and incompetency in official position becoming daily more apparent and disastrous in their consequences. But in this exhibit, painful as it is, the case is only half stated. The demoralizing influence of successful evasion of the revenue and the accumulation of profit thereby, has penetrated deeply into the community, and public sentiment has become influenced to such an extent that no serious disgrace attaches to transactions in which Government is a party, which, if committed against individuals, would be universally branded as infamous.'
least 10,000,000l. per annum, which belonged of right to the national Treasury, This immense plunder created an organized interest commonly known as the whiskyring,' which pursued systematically the business of deceiving or corrupting the Government officials with such success as Mr. Rollins and Mr. Wells have described in the extracts we have quoted. Nor was this an isolated case. The frauds in tobacco, fermented liquors, and coal-oil were believed to be relatively greater than those in distilled spirits. According to universal agreement, little more than half the internal taxes were now collected, while, of the other half, two-thirds probably went into the pocket of the fraudulent dealer in order that the public might save the other third.
The Treasury groaned and Congress stormed over so scandalous a condition of affairs. The press grew absolutely weary of complaint, and timid citizens trembled at a future which seemed so probable and so national service that venality showed itself unexpectedly near. Nor was it only in the superior to Government and more powerful than law. The great corporations whose wealth and power were now extending beyond limits consistent with the public interest, found no difficulty in buying whatever legislation they wanted from the State Legislatures, and whatever justice they required from the elective judiciary of New York. The facts were notorious. A mere glance at the daily press of New York is enough to show that the general want of confidence in men and institutions closely resembled a panic.
There is, however, one peculiarity of the situation which strikes an English mind with The duty on distilled spirits which threat- especial surprise. That the head of the ened the very existence of republican insti- most important service in the Government tutions, and threatened it more seriously should calmly accuse his subordinates in a than all the armies of the rebel confederation, mass of being in collusion with thieves, amounted to about eight shillings (currency) seems astonishing, but that after such an the gallon, which was two shillings less than accusation everything should go on as bethe English duty when reduced to the same fore is almost incredible. One assumes as standard of measure and of value. The a matter of course that some political jealproduction of distilled spirits at a moderate ousy was involved, and that the charge was estimate was forty-five million gallons per at once denied by the Secretary of the annum, which should have produced a rev- Treasury or by Congress. Nothing of the enue of 18,000,000l., and actually produced kind occurred. On this point Mr. M'Culin its best year about 6,000,000l., while even loch was in sympathy with Mr. Rollins, this small receipt fell off to 3,000,000l. in while members of Congress had good reason the year 1867-8. During the whole exis- to know that the charge was true, since it tence of this tax, the market price of dis- was their influence which had appointed to tilled spirits was never sufficiently high to office these very men who were now shown yield anything but a loss to the distiller after to be thieves. The accusation was undepaying the tax. Every distiller must there-nied, and no man in the United States
doubted its truth, yet nothing was done to in their support of the winning cause, few correct an evil which in England would have members of Congress would be too curious cost the strongest Ministry its office, and about their accounts, and complaints might the largest Parliamentary majority its seats. commonly be stifled. The system was one The secret of this inaction lies below the which tendered directly to interest the offisurface of American politics. Whatever cer in encouraging fraud or in assuming its may be the amount of social corruption in existence, because he could thus control the United States, and we believe it to have the influence of the fraudulent and somebeen greatly exaggerated, the political cor- times of the honest dealer under a threat of ruption is serious. Primo magis ambitio ruin, while either political party was interquam avaritia animos hominum exercebat. ested in supporting and protecting the offiParty organizations in America have ob- cial who acted most effectively in its behalf. tained a wonderful development and a dic- The disorganized condition of the Governtatorial power. Kesting as they must upon ment under President Johnson left no check the most numerous and therefore the poor- to this form of corruption, but it was not est classes of society, they undertake to ac- peculiar to that or any other Administracount for the political opinions of every cit- tion. It was an essential part of the politizen. They are marvellously effective, but ical system, one of the most effective and they are excessively costly, and they can only necessary agents in party organizations. be held together by two influences, money The remedy was simple, had parties honestly and patronage. Few men are so pure as to wished it; for, without any legislation whatdevote their time and labour to an organi- ever, a mere abandonment of the practice zation of this sort from mere motives of pa- of removal from office without cause would triotism. The United States Government, in a short time have corrected the evil, but in consequence, has never had an efficient parties could not persuade themselves to civil service, since for forty years past it has cut away the props of their power. Mr. been almost constitutional law that no civil Rollins indeed could say that he wrote his servant of the Government holds his place charges with shame, though he had no peron any other tenure than the will of the po-sonal share in these abuses, but as between litical party in power; and this right of removal, with its corresponding right of appointment, has been the most highly valued prerogative of office and the most effective weapon in party warfare. Even the President clings to his right of personally appointing to small offices. Any English visitor who calls upon him in his private cabinet, may see in the ante-room the applicants for office waiting hour after hour for a personal interview. Each President in turn Mr. Lincoln not less than Mr. Buchanan, and Mr. Johnson not less than Mr. Lincoln - has fostered this abuse of power. Each member of Congress nurses still more carefully the share of patronage which falls to his hand. If a friend of the Administration, he may control his constituents by alternately bribing or threatening the local politicians who control the primary caucuses of their party; and if an enemy of the Administration, he has almost a greater influence in the possible patronage which a party triumph may bring. This practice was barely tolerable before the war, when the executive patronage was small; but the new revenue system vastly increased the number of officials, and gave to them powers which until now had been unknown to the United States. They were able, if they chose, to annoy and perhaps to ruin their enemies, and to make the fortunes of their friends. If they were zealous and generous
the two great political parties, to one or the other of which every citizen was almost obliged to belong, there was in respect to this kind of corruption very little to choose. The evil has now flourished for years at an expense of 20,000,000l. per annum to the Government according to estimates furnished by the Treasury officials, but there is only a vague and distant prospect of any vigorous action on the part of Congress.
Congress could, however, and did storm violently at the whisky-ring,' and at all the other rings' which infest American politics, while members who have thought themselves disgraced by the offer of their money, did not hesitate to use their political power. Nevertheless, the public discontent was now beginning to fasten upon particular abuses like that of the whisky-tax and frauds on the revenue, symptoms of the disease but not the disease itself, and with declining revenue, suffering industry, and an imminent general election, Congress, on meeting in December 1867, felt that prompt action was urgently required. Its first reform was such as its enemies might have predicted. It instantly passed an Act stopping the contraction of the currency, while Mr. M'Culloch in despair urged that, if only the power were left him, he would promise not to use it. The next reform was to repeal the tax on cotton. A third law, approved March 31, 1868, swept from
the statute-book all the remaining taxes on great part of the debt seems nearly practimanufactures; and, finally, after long and cable. The leader of the House ventures painful discussion, the tax on distilled to hope for a surplus of 20,000,000l. for spirits was reduced from eight shillings to the year 1869-70; and with only ordinary two shillings and sixpence the gallon. prudence the taxes may be greatly dimin These reductions were equivalent to a sac-ished, and at the same time both capital and rifice of 14,000,000l. of revenue without interest of the debt considerably reduced. estimating any loss from the duty on spirits. They were in themselves wise so far as they went, and they cured some part of the disease, not by purifying the system, but by narrowing the area of corruption. They were not reform itself, but they were the last expedients possible before Congress was driven to reform. A single further step will oblige the nation to study its own condition and to understand its dangers. Meanwhile the financial year ended with a surplus of nearly 6,000,000l.
No further reduction of taxes was attempted in the session which has just closed, but we believe that the result of the financial year ending with the 1st of July next, will show a considerable surplus of revenue, which may be moderately estimated at 4,000,000l. In the meanwhile, the new, reduced tax on distilled spirits, which for a time seemed to answer every purpose of its supporters, has proved as ineffective as the heavier duty. The price of distilled spirits has again fallen to a point which proves the existence of fraud; and the distillers, driven from the eastern cities, have succeeded in corrupting western officials by some process which the Government has hitherto failed to discover. The new Administration, however, has undertaken to purge the revenue service, and will probably succeed in better collecting the taxes. On the other hand, Congress has finally settled the fate of repudiation by passing with large majorities in both Houses a Bill which pledges the country to redeem its bonds and notes in coin; and the success of this measure, supported by the energetic language of President Grant's inaugural address, has already raised the price of United States securities until a reduction of interest on a
If we now sum up the results of the four years, we shall find that a debt, which if funded at the close of the war would have reached 600,000,000l., has been successfully converted into 6 per cent. bonds for the most part, and reduced to 530,000,0007., paying 26,000,000l. annual interest, These bonds will be redeemed and the interest lowered whenever the Government succeeds in borrowing at a cheaper rate. During the administration of General Grant the financial policy may be considered as fixed, and all danger of interference with the creditor, except on just terms, at an end; but long before these four years are over it is probable that the 5-20 bonds will all be redeemed, and the question of repudiation settled by the issue of new certificates bearing a lower rate of interest, and payable by law in coin.
The currency question remains untouched; but if the funded debt is successfully treated, and the capital gradually reduced, the floating debt must sooner or later be redeemed. We do not, however, venture any opinion as to the process which will be followed or the time which will be required.
The internal-revenue taxes have been reduced about 35,000,000l., and most of the worst burdens have been removed from industry; but the import duties have not been touched, and the revenue service, in both its branches, is a public scandal.
If we are right in our statements, it is clear that what progress the United States Government has made in settling its financial difficulties has been due to its resources, and not to the skill with which its resources are managed. A more extravagant and wasteful system than the one adopted in America does not exist in any civilized country. The internal-revenue system, it 164,464,599 is true, has now been reduced to very mod1,348,715 1,788,145 erate proportions, and the amount of tax 191,087,584 collected (28,000,000l.) is not great; but 46,949,033 even this moderate sum costs the people $405,638,081 dearly. There is a difficulty peculiar to America in the way of excise taxes, a difficulty of enforcing law. The Government began boldly and confidently with the theory that political economy as practiced in $377,340,282 Europe was applicable to the United States, but no Government ever deceived itself $28,297.800
(5,800,0002.). more completely. Within a very short
space of time it was proved that not only price of the import regulates domestic were the country and the institutions pe- prices. The net invoice value of the imculiar, but the nature of the people was re-portation of rough lumber during the fiscal fractory. Congress could easily enough year 1868 was about 1,500,000l., while the impose an eight-shilling excise duty on value of the domestic product for the same spirits, but the temptation of immense profit period, or that part of it which entered into at once called into action all the resources competition with the foreign import, may of Yankee ingenuity, all the shrewd and un- be approximately estimated at 12,000,000i. scrupulous qualities of the people, to defeat For every dollar, therefore, which is taken the scheme; and we have shown how the in the form of a direct tax, seven are taken struggle, after shaking society to its found- indirectly through the increase of prices; ations, ended in an absolute overthrow of or, in other words, 450,000l. are received the law, until, so complete was the disaster, into the Treasury at an indirect cost of few Americans can now comprehend how about 3,200,000l. such a tax can be anywhere collected, under any system however perfect. The idea of taxing very heavily a few articles of large consumption had to be abandoned, and the only resource was a diffusion of taxes by means of licenses and stamps, which still had the disadvantage of interfering with industry, and allowing wide latitude of evasion without being equally productive. The Government was of necessity thrown back upon its import duties as the only very productive taxes that could be cheaply and thoroughly collected. Tax for tax, the internal duty was much the more expensive
of the two.
cent. on its importing price, or almost proThe duty on salt is from 100 to 170 per hibitive. The consumption is not stated by Mr. Wells, but we believe it is equal to at least 15,000,000 bushels, and the unnecessary enhancement of cost, or tax, paid directly to American salt companies, is about sixpence on each bushel, or 375,000l. per annum, with no advantage to the Treasury.
per cent. on the cost of production in the The duty on pig-iron is equivalent to 50 United States. has been compelled to pay an unnecessary The community at large present annual product of 1,500,000 tons, profit of from 28s. to 40s. per ton, on a and has therefore been subjected during the past year to a tax of from 2,000,0007. to 3,000,000l., paid of course to the manufacturers of pig-iron exclusively.'
These instances are merely common exgance which is characteristic of the United amples of the recklessness and extravaStates tariff, and their pith is contained in the fact that the lumber-merchant, the saltcompany, and the manufacturer of pig iron collect every shilling of their taxes, though the Government cannot collect more than sixpence in the shilling of its own. ber, pig-iron, and even salt cannot be Lumsmuggled in quantites large enough to affect the price. The whole tax falls directly on the consumer, and of these articles, every man, woman and child in the United States is directly or indirectly a large consumer.
High duties on imports, the highest that were consistent with trade and with healthy home industry, became, therefore, not merely advisable' but inevitable; and no foreign nation would have complained so long as they were adapted to bear equally and steadily on honest commerce. this result would have been difficult, if not Even impossible to attain, for within the borders of the United States are produced many of the staple articles of trade from which England and the other European nations derive the bulk of their income. Tea and coffee could bear high duties, but tobacco, sugar, and wine are all produced in large quantities in the United States, and high duties upon them were merely protective to the home producer. But Congress did not stop to consider what might be the most perfect form of tariff. With few exceptions, it imposed duties upon all imported articles with the avowed intention of stimulating home industry. Mr. Wells's last Report tax, amounting to 60,000,000l. or thereThe Government, therefore, collects one furnishes some illustrations of the result in about. Certain favoured interests collect three prominent instances - lumber, salt, another tax, the amount of which we are and pig-iron. We prefer to quote his authority because it is official, not because we might not furnish other examples which would be equally curious.
The duty on lumber is 20 per cent. ad valorem, equivalent, with resulting charges, to 25 per cent., and is of course directed only against Canadian competition. The
unable to estimate. A third tax is col-