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is very wealthy, and its resources, at least | An effective collection of such taxes, in the Northern States, were untouched by both internal and import, was of course imthe war, but how best to collect the needed possible, and indeed had they been rigorrevenue has proved an unexpectedly awk-ously collected, the country could scarcely ward problem. Under the pressure of have stood under their pressure. In a sinnecessity Congress had imposed excessive gle year 115,000,000l. in currency, equivataxes which produced large sums of money lent to 80,000,000l. in coin, was paid in but were destructive to healthy industry, taxes to the national Government, and yet and violated every economical law. The the Commissioner of Internal Revenue estimerest necessities of life and the simplest mated that the laws were enforced with so materials of labour were taxed and taxed little vigour that half the taxes were again. Clothing, boots and shoes, cotton evaded. Four years of reckless national fabrics, raw cotton, leather, coal, and expenditure, followed by such a system of woollens, furnished several million pounds taxation, and based on such a currency, to the internal revenue; iron in every had changed materially for the worse the shape, pig and bar, sheet and castings, all habits and moral standard of the commanufactures of iron and of steel, lead, munity. Productive pursuits, especially in machinery and similar agents in productive the eastern States, unless artificially stimuindustry, furnished millions more; and lated, ceased to yield any return nearly these duties being collected in the form of equivalent to the rapid gains of trade and a tax on the sales of each manufacturer, of speculation, with their additional chances not only caused an excessive duplication of for successful fraud. The rural districts taxes, each new process counting as a new threw a greater proportion than ever of manufacture, but increased the cost of the their surplus population into the great finished product to a far greater extent cities, which grew with rapidity in spite of than was represented by the amount of the the rise in rents and in the cost of living; tax, heavy as it often was. Railways, while everyone whose occupation or consteamers, and companies which forwarded dition of life precluded the chance that he merchandise, and telegraph companies, all might cheat his neighbour as his neighbour modes of conveyance and intercommunica- cheated him, was ground into the dust. tion, were heavily taxed. Repairs of en- Slight symptoms indicated the tendency of gines, carriages, ships were burdened with society. The stock-exchange, for example, a penalty. Insurance companies paid on has as a rule been in no country a fashiontheir gross receipts, and joint-stock banks able or an honoured field of activity, and on their capital, circulation, and deposits. America in former days offered no excepFinally, a heavy income-tax crowned this tion to this ordinary law; yet it had now tremendous scheme, but did not tell the become in the great cities a favourite cawhole story of the unfortunate consumer. reer. The same young men who in 1861 Perhaps the most mischievous tax of all, had sacrificed income, health, family, and, which eat into the heart of society like a during four years, from motives as purely cancer, was that which resulted from the patriotic as human nature on its great scale additional profit charged by every trades- is capable of producing, had endured every man or manufacturer as a compensation for hardship that war could inflict, now rethe risks to which he was subjected by the turned as colonels and generals, with their daily fluctuations of the currency. honours and their wounds, fresh from the famous armies of Virginia and Tennessee, glorying in their military career, fairly adored by the nation, proud in the con

Partly in order to furnish artificial protection for native industry, partly also to compensate for the effect of these internal taxes which gave artificial protection to for-sciousness that Europe had watched their eign industry, Congress thought proper to campaigns with partisan eagerness- and raise the Customs' duties to a point which returned to job merchandise or to plunge at first sight seems inconsistent with inter- into the profligate and swindling transacnational trade. The average rates were in- tions of the stock-exchange and the goldcreased until they reached nearly 50 per room. Mr. Wells's first annual Report, cent. on the invoiced value of all dutiable made in December 1866, nearly two years articles. No description can present the after hostilities had ceased, described a concondition of American industry in a more dition of things which seemed to offer all painful light than the bald fact that these the signs of an imminent convulsion. The enormous duties are universally agreed to discharged soldiers seemed not to have rehave failed in giving the protection in- turned to their old occupations; they had tended. sought new homes and new interests. The


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. 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 The 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. 138. 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 8,000,000l., 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 Eu- attempts at enforcing economy for some rope at a profit. The shipping interest time to come and to make proper reforms was almost destroyed, not merely by the impossible. By the close of the year 1867, war, but by the cost of materials and the the growls of popular dissatisfaction beabsence of freight. a possibility of neglecting them, especially came so energetic that there was no longer 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. three years of experience, the fact was no longer to be disguised that the whole revAfter enue system was a mass of corruption, intolerable even in America, where public opinion tolerates abuses such as would excite in England a revolution. statement may seem exaggerated and unfair, but our language is weak when comThis pared 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.

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 30,000,0007., a promise that was liter

Receipts. 1865-6.

Customs Lands

Direct tax Internal revenue Miscellaneous

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If all the various means resorted to by many modern distillers for the accomplishment of their


$37,281,681 (7,600,0002.).

Civil Service

Pensions and Indians

Interest on debt

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31,034,011 143,781,591


1.163.575 4,200,233 266,027,537 42,824,852


$346,729,127 $143,904,880 (29,732,000/.).

tesigns upon the revenue and its officers, could be truthfully written, the very safety of our institutions might well be questioned. . . . The 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 Treasury; 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.'

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The duty on distilled spirits which threatened the very existence of republican institutions, and threatened it more seriously than all the armies of the rebel confederation, amounted to about eight shillings (currency) the gallon, which was two shillings less than the English duty when reduced to the same standard of measure and of value. The production of distilled spirits at a moderate estimate was forty-five million gallons per annum, which should have produced a revenue of 18,000.0007., and actually produced in its best year about 6,000,000l., while even this small receipt fell off to 3,000,000l. in the year 1867-8. During the whole existence of this tax, the market price of distilled spirits was never sufficiently high to yield anything but a loss to the distiller after paying the tax. Every distiller must there

fore of necessity have defrauded the Government, and the public must have paid to fraudulent distillers and their agents at 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 Nor was it only in the unexpectedly near. 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 especial surprise. That the head of the most important service in the Government should calmly accuse his subordinates in a mass of being in collusion with thieves, seems astonishing, but that after such an accusation everything should go on as before is almost incredible. One assumes as a matter of course that some political jealousy was involved, and that the charge was at once denied by the Secretary of the Treasury or by Congress. Nothing of the kind occurred. On this point Mr. M'Culloch was in sympathy with Mr. Rollins, while members of Congress had good reason to know that the charge was true, since it was their influence which had appointed to office these very men who were now shown to be thieves. The accusation was undenied, and no man in the United States

doubted its truth, yet nothing was done to
correct an evil which in England would have
cost the strongest Ministry its office, and
the largest Parliamentary majority its seats.
The secret of this inaction lies below the
surface of American politics. Whatever
may be the amount of social corruption in
the United States, and we believe it to have
been greatly exaggerated, the political cor-
ruption is serious. Primo magis ambitio
quam avaritia animos hominum exercebat.
Party organizations in America have ob-
tained a wonderful development and a dic-
tatorial power. Kesting as they must upon
the most numerous and therefore the poor-
est classes of society, they undertake to ac-
count for the political opinions of every cit-
izen. They are marvellously effective, but
they are excessively costly, and they can only
be held together by two influences, money
and patronage. Few men are so pure as to
devote their time and labour to an organi-
zation of this sort from mere motives of pa-
triotism. The United States Government,
in consequence, has never had an efficient
civil service, since for forty years past it has
been almost constitutional law that no civil
servant of the Government holds his place
on any other tenure than the will of the po-
litical party in power; and this right of re-
moval, with its corresponding right of ap-
pointment, has been the most highly valued
prerogative of office and the most effective
weapon in party warfare. Even the Presi-
dent clings to his right of personally ap-
pointing to small offices. Any English vis-
itor who calls upon him in his private cabi-
net, may see in the ante-room the applicants
for office waiting hour after hour for a per-
sonal interview. Each President in turn Congress could, however, and did storm
Mr. Lincoln not less than Mr. Buchanan, violently at the whisky-ring,' and at all the
and Mr. Johnson not less than Mr. Lincoln other rings' which infest American politics,
- has fostered this abuse of power. Each while members who have thought them-
member of Congress nurses still more care-selves disgraced by the offer of their money,
fully the share of patronage which falls to did not hesitate to use their political power.
his hand. If a friend of the Administration, Nevertheless, the public discontent was now
he may control his constituents by alter- beginning to fasten upon particular abuses
nately bribing or threatening the local poli- like that of the whisky-tax and frauds
ticians who control the primary caucuses of on the revenue, symptoms of the disease
their party; and if an enemy of the Admin- but not the disease itself, and with declin-
istration, he has almost a greater influence ing revenue, suffering industry, and an im-
in the possible patronage which a party tri- minent general election, Congress, on meet-
umph may bring. This practice was barely ing in December 1867, felt that prompt ac-
tolerable before the war, when the execu- tion was urgently required. Its first re-
tive patronage was small; but the new reve- form was such as its enemies might have
nue system vastly increased the number of predicted. It instantly passed an Act stop-
officials, and gave to them powers which ping the contraction of the currency, while
until now had been unknown to the United Mr. M'Culloch in despair urged that, if
States. They were able, if they chose, only the power were left him, he would
to annoy and perhaps to ruin their ene- promise not to use it. The next reform
mies, and to make the fortunes of their was to repeal the tax on cotton. A third
friends. If they were zealous and generous law, approved March 31, 1868, swept from

in their support of the winning cause, few
members of Congress would be too curious
about their accounts, and complaints might
commonly be stifled. The system was one
which tendered directly to interest the offi-
cer in encouraging fraud or in assuming its
existence, because he could thus control
the influence of the fraudulent and some-
times of the honest dealer under a threat of
ruin, while either political party was inter-
ested in supporting and protecting the offi-
cial who acted most effectively in its behalf.
The disorganized condition of the Govern-
ment under President Johnson left no check
to this form of corruption, but it was not
peculiar to that or any other Administra-
tion. It was an essential part of the polit-
ical system, one of the most effective and
necessary agents in party organizations.
The remedy was simple, had parties honestly
wished it; for, without any legislation what-
ever, a mere abandonment of the practice
of removal from office without cause would
in a short time have corrected the evil, but
parties could not persuade themselves to
cut away the props of their power. Mr.
Rollins indeed could say that he wrote his
charges with shame, though he had no per-
sonal share in these abuses, but as between
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 fur-
nished by the Treasury officials, but there
is only a vague and distant prospect of any
vigorous action on the part of Congress.



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 diminThese 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. If we now sum up the results of the four They were in themselves wise so far as they years, we shall find that a debt, which if went, and they cured some part of the dis-funded at the close of the war would have ease, not by purifying the system, but by reached 600,000,000l., has been successnarrowing the area of corruption. They fully converted into 6 per cent. bonds for were not reform itself, but they were the the most part, and reduced to 530,000,last expedients possible before Congress 000l., paying 26,000,000l. annual interest, was driven to reform. A single further These bonds will be redeemed and the instep will oblige the nation to study its own terest lowered whenever the Government condition and to understand its dangers. succeeds in borrowing at a cheaper rate. Meanwhile the financial year ended with a During the administration of General Grant surplus of nearly 6,000,000l. 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.


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

The currency question remains touched; 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.

Receipts. 1867-8


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 is true, has now been reduced to very mod1,788,145 erate proportions, and the amount of tax 191,087,584 collected (28,000,0007.) 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, I but no Government ever deceived itself (5,800,0004.). more completely. Within a very short



Direct tax
Internal revenue

Civil service
Pensions, &c.



Interest on debt



60,011,018 27,883,069 123,246,648 25,775,502 160,424,045

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