HINDERANCES TO SURPLUS REDUCTION.

THE statesmen of Europe are continually busied with the problem how to devise the means necessary to pay the expenses of their respective governments. Their treasuries are periodically threatened with deficits, and they are compelled to resort to loans, special taxes, and other devices to meet the absolute wants of the public service. In our government a different condition exists. Our statesmen are called upon to meet a large and continually increasing surplus revenue, and to devise means of getting rid of it. Our surplus has been steadily increasing during the past twenty years. Until very recently, however, it could be applied to the payment of interest-bearing bonds, and thus to the reduction of the national debt. But on May 1, 1887, the bonded indebtedness that was payable was extinguished, and bonds can now be discharged only by their purchase in the market, and by paying such premiums thereon as the holders may demand. About $230,000,000 of four and one-half per cent. bonds will be due September 1, 1891, while the remainder of the bonded indebtedness, amounting to $732,000,000, bearing four per cent. interest, will not be due until 1907. The four and onehalf per cent. bonds can be purchased by paying premiums of about eight per cent., while the bonds running for twenty years are worth about twenty-six per cent. premium at this time. The purchase of bonds bearing such high premiums is objectionable, and hence the necessity of reducing the revenue so as to meet only the absolute wants of the government.

The Secretary of the Treasury, in his report on the state of the finances for the year ending June 30, 1887, estimates the surplus which will be in the Treasury on the 30th of June next at $140,000,000. The actual surplus, however, for the current fiscal year is estimated at $104,000,000. The difference between these amounts is accounted for by the fact that the secretary has

already purchased the bonds which are required for the sinking fund, for the current fiscal year ending June 30, 1888. The annual surplus revenue, therefore, to be disposed of may be set down in round numbers at $100,000,000. This sum includes the amount required to be annually set apart as a sinking fund, under the Act of February 25, 1862. That act requires that a sum equal to one per cent. of the entire debt of the United States be set apart annually as a sinking fund and applied to the purchase or payment of the public debt, together with a sum equal to the interest on all bonds so redeemed and set apart as a sinking fund. The requirements of this fund for the current fiscal year were estimated by the secretary at nearly $47,000,000, and that sum may be regarded as the annual amount required to meet the statutory obligations in this respect. If we deduct the sinking fund and the surplus of the preceding year, the secretary anticipates for the current fiscal year a surplus of $66,000,000, and for the fiscal year ending June 30, 1889, he estimates the surplus at $56,000,000. As there are no bonds of the government due and payable, it would seem that the public faith does not require the annual purchase in open market of $47,000,000 of our bonds in order to accumulate an unnecessary sinking fund. The statute of 1862 may therefore well be amended so as to relieve the government from the necessity of purchasing for the benefit of that fund bonds. not due. If this were done, taxation might be reduced to the extent of at least $100,000,000; if not, a reduction of $50,000,000 a year is all that is required.

Those who have not considered the hinderances to the reduction of taxation in this country can scarcely realize the embarrassments presented by this situation. If our taxation were direct, levied upon the visible property of the country, reduction of taxes would be the easiest of all fiscal problems; but as our government revenues are derived solely from taxes levied upon imports and domestic manufactures, or in other words, upon articles of consumption which are affected in price by such taxes, the problem becomes one of great difficulty. The reduction of taxes upon specific articles would inevitably result in the reduction of the prices of such articles, and such reduc

tion would embarrass manufacturers and dealers with a falling market.

As before stated, the revenues of the government are derived from duties on imports and from internal taxation. The taxes derived from the former within the past year were $217,286,893, and from the latter $118,823,391; and from miscellaneous sources our revenue receipts, including these items, amounted to $371,403,277-more than a million dollars a day for every day of the year.

Should tariff reduction be made upon customs revenues or upon internal revenue, or upon both? Those who desire to maintain our protective-tariff system are generally advocating the abolition of internal taxes, or the redistribution of the surplus arising therefrom among the States. The Manufacturers' Club of Philadelphia, composed of representative and wealthy manufacturers of Pennsylvania, have recently issued very carefully prepared papers, published by order of the club, in which the abolition of internal revenue is urged with zeal and ability. Internal taxes are now derived from whisky, beer, tobacco, and oleomargarine. The manufacturers demand that these taxes shall be abolished, and that the present rates of customs duties shall be maintained. The President, in his recent message to Congress, took the opposite course, urging upon the representatives of the people the reduction of the customs duties upon the necessaries of life, and suggesting that liquors and tobacco were not, strictly speaking, necessaries of life, and that no other articles were so well able to bear the burden of taxation without hardship. This position is regarded by the Manufacturers' Club of Philadelphia as erroneous, and in their publications they denounce the President's message, protest vigorously against it, and predict, with partisan bias and assumption, that the President will be emphatically condemned by the people at the polls in the approaching election.

The persons interested in protective industries, compared with the great body of our people, are few, but their influence has always been great in legislation. The proprietors of manufacturing establishments do not hesitate to use their influence with the men in their employ at popular elections. Such influ

ence frequently amounts to coercion and bulldozing of the most reprehensible kind. They inform their employees that certain candidates for their suffrages are inimical to their interests, and that, should the party opposing protection of their particular interests succeed in getting control of the law-making power of the government, their business would certainly be destroyed and their men thrown out of employment. The influence which manufacturers exercise over their employees is a potent factor in surplus reduction. There may be 30,000 voters in a congressional district. A thousand of these may be interested in a protected industry. Political parties are nearly evenly divided. The voters employed in protected industries frequently hold the balance of power. Candidates for Congress are admonished that unless they pledge themselves to sustain the protective tariffs, they will lose the votes of those engaged in such industries. It frequently happens that the candidates of both parties are therefore pledged to maintain protective taxation. Thus, the minority may continually rule the majority through the lawmaking power.

Those interested in protected industries have organized protective-tariff leagues and manufacturers' clubs, and have issued numerous publications in order to further their interests. Large sums of money are contributed annually to promote the cause of protection. The most specious and plausible arguments are used, among them this: that the protection of American industries will enable the manufacturers to pay higher wages to American workingmen, and that at the same time, by stimulating production and competition, the price of manufactured articles will be reduced to the consumers of the country. If this were true, few would controvert the position. But is the argument well founded? If protection enables the manufacturer to pay higher wages to his employees, he must obtain a higher price than he otherwise would for his commodities. If he cannot obtain such higher price for his commodities, he gets no protection whatever, and his argument falls to the ground.

And further, if by granting protection production is stimulated, such stimulation comes from increased price of the finished product, or a greater price than could otherwise be obtained;

hence there seems to be, for some time at least, an increase of price to the consumer of the manufactured article. How long this increase will remain, until stimulated production and competition again bring the prices down below what they would otherwise have been, is a question which must be determined by time and by examining the statistics of each particular industry. The process of increasing the tariff and thus increasing the price of articles of domestic manufacture, has been going on for threequarters of a century, and protectionists are still demanding higher rates of protective duties, while the promised reduction of prices by reason of competition and stimulated production is frequently prevented by combinations among manufacturers to limit production and fix the prices of their products.

Specified products of manufacture are frequently cited by protectionists to show large decrease in prices in this country during the past twenty years, and such decrease is universally attributed to the protective tariff. But the persons who employ this argument either forget or are ignorant of the fact that in England there has been a corresponding reduction in the prices of manufactured articles during the same period, and even to a much greater degree than in this country. If the protective tariff brought down the prices in this country, what was it that brought down the prices in free-trade England? Let the protectionists answer this question.

If protective tariffs so stimulate competition as to reduce the prices of manufactured articles below what they would otherwise be, it is remarkable that those engaged in manufactures should favor such legislation as would produce this increased competition, and this reduction of the prices of the very commodities which they are producing, and which they are desirous of selling at remunerative prices.

I have before me a copy of a recent publication of the American Iron and Steel Association, which states that one of the objects of that association is the free distribution of protective-tariff literature. This publication asserts that "millions of well-printed tracts have, since 1887, been sent into almost every corner of the Union, the most going where they were the most needed." In 1886, a year in which congressional elections took