This section is from the "Economics In Two Volumes: Volume II. Modern Economic Problems" book, by Frank A. Fetter. Also available from Amazon: Economic
§ 10. The tariff, 1890-1896. The tariff act (known as the McKinley Act) of October, 1890, followed. This was a general extension of the principle of protection. The rates on woolen goods were on the whole increased and made in more cases prohibitive. The rates on wool were increased. The rates on iron, which was already highly protected, were little changed except by the increase of the duty on tin-plates. The duty on sugar (in the main a revenue duty, yielding $55,000,000 a year) was removed and a bounty was granted to domestic sugar producers. In the next three (fiscal) years, 1892-1894, the average rate proved to be more than 49 per cent on dutiable (4 per cent increase) and 22 per cent on free and dutiable (the remission of sugar duties accounting for the most of this fall of 8 per cent from the average under the preceding law—4 per cent fall from the last year of its operation). Particularly noticeable, however, was the increase in the proportion of goods entering free, which was nearly 55 per cent of all merchandise, as contrasted with about 33 per cent between 1884 and 1890.
Again the political weather-vane shifted. The month after the McKinley Bill became law, the Congressional elections (November, 1890) returned an overwhelming Democratic majority in the House, although this was a period of business prosperity, a fact usually favoring the party in power. In 1892, Cleveland, being again a candidate, was successful over Harrison by a largely increased plurality of the popular vote, and received almost double the electoral vote of his opponent. The House was Democratic, and the Senate soon became so. Business prosperity was rising again to a high level, but there were many features of financial and speculative weakness in the situation, intensified by growing fear of a cheap money (silver dollar) inflation under the act of 1890 providing for the annual purchase of silver. A financial panic occurred in September, 1893, six months after Cleveland's inauguration.
Nevertheless Congress enacted the next year, August 28, 1894, the Wilson tariff act (named for the Congressman who introduced the bill). The changes made by this legislation were not on the whole very great, but were nearly all in the direction of the lowering of the tariff. Most notable was the putting of raw wool upon the free list. Some rates on woolen goods were reduced, but hardly more than enough to offset the effects, upon manufacturers' costs, of the reduction of the tariff on raw wool. Likewise small reductions were made on cotton and silk goods, on pig iron, steel and tin-plate, and many other articles; and larger reductions on coal, iron ore, chinaware, and glassware. To make up for the expected reduction of receipts from other sources, a duty was laid again upon raw sugar, and an income tax was passed (this soon, however, to be declared unconstitutional).
Under this law, for three fiscal years (1894-1897) the average rates were 41 per cent on dutiable and 21 per cent on free and dutiable,—pretty high rates. The proportion entering free under this act was actually less than under the McKinley Act, partly because of the sugar item, and partly, probably, because of general business conditions.
§ 11. The Dingley tariff, 1897-1909. The campaign of 1896 was waged almost solely on the issue of free silver. Undoubtedly great numbers of voters supported William McKinley rather despite of, than because of, his high-protectionist belief. But his inauguration was promptly followed by the passage of the Dingley Act of July 24, 1897, which embodied a marked increase of protective rates. A duty was again levied on wool, and also on hides, which had been untaxed since 1872. High rates were made for woolens, linens, silks, chinaware, and the rate on sugar was doubled. Provision was made for some reduction of rates by reciprocity agreements, but the conditions were so complex that the effect could not be great. This high protective tariff, thus enacted without popular discussion, remained almost unchanged for twelve years, the longest life, by one year, of any tariff act in our history, while other issues absorbed public attention - the Spanish War, colonial policy, "imperialism," railway rate regulation, corporation control, etc The rate under the first full fiscal year of the operation of the Dingley tariff, 1899, was the highest on dutiable in our history, 52 per cent, and was nearly 30 per cent on free and dutiable. In practical operation, however, the average rate steadily became more moderate because of the rapid rise of the general price level that was in progress throughout this period, amounting to 35 per cent from 1898 to 1909.8 The average rate of duties collected for the period of twelve years was 47 per cent on dutiable and 26 per cent on free and dutiable.
* Fig. 2, Chapter 14, shows the average rate of dutie3 collected under the Dingley Act, 1897-1909, the Payne-Aldrich Act, 1909-1913, and the Underwood Act, 1913-1920.
It was steadily falling, and the last year, 1909, was 43 per cent on dutiable and 23 per cent on free and dutiable.
§ 12. Sentiment favoring lower rates, 1908. While the Dingley Act was thus in operation showing declining average rates, sentiment was developing in every part of the country in favor of a further moderation of the tariff. This was due partly to the discontent resulting from steadily rising general prices, in which change the rise in the prices of food and of many other necessities was not fully compensated by the rise of the wages and incomes of the masses. Partly the growth of this sentiment accompanied the agitation against trusts and the belief that protective duties in some cases were an aid to the formation of domestic monopolies. But, more fundamentally, this changing sentiment was the result of the changing industrial conditions in America. The character of our foreign trade had altered greatly since the early nineties. We were importing relatively less and less of manufactured and finished products, and more of raw materials; and we were exporting less and less of raw materials and more of finished products. A growing number of manufacturers were feeling the need of cheaper raw materials and were looking hopefully toward an enlargement of their foreign trade.
9 See above, § 3.
In view of the changing public sentiment, the Republicans in the campaign of 1908 admitted that the protective tariff needed to be revised, but they declared that it should be revised by its friends. It was doubtless the general understanding that "revision" in this promise meant' revision downward, though this was left somewhat unclear in a campaign wherein the tariff played a somewhat minor part. The Republican platform formulated a new rule for maintaining "the true principle of protection," namely, that it "is best maintained by the imposition of such duties as will equal the difference between the cost of production at home and abroad, together with a reasonable profit to American industries." This rule though fallacious, is very attractive in its suggestion at the same time of the idea of a moderation of the tariff and of an exact practical (not to say scientific) standard for the determination of the proper rate in every case.9