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CHAPTER VII.

THE FIRST REVENUE LAW OF THE UNITED STATES.-HOW FAR PROTECTION WAS DEEMED OBLIGATORY.-CONDITION OF AMERICAN MANUFACTURES IN 1789.-COMPARATIVE ADVANTAGES OF FREE TRADE AND PROTECTION ACCORDING TO ADAM SMITH.-WAGES IN THE AMERICAN COLONIES BEFORE THE REVOLUTION.-CHIEF-JUSTICE MARSHALL ON IMPLIED POWERS.-NATIONAL BANK.-TARIFF FOR REVENUE ONLY.

THE Department of Foreign Affairs was organized before those of the Treasury and of War; and it is now to be noted that the first revenue law was enacted before the law which established the Treasury Department. In the discussions which took place on this revenue measure we may learn to what extent "protection" was then considered expedient, or incumbent on Congress as a constitutional obligation. The bill that was brought in contemplated, among the objects for which revenue was immediately necessary, not only the support of the government, but the discharge of the debts of the United States. The Constitution had made the debts contracted, and the engagements entered into, before its adoption as valid against the United States under the Constitution as they were under the Confederation. Whether this obligation was to extend to the debts contracted by the separate states before the adoption of the Constitution was a question of both construction and policy. What was to be done in making provision for the discharge of debts contracted by the United States, whether the revenue for this purpose and for the support of the public credit was to include the state debts, were matters that did not come within the scope of a temporary revenue system, which, although it were to include within its declared objects the discharge of the debts of the United States, must be primarily designed to procure revenue for defraying the current expenses of the govern

ment by taxing the imports then coming in. How the duties were to be paid after they had been imposed could only be provided for by making them payable in coin. Whether there would be specie enough in the country to enable the importers to pay the duties was doubtful. How a paper money was to be created was a most important practical question. All that could be done in framing the temporary revenue system was to lay the duties and to provide for their payment in coin.

A wide field was thus opening for the exploration of questions of constitutional power as well as of expediency. Much of this exploration could be made only in framing the Treasury Department and defining the duties of its head. The history of the formation of this department is therefore extremely interesting, in reference both to the person who became its first secretary and to the great measures which he devised.

Madison, who had been concerned with Hamilton in a strenuous effort to induce the states to establish the revenue system of 1783, which I have described in the first volume of this work, now took the lead in introducing and conducting through the House of Representatives a measure for obtaining the revenue needful for the support of the new government. It seems to have been his purpose, at first, to make it a temporary measure only, and to frame and enact it in season to have it operate on the importations of that spring. But it became at once apparent that even if, by general consent, the new law should be framed with this view, there was a strong disposition to consider and act upon the encouragement and protection of domestic manufactures, as a principle to be regarded at the outset in the levying of duties on imports. The revenue system proposed in 1783 had aimed only to procure for Congress authority to obtain revenue without relying on requisitions made upon the states. There were then comparatively few manufactures in this country, and at the close of the Revolutionary War the great quantities of manufactured goods imported from Europe had at first rendered our own manufactures almost useless. Very considerable changes, however, had taken place in the interval between the complete establishment of our independence and the inauguration of the new government under the Constitution. Several causes had given an impetus to our domestic manufactures; so that when

the First Congress assembled under the Constitution, there were some kinds of manufactures sufficient to answer the consumption of the whole Union, and others were growing in importance so much that it appeared not unlikely that our own materials could be worked up to a point at which articles made in this country could be profitably exported. It was contended, therefore, very' early, that the question of protection must be met at the threshold of the legislation. Perceiving this, Madison admitted that they might be under the necessity of investigating principles more extensively than he had at first contemplated, although he still maintained that the object of obtaining immediate revenue by a temporary measure ought to be kept steadily in view. In the observations which he made at some length on the 9th of April, he developed the principles on which he supposed the representatives of the states ought to act. In the first place, he reminded the Committee of the Whole that any system of imports must be founded on mutual concessions by the states to each other. At the same time he brought forward very distinctly the expectations and purposes of the states most advanced in population and ripe for manufacturing industries when they ratified the new Constitution. He said that while these states retained in their own hands the power of regulating trade, they had the power to cherish and protect their own manufactures; but as they had now thrown this power into other hands, they must have done so in the confidence that their interests would not be neglected or overlooked by the new Congress. He then proceeded to state the principles which he thought should govern the legis lation. He avowed himself to be a friend to a very free system of commerce, regarding it as a truth that commercial shackles are generally unjust, oppressive, and impolitic, and that capital and labor, if left to their own course, will generally be most productive, and in a more direct and certain way than the wisdom of the most enlightened legislature can devise. This he held to be as true of national interests as of the interests of individuals, whom no legislation can compel or lead to become manufacturers of all the articles they need for their own consumption. Freedom of trade, then, being the general principle to be kept in view in adjusting the relations of different countries, the departure from it must be exceptional, arising out of the pe

culiar situation of the country for which the legislation is designed.

The problem is, he said, to discover the exceptions to the general principle of free trade. In this country, the first great exception is the interest of agriculture or the products of the soil, whether spontaneous or cultivated. With a great abundance of cheap land, the United States enjoyed, or might enjoy, as much of a monopoly in agriculture as any other nation had in any article whatever, and with this advantage: that it would not be shared or injured by rivalship. The interest of navigation was the next exception; for if America were to leave her ports entirely free, and make no discrimination between vessels owned by her own citizens and those owned by foreigners, while other nations made this discrimination, such a policy would tend to exclude American shipping from foreign ports, when, by encouraging our own carriers, we encourage the products of our own soil, our own industry, which they transport. Embargoes in time of war are another exception to this general principle of free trade. These, however, are peculiar and temporary shackles upon the freedom of commerce, which do not enter into the plan of a revenue system. Lastly, there is an exception on which great stress has been laid by eminent authorities. It is said that every nation ought to have within itself the means of defence, and not to be dependent on foreign supplies in whatever relates to the operations of war. He, however (Mr. Madison), was persuaded that the reasoning on this subject had been carried too far.

Adam Smith's great work, "An Inquiry into the Nature and Causes of the Wealth of Nations," was first published in 1776. Although important additions were made in subsequent editions, the second chapter of the fourth book, entitled "Of Restraints upon the Importation from Foreign Countries of such Goods as can be produced at Home," remained as it was originally written and published. In that chapter the author states with entire fairness the general advantages and disadvantages of perfect freedom of trade. Although he was evidently no friend to commercial restrictions, he considered the home market to be the most important field to be secured to producers of all kinds; and he begins the chapter by laying down the following proposition, the scope of which will best appear by italicizing two of his

expressions: "By restraining, either by laying duties or by absolute prohibitions, the importation of such goods from foreign countries as can be produced at home, the monopoly of the home market is more or less secured to the domestic industry employed in producing them." After adducing certain striking illustrations of this proposition, he speaks of the encouragement thus given to the industry which enjoys it, and makes a qualification that is as true now as it was when he wrote: "That this monopoly of the home market frequently gives great encouragement to that particular species of industry which enjoys it, and frequently turns towards that employment a greater share of both the labor and stock of society than would otherwise have gone to it, cannot be doubted. But whether it tends either to increase the general industry of the society, or to give it the most advantageous direction, is not perhaps altogether so evident. The general industry of the society never can exceed what the capital of the society can employ. As the number of workmen that can be kept in employment by any particular person must bear a certain proportion to his capital, so the number of those that can be continually employed by all the members of a great society must bear a certain proportion to the whole capital of that society, and never can exceed that proportion. No regulation of commerce can increase the quantity of industry in any society beyond what its capital can maintain. It can only direct a part of it into a direction into which it might not otherwise have gone; it is by no means certain that this artificial direction is likely to be more advantageous to the society than that into which it would have gone of its own accord." Having developed the argument on this head, and shown why it is injurious to direct private people in what manner to employ their capital, he admits that there may be two cases in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry. The first is where some particular sort of industry is necessary for the defence of the country; as was the case with Great Britain, whose defence depended very much upon the number of its sailors and shipping, and hence the Act of Navigation, which began under the Long Parliament. This is the exception to which Mr. Madison referred in general terms, in regard to everything requisite for national defence; and it is what Mr. Cal

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