Some Aspects of the Tariff Question

Taussig, Frank William
(1859-1940)
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1915
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Cambridge, MA: Harvard University Press
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1915
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Part IV, Chapter XIX

Wool

IV.XIX.1

Before proceeding to the woolen manufacture, the third among the great textile industries, something must be said of wool and the duties on wool. The woolen manufacture has differed from that of silks and cottons in at least one important respect: through almost the entire period covered in the present inquiry, its raw material has been subject to duties. The influence of the tariff system on the industry has thus been complicated by the fact that wool itself has been affected. There are independent reasons for examining the development of wool production and imports; the working of the duties here also serves to illustrate general principles. The present chapter accordingly will be given to a consideration of this part of the protective system.*101

IV.XIX.2

In the tariff acts from 1867 to 1909 (neglecting for a moment the brief period of free admission from 1894 to 1897) wool was divided into three classes: clothing wool, combing wool, carpet wool. For reasons which will be indicated below, the first two classes may be thrown together; though distinguished in the tariff, they are to be treated as one for trade purposes. Moreover, these two classes were subjected to nearly the same rates of duty, and rates which remained nearly constant in the several protectionist tariffs. The details of the changes in the successive acts are of no great moment. Both classes were dutiable throughout at about eleven cents per pound. In relation to the usual foreign price of wool, this was equivalent to something like fifty per cent;*102 the ad valorem equivalent of course fluctuated with the ups and downs in price. The specific duties on carpet wool, a much cheaper grade, were always lower than those on the other classes. But for them also the ad valorem equivalent was in the neighborhood of fifty per cent. This régime, needless to say, came to an end in 1913, when wool was again put on the free list.

IV.XIX.3

The general relation of imports to domestic production during the thirty odd years of high protection is shown in the chart on page 298. The upper line shows the course of domestic production. The two lower lines show the imports. The imports are separately indicated for two classes, corresponding to the trade differences; clothing and combing wool (classes I and II in the tariff acts) being thrown together as one class; while carpet wool (class III in the tariff) has a separate line.

Chart VI. Click to enlarge in new window.

IV.XIX.4

Looking first at domestic production, it will be seen that during a period of ten or fifteen years after 1870, there was a marked advance. From 1870 to 1885 the wool grown in the United States doubled in amount. But after 1885 the upward movement ceased. There was more or less variation from year to year. The clip diminished considerably under the influence of free trade in wool under the tariff act of 1894; it increased again after 1897; for some of the early years of the present century it attained a figure above that for 1885. But on the whole it remained stationary. Whatever stimulus was given by the duties would appear to have exhausted its effect after the first fifteen years.

IV.XIX.5

The imports, on the other hand, during this period after 1885 show a tendency to increase, especially during the latter part of the period. They never ceased entirely, for any class; and as the years went on, they became larger. Among the extraordinary fluctuations some are obviously accounted for by the tariff changes of 1894-97. The free admission of wool in 1894 and the re-imposition of duties three years later necessarily caused great shifts. In the year just before the act of 1894, when it was almost certain that wool would become free, imports naturally shrank almost to nothing. They then rose abruptly as soon as the abolition of the duty went into effect. Again, After the election of McKinley in the autumn of 1896 it became in turn almost certain that the duty would be restored. Consequently during the fiscal year 1896-1897, imports were rushed in from every possible quarter while wool was still free. They then fell abruptly after the passage of the tariff act of 1897. For several years after 1897 the stocks of wool from these heavy importations weighed on the market, and prevented the price of wool from rising as promptly and fully as had been expected. During the interval imports were naturally small, and confined to special qualities. Not till 1900 were the effects of this abnormal situation out of the way. Then, as the chart shows, imports mounted for all classes. After 1900—setting aside the changes due to ordinary trade fluctuations,—the general trend was clearly toward an advance in the imports. The larger quantities of wool needed by the growing population came not from increase of the domestic output, but from increase of the foreign supplies.


IV.XIX.6

The simplest case is that of carpet wool. It is simplest because here the entire supply was foreign throughout. Therein carpet wool stands by itself. This absence of any domestic production, notwithstanding long-continued duties of considerable weight, is easily explicable on the principle of comparative advantage.

IV.XIX.7

Carpet wool is of coarse grade, clipped from sheep neglected as to breed or pastured with poor fodder or under harsh climate. It comes to the United States from all parts of the world: from China, India, the interior of Asia, Africa, South America, Russia, Portugal, Spain, even from the Highlands of Scotland. Its coarse quality is usually due to poor care of the sheep and indifference as to breeding. The main sources of supply are the semi-civilized regions,—India, the interior of Asia, China, Asiatic Turkey, southern and southeastern Russia. In other regions, where wool growing is carried on by the highly-civilized races or under their guidance, the poorer grades of sheep are displaced by the better, which yield a fleece commanding a higher price. The careful, intelligent, and well-informed wool grower can produce these better fleeces with the same labor and investment as the inferior grades; he naturally confines himself to the former. Sheep from which carpet wool is clipped are left to the stolid and ignorant Mongolians, Turkomans, Russians; in part also to the growers in mountainous regions (like the Pyrenees and Scotch Highlands) in which the more valuable sheep cannot be sustained.*103

IV.XIX.8

The American wool grower hence confines himself to the sheep and wools of the better qualities,—clothing and combing wools,—leaving the cheaper grades to be secured by importation. It would not be accurate to say that he has a comparative advantage in the better grades; for, as will appear shortly, there is at least doubt whether the use of the land for sheep is as advantageous as its use for other agricultural or pastoral purposes. But he certainly has a less disadvantage in growing clothing and combing wool than in growing carpet wool. The tariff stimulus is sufficient to cause him to produce the former; it would need to be much greater—preposterously greater—to induce him to breed poor sheep and bring carpet wool to market.

IV.XIX.9

The fact that all carpet wool was imported caused the debate on this part of the protective system to take a turn of its own. Why not admit such wool free, since there was no competition with any domestic product? The answer of the wool growers,—who were throughout the most uncompromising and even fanatical among the protectionists,—was that part of this wool in fact did compete with the domestic product. Some fraction was used not for carpets, but for cloths.*104 True, the amount was not considerable; moreover, what was so used was always mixed with other and better wools, chiefly domestic, sometimes also with the various substitutes, such as shoddy or noils or cotton. But even the slightest competition of this sort with the domestic wool growers was regarded as fraudulent, almost criminal. Not only was the repeal of the carpet wool duties steadily resisted, but an increase in them was demanded, and indeed was secured to some degree in the tariff acts of 1890 and 1897. The acrimonious contentions before congressional committees between the wool growers and the carpet makers all rested on a premise which a consistent free trader could not accept,—namely, that so far as the imports in fact did not compete with domestic wool, so far was there a special ground for admitting them free. Precisely no, must the free trader say. A duty of this sort, on a commodity not produced within the country, is a revenue duty. It is not indeed one of the simplest sort or of the best sort, being imposed on a raw material, and hence cumulative in effect as it is eventually paid in the higher price of the finished product. But at least it is not open to the objection that an additional tax is imposed through the higher price of the supply produced at home. The last-named effect does appear as regards wool of the other classes; and if a choice must be made between exempting from duty the carpet wool on the one hand or the clothing and combing wools on the other, the free trader should prefer the latter. It was natural that the protectionists, from their point of view, should think only of admitting free so much of the cheaper wool as was used in fact for carpet making, not the portion used in the manufacturing of cloth. No such discrimination between the two classes, however, was at any time made in the tariff laws enacted by either party. When the opponents of high protection came into power, in 1913, as in 1894, wool of every kind was admitted free.*105


IV.XIX.10

The other classes of wool—clothing and combing—must be considered together. They present some intricate economic problems; they were the occasion of prolonged and bitter controversy. Protection to wool of this sort was the center of the protective system during the greater part of the period covered in the present volume.

IV.XIX.11

Something should first be said on the qualities and uses of the two classes. Clothing wool, as defined in the tariff acts from 1867 to 1913, was wool from sheep of the merino breed, or from sheep having an admixture of this strain. Pure merino wool is short in fibre and fine in quality. Cross-breeding affects the length and quality of the fibre, and hence the textile uses to which it can be put. But the tariff definition and classification throughout regarded every wool with the slightest merino strain as "clothing wool"; even though it was used in the woolen manufacture in a way quite different from that contemplated when the tariff distinctions were first made. What was put in class II, "combing wool," on the other hand, was wool from sheep, pure bred, of the typical English strain: long in fibre, not short like merino wool; coarse in quality, not tenuous and fine; lustrous and somewhat harsh. The differences in the characteristics of these wools bring corresponding differences in the fabrics made from them. Merino wool is used for making "cloths," or "woolen cloths," in which the strands cling to each other as the short fibres touch and interlace; which are compacted and closely woven, often thick and heavy. Cloths have a "nap," or yielding surface, more or less smoothed off in the finishing processes, yet giving the fabric a character of its own due to the short fibre of the wool. Combing wool, on the other hand, serves to make "worsteds" and "dress goods,"—smooth fabrics, with an even and perhaps glossy surface, usually stiffer than cloths made from merino wool, and usually lighter in weight.

IV.XIX.12

Quite as important as the difference in the fleece of the two kinds of sheep is the difference in their flesh. The English (combing wool) animals are mutton sheep; their meat is excellent; for this primarily they are bred, not for wool. Merino sheep, on the other hand, are scrawny creatures, with a tough and scant covering of flesh; they are bred primarily for their magnificent fleece. The two varieties differ, again, as regards habitat and herding; and these differences also have economic consequences of some importance. The combing wool (mutton) sheep flourish in a cool moist climate like that of England, their country of origin. The merino sheep, of a strain perfected first in Spain, adapt themselves readily to very diverse conditions, yet on the whole do best in a dry, warm climate, and are specially fitted for arid or semi-arid regions.*106 As regards herding, the merino sheep keep together, moving and cropping in bands; whereas the English sheep are apt to stray singly. The former, therefore, are more easily cared for and protected in frontier countries and in regions where lack of sufficient precipitation makes cultivation of the soil impossible.

IV.XIX.13

All these differences, however, are smoothed away, and indeed sometimes quite wiped out, by cross-breeding. Sheep having a strain of either blood show in varying degrees the characteristics of both, according to the preponderance of one or the other strain. The profit through securing from the same animal saleable mutton and desirable wool has caused growers in most countries, and especially in the United States, to turn to cross-breeding. At the same time improvements in machinery have made it quite feasible to use most cross-bred wool in either of the main manufacturing processes,—for making either cloths or worsteds.*107 Consequently much wool,—probably the larger part,—which was classed by our tariff as "clothing wool" was used in fact for the same purposes as "combing wool." The tariff classification, as has already been said, became quite out of accord with the trade classification, which was based not on blood, but on the industrial uses of the fibre. Both domestic and imported wool was largely cross-bred; and imported wool competed in much the same way with domestic wool, whether classed at the custom houses as clothing or combing. In comparing the imports with the domestic output, the tariff classes I and II may be, therefore, thrown together,—as has been done in constructing the chart.

IV.XIX.14

Comparing now the total imports of wool used for clothing with the domestic production of wool (all used for the same purpose) it is obvious that a substantial contribution to the supply came throughout from the imports. At no time did they cease; as the years went on, they tended to grow.*108 The conclusion would seem warranted that the whole supply, domestic as well as foreign, was raised in price by the full amount of the duty. The proximate economic loss which may be ascribed to a protective tariff seems in this case susceptible of accurate calculation: multiply the domestic output by the rate of the duty.

IV.XIX.15

Some of the qualifications which must be borne in mind when making such calculations do not seem applicable in the case of wool. There were no peculiarities of transportation, no geographically distinct markets, such as explain the exceptional imports of iron and steel, and show them to be of little significance. Foreign and domestic wools were marketed in the same places, namely, in the large cities of the Atlantic seaboard. Nor were there differences in quality which might require them to be regarded as distinct for industrial purposes. It is true that during the earlier part of our period, say from 1870 to 1885, allowance perhaps would have had to be made for differences in quality. Then the imported quota seems to have been usually of finer grade than the domestic. The latter was then said to be in the main good ordinary merino wool, suited for the medium grades of fabrics chiefly made within the country; while the imported wool was either strictly combing wool or a fine grade of clothing wool. But these differences, if ever they were important, ceased to be so before the close of the period. Domestic wool came to be largely cross-bred; a considerable portion of it was available for all the uses of combing wool; nor was there any marked lack of fine fibres. Wool varies to an extraordinary degree in quality. It is affected not only by the breed of the sheep, but by many and various causes, such as food, climate, shelter, care, and time of shearing.*109 Of all the textile fabrics, it seems least standardizable; and for that reason, it may be remarked, it cannot be made the object of organized speculation. But the gradations were and are very much the same for domestic wool as for imported. Whatever general differences in quality existed in the years 1870-90 ceased to be of much significance during the later period. Though the particular way in which our tariff duties were assessed (as will presently appear) operated to exclude some sorts of foreign wool, they did not restrict the imports to any one quality or grade, or prevent the imported quotas from being comparable on the whole with the domestic.

IV.XIX.16

In one direction, however, the application of the formula: economic loss = domestic product × rate of duty, must be modified. A point of difference between imported and American wools was that almost all the former were virtually improved in quality, and in that sense graded, by "skirting." A long controversy on skirted wools raged between wool growers and manufacturers. "Skirting " means that some inferior parts of the fleece have been cut off. The better parts are packed separately; a simple and convenient process, the natural result of the different uses of the varying fibres. Skirting is commonly practised in Australia, and the better wool thus differentiated of course commands a somewhat higher price than wool quite unsorted. The tariff acts previous to 1890 had imposed double duties on wool "imported in any other than the ordinary condition"; but in 1890 skirted wool was specifically made subject only to the normal wool duty; and it was similarly treated in 1897 and 1909. American fleeces, on the other hand, were never skirted; all the wool from a sheep was sold (and is) in one batch and at one price. By custom, the process of sorting was left entirely to the dealer or manufacturer.*110 Skirted Australian wool of course commanded a higher price than the unassorted American; and in comparing prices, and gauging the effect of the duty, something must be allowed for this circumstance. Competent persons in the trade have concluded that a deduction of about three cents from the stated duty must be made in order to offset the effect of skirting; the duty of eleven cents a pound on skirted wool was equivalent to one of (roughly) eight cents a pound on wool not thus assorted. If all the imported wool had been skirted, the duty of eleven cents would thus have been the same in effect as one of eight cents on wool strictly comparable to the American fleeces. The burden or loss ascribable to the tariff would then be calculated on a basis somewhat lower than that of the full duty.*111

IV.XIX.17

We may proceed now to a more detailed examination of the history of the domestic production of wool, and more especially of the lessons from the geographical distribution of different periods.

IV.XIX.18

A glance at the table on page 308 will show that the number of sheep (a sufficient indication of the wool clip) in different parts of the country has undergone great and apparently irregular variations. Yet the variations in fact conform to some general tendencies; and these tendencies are instructive.

NUMBER OF SHEEP (000 omitted)*112
1840 1850 1860 1870 1880 1890 1900 1910

New England 3,820 2,258 1,780 1,450 1,326 937 563 305
New York 5,119 3,453 2,618 2,182 1,715 1,529 939 605
Pennsylvania 1,768 1,822 1,632 1,794 1,777 1,612 959 637
Ohio 2,028 3,943 3,547 4,929 4,902 4,061 2,648 2,892
Michigan 100 746 1,273 1,986 2,189 2,400 1,626 1,545
Illinois 396 894 769 1,568 1,037 923 629 661
California ... 18 1,088 2,768 5,727 3,373 1,725 1,440
Texas .... 105 753 714 3,652 4,264 1,440 1,364
Oregon .... 15 86 318 1,368 1,780 1,961 1,982
Montana .... .... .... 2 279 2,353 4,215 4,979
Wyoming .... .... .... 6 450 713 3,327 4,676
Colorado .... .... .... 121 1,091 897 1,353 1,313
New Mexico .... 377 830 619 3,939 2,474 3,334 2,931

IV.XIX.19

It will be seen that in the entire region east of the Allegheny mountains there was a marked and uninterrupted decrease in the number of sheep from the middle of the nineteenth century to 1910. The decline is most striking in New England and in New York. It is great also in Pennsylvania, even though, as will appear presently, the tariff has operated in special degree to maintain wool growing in some parts of that state. In the group of states which represent the great northern central region of the country, a somewhat different movement appears. The number of sheep increases from the middle of the nineteenth century until about the year 1880, but thereafter undergoes a progressive decline. Ohio is by far the most important of these states, so far as wool growing is concerned. Even in Ohio the number of sheep, though it still remained considerable, showed an unmistakable decline after 1890. Turning to the region west of the Missouri river, we find still a different movement. In some states there is an almost continuous increase; in others, fluctuations not dissimilar to those of the eastern region. In California and Texas, for example, during the twenty years from 1860 to 1880, the figures show an extraordinarily rapid increase. But during the next generation the movement is reversed. The number of sheep in each of these states declined during the ensuing thirty years, and in 1910 was hardly one-third of what it was in 1880 and 1890. Oregon belongs, on the whole, in the same group. Here, too, there was a rapid increase until 1890; thereafter, the number remained virtually stationary. On the other hand, the characteristic ranching states, like Montana, Colorado, and Wyoming, show an almost continuous growth. Here the number of sheep in 1910 was much greater than it had been twenty years before. New Mexico also holds her own.

IV.XIX.20

The main explanation of these variations is that wool has been and is characteristically a frontier product. It is easily transportable; it is not perishable; sheep raising is a ready and profitable use of the land when land is plenty, population scarce, and transportation expensive. During the earlier stages in the development of New York, Ohio, and Illinois, wool growing was an important industry. As population thickened, other uses of the land became more advantageous, and the pastoral use of the land for sheep was displaced. Precisely the same transition has taken place within the last generation in California and Texas. During the first period of settlement, sheep were herded in these states by the million. As settlement progressed, agriculture took the place of ranching; and sheep and wool declined.*113

IV.XIX.21

Reference has been made to the rapid and striking increase of the American wool clip which took place during the years from 1870 to 1883. This was a period, as it happened, of unusually rapid extension of the frontier. In 1869, the first transcontinental railway was completed,—the combined Union Pacific-Central Pacific line. During the ensuing decade, several other great systems, the Burlington route, the Northern Pacific, the Atchison, the Southern Pacific, were building rapidly across the western plains. A vast grazing region was opened; the lands upon which the great herds of buffalo had wandered were gradually stocked with sheep. This rapid movement accounts for the growth of the wool clip. Elsewhere, wool growing was on the decline; it was the rapid growth in the then territories which made up for the loss. After 1885, the decline in the country at large continued, and the growth in the great grazing region, though maintained, was at a slackened rate; consequently, the country's clip as a whole remained stationary.

IV.XIX.22

The great pastoral region west of the Missouri river obviously cannot have the same future as the agricultural region to the eastward. Rainfall becomes progressively less toward the west, until, at about the one hundredth meridian, toward the western edge of Kansas and Nebraska, it becomes insufficient for agriculture. Doubtless it cannot be said just how far the tillable area extends; the methods of "dry farming" may stretch it somewhat farther than was long supposed. But beyond lies the arid and semi-arid country. Patches of it may be reclaimed by irrigation, but patches only. In the main, it must always be a pastoral region. Here sheep herding and wool growing have a chance for permanent lodgment.

IV.XIX.23

The displacement of sheep growing as one of the main uses of the land in the eastern region is simply one further illustration of the working of the principle of comparative advantage. During the frontier stage, this pastoral use of land is advantageous. But as population thickens, settled agriculture becomes unmistakably more advantageous, and displaces the other use. Precisely the same movement is taking place the world over. Sheep growing has declined throughout western Europe,—except in England, where some special conditions prevail, sheep being kept primarily for mutton. For wool, the main supply of England as well as of the manufacturing countries of all western Europe comes from various outlying regions, such as Australia, Argentina, South Africa. These correspond for economic purposes to the successive frontier areas of the United States. In Europe, as in the United States, the use of agricultural land for wool growing has given place to other and more advantageous uses.*114

IV.XIX.24

It would seem that the great arid and semi-arid plains and mountains which stretch from the western edge of the Missouri valley almost to the Pacific coast might become permanent sheep pastures and permanent sources of wool supply. But here once more the principle of comparative advantage comes into play. Use of the land for another pastoral purpose seems likely to displace wool growing. The grazing plains which can support sheep can support cattle also. Meat is in more insistent demand than wool and cattle pay better than sheep. The modern changes in transportation serve to increase the trend toward cattle raising. Cattle as well as meat can be transported with an ease undreamed of a half a century ago. Before the days of highly developed railway transportation, wool was the one product which could be easily carried from the frontier. Now cattle are carried their thousands of miles. The practice of rearing them on the plains, and then transporting them to the corn belt of the Mississippi valley for fattening, has attained great proportions. Wool growing has met in the pastoral region a competitor as formidable as tillage proved to be in the Mississippi valley itself.

IV.XIX.25

Nevertheless, there are considerable parts of the western region which are unavailable for cattle, and which apparently will always be left to the sheep grower. Sheep need less water than cattle, and hence will always retain their place in the drier parts, especially in the southwest. They can be herded in hilly and mountainous regions where cattle cannot be kept; they flourish on herbage which is too scant for the larger animals. Similar causes, it may be remarked, bring about the dominance of sheep growing in Australia. In the vast interior of that continent, precipitation is even less than it is in the greater part of our western region. Moreover the hot and dry climate is better adapted for sheep and especially merino sheep, than for cattle. There is a natural division of labor,—natural in the sense of resting on physical causes,—when sheep are herded and wool is produced in the interior of Australia and in the similar parts of our west, while cattle raising dominates those parts of the west where the climate and topography are adapted to them.


IV.XIX.26

There is, however, another and entirely different aspect of wool growing. In the preceding paragraphs regard has been had to those pastoral conditions under which wool growing is the main use of the land. Quite different is the situation when sheep are kept as a by-product of general farming. Sheep in small numbers can probably be kept with profit on almost any farm. They are certainly kept with profit on very many. Their keep costs little; they enrich the soil; and what is got for their wool and mutton is so much extra gain. The gain from keeping a few sheep perhaps becomes greater as farming becomes more intensive; though the circumstance that sheep growing has almost disappeared in the western part of Germany, where cultivation is highly intensive, indicates that generalization on this topic must be guarded.

IV.XIX.27

At all events, in the United States, farmers in considerable number, especially in the northern central region, maintain each a few sheep as a by-product. These are most profitably the cross-breds. Though the pure English strain is not adapted to the food or climate, sheep of mixed breed do well, kept with a view rather to meat than to wool. In the pastoral region of the west the merino strain long predominated. Even there, however, a movement similar to that in cattle growing has taken place; cross-bred sheep are reared on the ranches, and then sent eastward to be fattened in the corn belt. It is in the farming region proper, however, that the keeping of sheep primarily for mutton has most developed. Here the sheep are a by-product of general farming; and the wool itself is a by-product of that by-product.

IV.XIX.28

To the general tendency that wool growing on a large scale tends to disappear from thickly populated countries, being relegated to frontier regions or to those regions whose climatic conditions condemn them to a perpetual frontier state, there are two striking exceptions. One, already referred to, is in England, where more sheep are permanently maintained than in any other thickly settled country. The favoring circumstances are unusual: a great demand for mutton, a climate suited to the mutton breed, soils which seem to benefit unusually by the enrichment from sheep. Wool is much the less important of the chief products. The maintenance of sheep growing in England in face of complete free trade and heavy wool imports indicates that this use of the land is advantageous. The other analogous region is in the northern and eastern part of Ohio, with adjacent districts in Pennsylvania and Michigan. Here also sheep raising remains, not on a small scale as a by-product of general farming, but as an important part, even the most important part, of agricultural operations. Here merino sheep were long maintained; and even though cross-bred sheep kept for mutton have in good part replaced them, wool and the price of wool still bulk large in the farmers' eyes. Here was the main seat of a vehement protectionist feeling. Here lived President McKinley, and here he imbibed that devotion to the principle of protection with which his name is linked in history. The case is unlike the English case, in that the maintenance of wool growing was dependent on protection. It happens that considerable parts of the Ohio area are hilly and easily eroded, and not so advantageous for general agriculture as the typical prairie land of the Mississippi valley. It was natural that wool growing, once established here under frontier conditions, and much promoted by the exceptional need for wool during the civil war period, should be clung to almost with desperation, and should become the basis of an intense and uncompromising demand for protection.

IV.XIX.29

Comparing now the different wool growing regions of the United States, it is clear that the conditions were very diverse in the several seats of the industry. One could hardly find a better illustration of an industry conducted not with constant costs, but with costs greatly varying. On this phase of the wool situation the Tariff Board's inquiries of 1909-12 a led to some striking results. The special subject to which the Board directed its attention was the cost of wool within the country and without,—with reference to that principle of "equalizing" costs of production which then played so large a part in the tariff debate. Untenable as is the principle itself, the inquiries to which it gave rise served to supply illustrations on the principles really essential in the controversy.

IV.XIX.30

Wool being a product supplied jointly with mutton, the Board's first task was to demarcate if possible the separate cost of wool. In this task it followed the method approved in economic theory, deducting from the total cost (supply price) of the whole the price obtained (the demand price) for the products other than wool.*115 The total cost of sheep rearing was first ascertained or approximated; then the receipts from products other than wool (chiefly mutton) were deducted; the residue was taken to be the separate cost of wool. Obviously the "cost" of wool, thus made out, was a figure to be used with caution. It was the " derived " cost of wool, not an independent cost. It was directly dependent on the receipts obtained from the mutton; yet none the less, nay, for that very reason, a significant figure. It meant that wherever much was obtained from the sale of mutton, so much less was needed to make it worth while to supply the wool; and conversely that where little was got from mutton, so much more would have to be got from wool in order to make the rearing of sheep worth while.

IV.XIX.31

Calculated in this way, the "cost" of wool showed extraordinary diversities. The summary statement made by the Tariff Board, giving the results in the most general form, ran as follows:*116

Number of Sheep Average "Cost" of Wool
1. Western region (the "Territories") 35,000,000 11 cents
2. Ohio region (merino sheep) 5,000,000 19 cents
3. Cross-bred sheep in other regions east of the Missouri river 10,000 000 nil

IV.XIX.32

These figures, however, not only showed an extraordinary range,—from nineteen cents a pound to nothing at all,—but were themselves averages made up from widely varying figures. Thus, in the most important of the three regions (the western), for which an average cost of eleven cents was given, the individual costs whence the average was deduced varied from a maximum of twenty-four cents a pound to a minimum of four cents. For the Ohio region, the average for the merino sheep there investigated was similarly made up from figures mounting to forty-two cents at the highest and falling to six cents at the lowest.*117 The simple fact is that wool growing in some parts of the United States is carried on under advantageous conditions,—as, for example, in the dry southwestern districts where the climatic conditions are favorable for merino sheep and for nothing else;*118 while in other parts of the country, as for example in the Ohio region, the conditions are distinctly disadvantageous. The lesson even for the staunch protectionists was obvious: the favorite formula of "equalizing cost of production" could not be applied in this case. And the lesson for the staunch free trader was equally obvious: there was no ground for fostering a domestic supply of wool produced at high cost, and no ground for worry about the consequences of abolishing the duty as regards the wool produced at low cost.

IV.XIX.33

The contrast between the last two groups,—the Ohio region with a "cost" of nineteen cents, and other parts of the north central region with a "cost" of nothing at all,—brings out most strikingly the differences. When it was figured out that for cross-bred sheep kept in connection with general farming the wool cost nothing at all, the fact simply was that the proceeds from mutton covered all separable expenses incurred for the sheep, such as feeding, care, and the like. Both wool and sheep were a by-product (joint product) of general farming, and the "cost" of wool was more distinctly a derived cost, and even more elusive, than in the ordinary cases of joint cost. In whatever way calculated, however, it could not be more than nominal. On the other hand, there were in the Ohio region farmers who clung with a certain obstinacy to rearing merino sheep solely for their heavy fleece of short fine wool. Much of the land so used seems to have been not easily available for general agricultural purposes. But much of it was turned to wool growing of this sort through persistent habit, and also, of course, through the influence of the duty on wool. The indications were that where the breeding was chiefly or largely for mutton (cross-breds), even farms on which sheep and wool were the main products were little affected by the price of wool or the wool duty. But as regards farming chiefly for merino wool, it was found that "the highest average cost of production of such wool in the world is in the state of Ohio and contiguous territory"; which from the unflinching protectionist point of view may be a reason for maintaining a high duty on wool, but to the free trader seems a conclusive ground for not endeavoring to stimulate its domestic production at all.*119


IV.XIX.34

One other phase of the wool situation deserves attention. It was pointed out, in the first part of this chapter, that the orthodox formula (so it may be called) for ascertaining the national loss from protection seems in this case applicable; due allowance being made for the complication arising from skirted wool.*120 Imports continue, in quality similar to the domestic product. There are no complications from exceptional conditions of transportation or of geographical distribution. Apply then the formula; multiply the domestic product by the full (effective) rate of duty; and you have the national loss. The assumptions underlying this sort of inference are two: first that the domestic price is in fact raised by the duty,—and this cannot be doubted; second that the foreign price will maintain itself at the same level after abolition of the duty. The second assumption raises a debatable question. It may be asked, will not the foreign price itself be raised, in consequence of the additional pressure on foreign sources of supply due to increased importations into the United States? We may disregard that crude form of the contention which looks simply to temporary results. Whenever a duty is remitted, the immediate effect is greater resort to foreign supplies and some rise in foreign prices. As time goes on, however, foreign prices will ordinarily be reduced to their former level; and then the full benefit of remission of taxation will inure to the domestic purchaser. There is the possibility, however, that the enlargement of the foreign supply will take place in the face of obstacles,—with increasing costs, diminishing returns. There may be pressure upon limited sources of supply, resort to less advantageous sources, and consequently some permanent enhancement of price. The case is familiar in economic theory: an increase in demand for a commodity produced under conditions of diminishing returns causes a permanent advance in normal price.

IV.XIX.35

It appears, however, that this result, though quite within the bounds of theoretic possibility, is not likely in fact to ensue; and this because of the expansibility of the supply from the one region which is most important,—Australia. During the last two generations the extraordinary extension of grazing into frontier regions seems to have well-nigh exhausted the other available areas. South Africa, necessarily limited in productive capacity by an unusually arid climate, apparently has reached its limit. In Argentina a development seems to have taken place essentially similar to that which has already taken place in our Mississippi valley. The plow is displacing the ranch; settled agriculture succeeds grazing. And grazing itself is found more profitable for cattle than for sheep. What with the competition of grain and of cattle, the wool clip of Argentina seems likely to diminish rather than to increase. But in the interior of Australia a large extension of supply may be expected without an increase in cost. Wool production in that vast area is declared by observers who are competent, and who cannot be supposed to have a bias against the maintenance of our wool duties, to be susceptible of very considerable expansion. It would seem that from this region additional quantities can be procured without resort to poorer natural resources, and consequently at costs and prices similar to those which have prevailed in the past. The Australian interior, it is true, is fickle, because of the narrow margin of safety in its precipitation. The rainfall is so scant that a slight deficiency causes immense losses among the sheep. A year or two of drought in Australia affects the wool supply of the whole civilized world, and so the course of wool prices. A conjuncture of Australian drought with the abolition of American wool duty might bring it about that for the time being the American purchaser would experience no lowering of prices. But in the long run, and under the normally prevalent conditions, this combination of circumstances cannot be regarded as probable. The Tariff Board, in the same sentence in which it declared our Ohio region to be the most expensive region in the world for producing wool, declared Australia to be the least expensive in the world; and there appears to be no reason for anticipating that under altered conditions of demand it will cease to be the least expensive source of supply,—that is, the most advantageous.*121

IV.XIX.36

There is, however, another qualification, of some practical as well as theoretic significance, which must be attached to the general conclusion concerning the "national loss" ascribable to the wool duty. It results from the great variety in the conditions under which the domestic wool, not the foreign, is grown; it is one which must be borne in mind whenever a raw material, a commodity belonging to the extractive group,—is subjected to a protective duty. A part of the domestic output of such a commodity is likely to be produced within the protecting country so advantageously that it would hold its place even without the duty. Not the whole output then leans on protection, but only the part which is made under less advantageous conditions. But to this latter part alone can we apply the reasoning about national loss. Here, and here only, is it true that the consumer is taxed, and that the producer yet does not profit; that the extra price which the duty enables the producer to get merely enables him to carry on operations he would not otherwise turn to. As regards the domestic producers who would carry on the same operations in any case, there is nothing in the nature of a national loss; there is merely transfer from one pocket to another. What the consumer pays to them in the way of enhanced price, they really gain. Under these conditions, and to this extent, there is some justification for saying that protection robs Peter to pay Paul. But, by the same token, the free trader is not justified in saying that under these conditions there is wasteful diversion of industry from the more profitable channels into the less. There may be unjustifiable taxing of one set of persons for the advantage of another set,—whether it is deemed unjustifiable must depend on one's convictions regarding the general benefit or lack of benefit from protection. But there is only a transfer from one to another, no net economic loss. In this direction the reasoning about the economic loss from a duty like that on wool must be qualified.*122

IV.XIX.37

From this sketch of the history and conditions of domestic and foreign production, it will be seen that wool growing in the United States is partly an industry depending upon tariff support, and partly not. The keeping of sheep as a by-product of general farming will be continued whether or no there be a duty upon wool. The trend toward mutton, and the diminution of sheep raising with a view primarily to wool, are inevitable. In the pastoral region of the west, cattle will displace sheep in the long run wherever the climate and the lay of the land make possible the change. Wool growing of the sort which long held its own in the Ohio region was an artificial industry, probably unable to hold its own even against the stress of domestic forces, and almost sure to give way in face of unfettered foreign competition. Yet even under free wool a considerable clip is likely to be forthcoming in the United States. Partly it will be derived from many small flocks of sheep maintained in connection with general farming; supplies of this sort will probably increase as agriculture becomes more intensive. Partly it will come from those regions in the arid west which are not suitable for cattle and can be used for sheep only.

IV.XIX.38

Surveying the situation as a whole, it is difficult to see any ground for the maintenance of duties upon wool, except that of extreme and even fanatical protectionism. The arguments to which economists give a respectful hearing are not applicable. There can be no question of protection to young industries. The physical and industrial obstacles which stand in the way of complete supply of the market from domestic sources are unalterable. It is the steady and growing strength of these forces which explains the increase in the imports of wool after 1900 in face of high duties. Neither do any social or political arguments tell in favor of duties on raw wool. It is, indeed, conceivable that political or social disadvantages may be alleged to ensue from complete reliance on foreign sources of supply for this important material. Yet it is striking that even in Germany, where most stress has been laid on considerations of this kind, absolute dependence on imported wool is accepted by all parties with equanimity.*123 So far as the United States are concerned, however, the question is merely one of more or less. Even under free wool, the domestic supply will not disappear; it will simply shrink to smaller dimensions. To repeat, the only grounds on which a wool duty can be defended are those of a crass mercantilism: that the international division of labor brings no gain, importation in itself means loss. If foreign supply is admitted ever to be advantageous, it must be so in the case of wool.


Notes for this chapter


The literature on the wool duty is voluminous. Two recent contributions are of signal importance, and supersede those of earlier date: Professor C. W. Wright's Wool-growing and the Tariff, in Harvard Economic Studies (1910); and the Report of the Tariff Board on Wool and Woolens (1912), vol. ii. To both of these frequent reference will be made. Among the earlier discussions, reference may be made to a frank statement from the wool manufacturers' point of view, by Mr. S. N. D. North, then Secretary of the Wool Manufacturers Association, in the Bulletin of that Association, December, 1900.
The following tabular statement shows what the wool duties were from 1867. It will be observed that the duties on classes I and II (clothing and combing wools) were split into two, according to the value of the wool, in 1867 and in 1883, but not thereafter. The duties on class III (carpet wool) were similarly split, according to value, throughout; they were ad valorem in the act of 1890, but specific in all the other acts.

WOOL DUTIES
Act of Class I, Clothing Wool Class II, Combing Wool Class III, Carpet Wool

1867 Value up to 32c.-10c. per lb., plus 11% Same duties as on Class I Value up to 12c.-3c. per lb.
Value over 32c.-12c. per lb., plus 10% Same duties as on Class I Value over 12c.-6c. per lb.
1883 Value up to 30c.-10c. per lb. Same duties as on Class I Value up to 12c.-2½c. per lb.
Value over 30c.-12c. per 1b. Same duties as on Class I Value over 12c.-5c. per lb.
1890 11c. 12c. Value up to 13c.-32% ad valorem
Value over 13c.-50% ad valorem
1894 Free Free Free
1897 11c. 12c. Value up to 12c.-4c. per lb.
Value over 12c.-7c. per lb.
1909 Same as 1897 Same as 1897 Same as 1897
1913 Free Free Free

See the account of carpet wools in the Tariff Board Report on Tool, pp. 413 seq.
On the extent to which carpet wool was used in this way, see Tariff Board Report On Wool, pp. 413, 436.
In the tariff bills introduced by the Republicans during the 62d Congress (1911-13) it was proposed that the duty on carpet wools should continue to be collected on its importation, but that the carpet manufacturers should get a drawback of the amount paid in duties to the same extent (99 per cent) as if they exported carpets; thus securing virtual exemption for so much of the wool as was actually used in carpet making. This proposal, of course, had no chance of adoption, during the Congress of 1911-13; then the Democrats controlled the House, the Republicans the Senate, and no tariff legislation was possible. But it represented the consistent protectionist policy.
"The merino is beyond question the most cosmopolitan of the sheep tribe. No breed has passed into all countries and thriven as the merino, and still further no other breeds have been able to become so closely identified with their environment as to become the progenitors of native families as in the instance of the merino. This would seem to be due to the migrating habits that characterize the merino in Spain, where the flocks are driven towards the north in summer and southward in winter, thus becoming inured to all the variations of a diversified country." Craig, Sheep-Farming in North America, p. 34. On the hardiness of the merino and its tendency to herd in large numbers (hence less need of shepherding) see Tariff Board Report, pp. 605-607. Cf. the note to p. 315, below.
Cf. what is said below, at p. 327.
The proportion of imports to domestic product is shown summarily by the following figures:—

Average Imports,
Per Year, of Wool,
Classes I and II
Average,
Domestic Product,
Per Year
Period 1884-90 26 mill. lbs. 321 mill. lbs.
" 1891-93 (under the McKinley tariff) 45 " 329 "
" 1895-97 (under the Wilson tariff, wool free) 153 272 "
" 1900-06 (duty restored) 65 " 297 "
" 1907-12 (duty restored) 95 " 314 "

"The superior purity of the Australian wools, their softness, lightness, and lustre, are attributed to the climatic conditions of that country....Spanish merinos were introduced, and it soon became noticeable that the wool from the Australian flocks was of a finer quality than that grown upon the sheep fed upon the pastures of Spain. Dr. Bowman considers that an even temperature and a certain amount of moisture are necessary for the retention of lustre [that is, for sheep of the English mutton types], and he cites New Zealand wool as illustrative of this relationship.... It is known that some soils color wools so that they cannot be washed white. Territory wool has a characteristic bluish tinge that detracts greatly [?] from its market value. Scott asserts that the best wool growing land is generally that on a sandstone foundation, as it gives the wool the quality of being bright and clean, while he considers that volcanic or limestone soils are thought to favor harshness." Craig, Sheep-Farming in North America, pp. 38-39.
On skirted wool, see Wright, pp. 284-286, and Tariff Report on Wool, p. 337. It is a. curious fact that American wool not only comes to market quite unassorted, but is often fraudulently or carelessly mixed with rubbish, twine and scraps. "Australian and New Zealand wool is packed more honestly than American wool" (I quote from the Textile World Record, June, 1908). American cotton is also said to come to market in bad condition. "Poor ginning [of American cotton] injures the staple; baled cotton is left uncovered and is damaged by the weather; the bagging is the heaviest and poorest that ingenuity can devise and it is charged at the same price as cotton....An Egyptian bale is a model of neatness and compactness, with a light and strong covering, held together by proper hoops, and both bagging and hoops are deducted as tare." (From the presidential address of Mr. J. R. MacColl, before the Cotton Manufacturers' Association, April, 1906.) I suspect these defects in both domestic materials are ascribable to the unbridled individualism of the American planter and wool grower. Some form of coöperative organization for sales might bring improvement.
Thus for 1912 we should have the following figures:—

Imports (fiscal year, 1911-12):—
Class I 69,300,000
Class II 10,900,000
Total Imports, clothing wool 80,000,000 lbs.
Domestic Product (calendar year, 1912) , . 304,000,000 "

Charges on the domestic consumer:—

On 80 million lbs., imported wool, at 11c. $8,800,000
On 304 million lbs., domestic wool:—
if reckoned at 11c. lb. $33,400,000
if reckoned at 8c. lb. 24,300,000

Some figure between the last two would seem to give with a sufficient approach to accuracy the prima facie national loss from protection to wool.

From statements made to me by wool dealers I gather that practically all the imported wools of class I (which greatly preponderate in the imports) are skirted.

I take these figures from Wright, Appendix Table II. They are derived from Census reports, but no one supposes them to be more than approximations to the truth, especially for the earlier periods. They are sufficient approximations, however, to indicate the general trend.
"The decline in the number of sheep with the advent of the farmer is nowhere more noticeable than in California." In 1880 that state had 7,500,000 sheep; in 1910, only 2,250,000. Tariff Board Report on Wool, p. 602.
The history and explanation of the displacement of wool growing by tillage constitute the main theme of Professor Wright's volume, so often referred to in the preceding pages (Wool-growing and the Tariff). See particularly, pp. 135 seq., on the middle west in 1840-60; pp. 250 seq., on the opening of the far west; and pp. 258 seq., on the general competition between wool growing and other agricultural operations. Instructive maps, showing the westward movement of wool growing, are in a paper by Professor H. C. Taylor, published by the Wisconsin Agricultural Experiment Station, June, 1911.

For some further illustrations of the working of the principle of comparative advantage,—grain and dairying being found more profitable than sheep,—see the Tariff Board Report on Wool, pp. 563 (Illinois), 571 (Wisconsin), 581 (Nebraska).

See the elegant analysis of this case, as well as of the case of joint demand, in Marshall's Principles of Economics, Book V, ch. vi, §§ 1, 4 (6th edition).
Report, p. 377. Cf. also the Summary, at p. 10.
See the analysis of the Tariff Board's figures made by Mr. W. S. Culbertson (who had been himself a member of the Board) in American Economic Review, March, 1913, p. 66. It should be added that for the Ohio region, though the variation from extreme to extreme was great, most of the figures fell within a smaller range (12 to 27 cents). For the western region, however, the varying figures of cost were distributed from highest to lowest without noticeable concentration in a middle range.
"The Southwest is still, as it has always been, the home of the range merino. But little of the mutton blood has been introduced into the flocks of this region, and the indications are that for obvious reasons,—climate, range, etc.,—these conditions will continue to exist for many years to come." Tariff Board Report, p. 602.
The sentence quoted is from the Tariff Board Report, p. 10. On the Ohio situation in general, see pp. 548 seq. A certain note of impatience with the merino wool producers of this region is discernible in the Report. After pointing out that well-managed sheep farms on which wool was not the chief source of income rarely failed to show a profit, the Report goes on (p. 548): "Why, then, do not all of the sheep breeders of the Ohio valley follow this system? The answer is that on hill farms especially it is not easy to grow the corn necessary to fatten lambs. Then, the owners of many flocks have not learned to adapt their systems of agriculture to this practice; they have long been accustomed to looking to wool for their chief profit from sheep breeding." The truth seems to be that this sort of wool growing was a survival from the frontier days of Ohio, maintained, precariously and beyond its time, first by the civil war demand for wool and then by the high duties. Cf. Wright, pp. 148, 183, 247.
See p. 306, above.
See Tariff Board Report, p. 10. The possibilities of increase in foreign supplies are considered in the Report at pp. 490, 522 et passim. There were in 1910 less than one hundred million sheep in Australia; it is supposed the number can be increased without difficulty to at least one hundred and fifty million (p. 492).
Compare what was said in chapter i, pp. 14 seq., on extractive commodities, and in chapter v, p. 63, on the Hawaiian sugar situation.
In 1898 Germany imported ten times as much wool as was produced at home (177 mill. kilograms against 17 mill.). Michaelis, in Handbuch der Wirtschaftskunde Deutschlands, vol. iii, p. 629.

End of Notes


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