Cyclopædia of Political Science, Political Economy, and the Political History of the United States
CUSTOMS DUTIES are taxes levied upon commodities on their being imported into or exported from a country. They have always formed one of the most important sources of the public revenue in all civilized nations. The device of raising revenue from the exports and imports would naturally occur to a commercial state in need of money, at a very early stage of its history. And, indeed, we know that the Athenians derived a considerable revenue from their customs. They levied a duty of 2 per cent. on all exports and imports at Athens. These were clearly for purposes of public revenue, for they levied an additional duty for the use of the harbor. During the Peloponnesian war the Athenians substituted for the tribute paid by their subject states a duty of 5 per cent. on all commodities exported or imported by such states, thinking to raise by this means a larger sum than by direct taxation. A duty of 10 per cent. on merchandise passing into and from the Euxine sea was established for a time by Alcibiades and other Athenian generals, who fortified. Chrysopolis, near Chalcedon, and built there a station for the collection of the duties. Under the name of portoria, customs duties were levied at Rome so early that we have no record of their introduction. Livy tells us that the Plebes were exempted from the portoria when Porsena threatened to invade Rome. This exemption, however, was only temporary, and the duties were increased in number from time to time, until, owing to the manner in which they were collected, the dissatisfaction became so great that, in B. C. 60, all the portoria in the ports of Italy were done away with. They were retained, however, in the provinces, and formed a permanent source of income to the provincial governments. Julius Cæsar restored the customs duties at Rome, and Augustus partly increased his import duties and partly instituted new ones. The subsequent emperors increased or diminished this branch of the revenue as necessity required or their own discretion dictated.
—As to the commodities subject to these portoria, it may be stated, in general terms, that all commodities, including slaves, which were imported by merchants-for the purpose of selling them again, were subject to the duty; whereas things which a person brought with him for his own use were exempted from it. A long list of such articles is given in the Digest. Many things, however, which belonged more to the luxuries than to the necessaries of life, such as eunuchs and handsome youths, had to pay an import duty, even though they were imported by persons for their own use. Things which were imported for the use of the state were also exempt from the portorium. But the governors of provinces, when they sent persons to purchase things for the use of the public, had to write a list of such things for the publicani, to enable the latter to see whether more things were imported than what were ordered; for the practice of smuggling appears to have been as common among the Romans as in modern times. The publicani seem to have exercised their right to search travelers and merchants in the most arbitrary and vexatious manner. If goods subject to a duty were concealed, they were, on their discovery, confiscated.
—Respecting the amount of the import or export duties we have but very few statements in the ancient writers. In the time of Cicero the portorium in the ports of Sicily was one-twentieth of the value of taxable articles; and as this was the customary rate in Greece, it is probable that it was the average sum raised in all the other provinces. In the time of the emperors the ordinary rate of the portorium appears to have been the fortieth part of the value of imported goods. At a late period the sum of one-eighth is mentioned as the ordinary import duty, but it is uncertain whether this is the duty for all articles of commerce, or merely for certain things.
—The barbarian tribes that conquered Rome were subdued by her civilization; and the states which rose on the ruins of the old Roman empire inherited its system of law, of religion and of finance. Customs duties soon became a fruitful source of revenue to all the feudal lords and barons; though they took rather the form of transit duties, inasmuch as every feudal lord who had the power, levied duties on all commerce which passed near his possessions. As a consequence, the rivers and highroads were fairly lined with custom houses and toll gates. As the kings and princes gradually broke the power of feudalism, far from abolishing these tolls and customs, they merely diverted the proceeds of the duties to themselves, though they often granted them again to individuals or communities. The cities and provinces adopted such duties as a means of raising revenue needed for local purposes. Even the kings lined the boundaries of the various provinces with custom houses, in order to raise national revenue. So universal did these duties, local and national, become, that every continental nation was fairly covered with a net work of customs lines. It must be regarded as a remarkable proof of the great advantages arising from exchange, that commerce could spring up and attain to large proportions in the face of such restrictions. Once introduced, it was exceedingly difficult to abolish these duties, and many of them remain until the present time.
—The most ancient customs in England consisted of fees paid by the merchants for the privilege of using the king's warehouses, weights and measures. About the year 979 king Etheldred established duties on ships and merchandise, to be paid at Billingsgate, in the port of London. Thus customs were levied before the conquest, but the king's claim to them was first established in the reign of Edward I. It has been supposed they were called customs in English because they were the inheritance of the king by immemorial usage and the common law, and not granted him by any statute; but Blackstone says that Sir Edward Coke clearly showed that the king's first claim to them was by grant of parliament. A statute passed in the reign of king Edward I. is cited to prove this, wherein the king promises to take no customs from merchants, without the common assent of the realm, "saving to us and our heirs the customs on wool, skin and leather, formerly granted to us by the commonalty aforesaid." These were formerly called the hereditary customs of the crown, and were due on the exportation of the said three commodities, and of none other. These duties, with some others of inferior importance which were then levied, were afterward denominated custuma antiqua sive magna. They were payable by every merchant, as well native as stranger, with this difference, that merchant strangers paid an additional toll, viz., half as much again as was paid by natives. These duties were all specific. Later in the same reign certain new duties were established, to be paid by alien merchants only. These were called custuma nova or custuma parva, and aliens' duty. They were considerably higher than any levied up to that time. Toward the close of his reign, Edward I. established a duty of sixpence in the pound upon all goods exported and imported, except wool, woolfells, leather and wines, which were subject to special duties. In the reign of Richard II. this duty was raised to one shilling in the pound, but was reduced to sixpence within four years. It was raised to eight pence in the second year of Henry IV., and in the sixth year to one shilling, at which it remained until the ninth year of William III. The duty on wine, called at first butlerage, because paid to the king's butler, was afterward exchanged for prisage, or the right of taking two tuns of wine from every ship importing into England 20 tons or more. It was afterward imposed at so much a ton, and hence was called tonnage. The duty of so much in the pound meant so much in the pound of its value. It was called poundage. The former was a specific duty, the latter an ad valorem one. The duties of tonnage and poundage were generally granted by one and the same act of parliament, and were called the subsidy of tonnage and poundage. These duties were at first granted, as the old statutes express it, for the defense of the realm, and the keeping and safeguard of the seas, and for the intercourse of merchandise safely to come into and pass out of the same. They were at first granted only for a fixed term of years; but in the time of Henry VI. they were granted him for life; and again to Edward IV. for the term of his life only; since which time they were regularly granted to all his successors for life, sometimes at the first parliament, sometimes at other subsequent ones, till the reign of Charles I., when his ministers were not sufficiently solicitous for a renewal of this legal grant. Yet the king levied these duties imprudently and unconstitutionally, without consent of parliament, for 15 years together, which was one cause of subsequent troubles. Before the commencement of hostilities, however, the king passed an act with a view of correcting past errors and appeasing prevalent discontent, by which he renounced all power in the crown of levying the duty of tonnage and poundage without the express consent of parliament, and also all power of imposition upon any merchandises whatever. Upon the restoration, this duty was granted to king Charles II. for life, and also to his two immediate successors; and by three several statutes it was made perpetual, and mortgaged for the debt of the public.
—The subsidy of poundage having continued for so long a time at one shilling in the pound, or at 5 per cent., a subsidy came, in the language of finance, to denote a general duty of this kind, of 5 per cent. This subsidy was afterward called the old subsidy, and was levied according to a book of rates established in the reign of Charles II. In William's reign a new subsidy was imposed of an additional 5 per cent. upon the greater part of the goods. The one-third and the two-thirds subsidy made up together another 5 per cent. of which they were proportionate parts. The subsidy of 1747 made a fourth 5 per cent. upon the greater part of goods; and that of 1759, a fifth upon some particular sorts of goods. The old subsidy was imposed indifferently upon exportation as well as importation; but the four subsequent subsidies, as well as most of the duties which were afterward occasionally imposed on a great variety of goods down to the reform of 1846 and subsequent years, were laid almost wholly on importation. Other ancient duties, which had been imposed on the exportation of the produce or manufactures of the country, were taken off altogether before the consolidation act of 1787. The book of rates established in 1660 marked an era in the history of English customs. It contained the rate of duty payable both by denizens and aliens, and the value to be set upon different descriptions of merchandise, and specified the articles which were customs free. It formed the foundation of the mode of levying the customs for the next one hundred and fifty years.
—A considerable increase in the public expenditure, with the introduction of the funding system, occasioned very frequent impositions of new duties, which were generally adjusted on the principles of the old subsidy; that is, the value of the goods was ascertained by a book of rates, and the amount computed by the quantities of the goods, either with respect to gauge, to weight or to tale. The duty was, therefore, not a certain proportion of their real value, but of an arbitrary value, agreeing, perhaps, with the current value at the time of imposing the duty, but which must, from the natural fluctuations of trade and manufactures, be necessarily liable to many changes and alterations. The consequence of this mode of fixing duties was, that when they were laid by bulk on goods of one general description, the duty was always the same, whether upon the finer or coarser manufacture; by which means it either operated as a prohibition to the latter, or was not felt at all by the former. They constituted, in fact, a kind of minimum duty. There was also another mode by which duties were imposed. This was by a proportion to the value on goods not rated, being the real and actual value of the same as sworn to by the importer. These principles of taxation, being once adopted, were pursued in all the new and additional duties of customs which were imposed for payment of the interest on the various loans which were raised from time to time for the public service. In some instances the additional duties were calculated by a percentage on the duties previously paid; in others a further duty was laid upon a different denomination of the commodity, either with respect to its value, its weight, its bulk or its number; and by proceeding gradually in this manner from period to period, the numerous additions made had at length become such a mass of confusion as produced an infinity of inconvenience and delay in business, and became the subject of universal complaint among mercantile persons. The perplexity arose in a great degree from almost all the additional duties having been appropriated to some specific fund, for the payment of certain specific annuities, in consequence of which it was necessary that a separate calculation should be made at the custom house for each of the different duties. From the great complexity of the whole of this branch of the revenue, scarcely any one merchant could be acquainted, by any calculations of his own, with the exact amount of what he was to pay; nor could much assistance in this respect be derived from the various books which had been published for the purpose of furnishing a general view of the customs; as in every session of parliament some alteration or other was made in several of the duties, and each of these alterations, following the old principle, totally unhinged and overturned the use of every preceding printed calculation. The officers of the customs, therefore, who from constant practice had acquired some facility in making the necessary calculations, were the only persons to whom the merchants could apply for assistance or direction. Thus, not only was the merchant in a great degree left at the mercy of the officers, but the officers themselves, who were intended to be a check upon the merchants, were forced to become their agents.
—In order to remedy these inconveniences, Mr. Pitt proposed, in the beginning of the year 1787, to abolish all the duties then subsisting, and to substitute in their stead one single duty on each article, amounting as nearly as possible to the aggregate of all the various duties then payable. The series of resolutions submitted to the house of commons for the purpose of carrying this measure into effect, amounted to upward of 3,000. A systematic simplicity and uniformity was at the same time introduced into the custom house accounts. This statute, known as the "consolidation act," repealed all former statutes imposing duties of customs and excise with regard to the quantum of the duty; and the two books of rates above mentioned were declared to be of no avail for the future; but all the former duties were consolidated, and were ordered to be paid according to a new book of rates annexed to that statute. These alterations were productive of the very best effects; and several similar consolidations were effected at various times subsequently, particularly in 1825, when the various statutes then existing relative to the customs, amounting to about 450, were consolidated and compressed into only 11 statutes, of a reasonable bulk, and drawn up with great perspicuity.
—But the great reform in English customs legislation dates from the abolition of the corn laws. In the year 1846 England entered an entirely new era in her commercial policy; and as she gave up one after another of the restrictions on trade which had been in force for centuries, she was enabled to make her customs system simpler and more economical, and at the same time more remunerative. When the number of articles which pay duty is small, the customs system may be made exceedingly simple and economical. England now collects duty from less than a dozen articles, while 50 years ago there were 432 enumerated articles in her tariff—The history of the continental nations, in respect to the customs, is very similar to that of England. There was a time when every county line formed a customs line. After a long contest these lines were abolished, in France by the revolution, in Germany by the formation of the Zollverein. The whole tendency of modern nations has been toward a simplification of duties and machinery; though within the last 20 years there has been a reaction in favor of protection, so called, which has brought with it many of the old abuses.
—The history of customs legislation in America is brief. The first national tariff was adopted in 1789, mainly for the purpose of raising revenue, although the preamble of the act announced as among the objects of the law the protection of domestic manufactures. Several circumstances conspired to lead to the adoption of the tariff policy. The government under the constitution had hardly had time to get fairly started. It had many enemies among the people. If it had adopted a system of direct taxation, its burdens would have been felt more vividly, and opposition to it would have increased rapidly. By raising a large proportion of its revenue by means of indirect taxation, it avoided all direct contact with the people, and thereby much bitter feeling and opposition. Among the available means of indirect taxation, there were only two of much importance, the customs and the excise. The latter was peculiarly odious to the people, and, although it was introduced and maintained for a while, yet it occasioned much ill feeling, which finally culminated in the outbreak known as Shays' rebellion. The government had to depend, therefore, mainly on the customs for its revenue. The needs of the government kept increasing, and the duties were gradually increased in number and amount for the next 25 years. There were no less than 17 tariff acts passed from 1789 to 1816. At the outbreak of the war of 1812, the existing duties were doubled; and although, according to a provision of the act itself, these duties were to be lowered to the old rate one year after the war closed, yet the protectionists were powerful enough to prevent this when the time came, and to secure the passage of the act of 1816, which was shaped in the interests of the protectionists. Other acts, in 1818, 1824, 1828 and 1832, were passed, increasing the number and raising the rate of the duties. In the latter year occurred the trouble in South Carolina, known as the nullification movement. This state declared the tariff laws of the United States null and void within its borders. As a result of this excitement, the compromise tariff of 1833 was passed, having for its object a gradual reduction of duties until they reached a uniform level of 20 per cent. ad valorem.
—The complete action of this law was prevented by the act of 1842, passed by the protectionists, who had gained temporary possession of the national congress. This act was superseded by that of 1846, which adopted essentially the principles of the compromise tariff, although the average rate under this act was much above 20 per cent. This tariff lasted until 1857, when a further reduction of duties occurred, made possible by the rapidly increasing revenue of the government. The tariff of 1857 had hardly passed into effect when a panic in business circles ensued, which caused a large falling off in imports; and, before confidence was fully restored, the civil war broke out, and with it the government returned to the worst abuses of the period from 1816 to 1832. A great number of tariff acts were passed during and immediately following the war, all of them shaped and controlled by the protectionists. At the present time our tariff is in many respects one of the worst in force among civilized nations. Its rates are enormously high, and have been laid more with reference to the interests of private parties than to the welfare of the country as a whole.
—Kinds of Duties. The question as to the best method of levying the duties is an important one, both from an administrative and economical point of view. The choice lies, in general, between specific and ad valorem duties. The former exact so much for each pound, yard's length or square foot of all goods of a given kind, without any reference to their comparative fineness or value; the latter tax each class of goods a certain percentage on their value. The discussion as to the respective merits of these two kinds of duties has been warm and long between financiers and economists. Not that the former have always been on one side and the latter on the other, for eminent financial as well as economical authorities can be quoted on either side of the discussion. But inasmuch as the more nearly modern nations have approached a revenue tariff the more completely they have adopted specific duties, the latter may very properly be called the fiscal duties, while ad valorem duties may be denominated economical duties.
—It is true that ad valorem duties have been the prevailing ones in the early financial history of most civilized nations. Thus, as has been said already, Athens levied an ad valorem duty, in which she was afterward imitated by Rome; and certainly in neither state was it adopted from economical considerations. Of the old English duties tonnage was a specific, poundage an ad valorem impost; though the latter, owing to the peculiar manner in which it was levied, was not a pure ad valorem duty. The English consolidated tariff of 1787 contained many duties of both classes; but in 1853 specific duties were substituted for ad valorem in nearly every case, and this was done from fiscal considerations. The Zollverein tariff imposed specific duties, changed in their amount according to a periodical observation of the market prices. The Portuguese tariff is in general made up of specific duties.
—The history of the American tariff in this respect is somewhat peculiar. In 1792, of 160 "enumerated articles," 102 were taxed with ad valorem and 58 with specific duties. For the other tariffs the ratio was as follows:
It will be seen from the above table that the number of duties, ad valorem, decreased relatively from 1792 to 1829, while in 1846 no specific duties were levied, and from 1861 to 1870 the specific duties became again more numerous. A political fact throws some light upon the subject. The years 1828 and 1870 may serve to mark respectively the periods when the protectionists shaped most completely the financial policy of the country; while in 1792 and 1846 the free trade party exercised most influence. (See
—American protectionists have favored specific duties, because, just at the time when, according to their ideas, the duties ought to be relatively highest, i.e., when prices rule low, duties ad valorem are the lowest, while specific duties grow relatively higher the lower the prices get. Thus, suppose a yard of cloth worth $1 is taxed 25 per cent. ad valorem, it pays 25 cents tax. Now let the price fall, through any conjunction of circumstances, to 60 cents per yard, it still pays 25 per cent. of its value, but absolutely only 15 cents. Tax it, on the contrary, with a specific duty of 25 cents per yard, and even if it falls in price to 60 cents it will pay the same sum, 25 cents; but the home producer will be protected to the extent of 41 2/8 per cent. instead of 25 per cent. European protectionists, on the contrary, have in general demanded duties ad valorem because specific duties favor the coarser kinds of goods more than the finer qualities, and thus direct the investment of capital to the manufacture of the poorer grades of commodities.
—The question as to which kind of duties is preferable can be decided only after a thorough investigation of the circumstances of the time and place. Duties ad valorem seem to be the best on account of their inherent fairness; and probably no other kind would ever have been imposed if it had not been for the many difficulties in the way of collecting ad valorem dues. The greatest obstacle in the way of collecting duties ad valorem is, naturally enough, the impossibility of arriving at a proper valuation of the goods to be taxed. Of the manner in which the value was ascertained in Athens and Rome we know next to nothing. It has been explained above how poundage was levied. When the duty was first laid a book of rates was prepared, which contained the current prices of the goods taxed, and the duty was collected on the basis of that valuation. Of course it was only a short time until the market prices varied very widely from the rate-book price, and thus poundage ceased to be a pure ad valorem duty. Alterations were made in the rate-book from time to time, by one administration and another; for parliament had granted the king a shilling in the pound, but left it to the administration to fix the valuation on which the duty was to be collected. In the time of James I., however, many commodities were still taxed on the same valuation as 200 years before; although that valuation had been made before the discovery of America, and had consequently become much inferior to the prices which almost all commodities bore in every market in Europe. For all articles not contained in the rate-books, the modern system of ascertaining the value was in force—that of taking, with certain safeguards against undervaluation, the sworn statement of the importer as to the value of the goods. To show in a clear light the tedious and vexatious restrictions to which an ad valorem system of duties exposes the trade of a country, no better example could be desired than the customs laws of the United States.
—If any one wishes to export goods from any country to America, he must make out an invoice of the same and lay it before the American consul of the district or country for indorsement. A declaration must accompany this, setting forth: 1, that the invoice is true in all respects; 2, if the merchandise mentioned was obtained by purchase, a true and full statement of the time when and the place where the same was purchased, the actual cost thereof and all charges thereon; 3, a true account of all discounts, bounties or drawbacks which have been actually allowed thereon. If the merchandise has been obtained in any other manner than by purchase, the invoice must contain the actual market value thereof at the time and place when and where the same was procured or manufactured. The market value is to be determined by the wholesale price of similar commodities which have been actually sold for consumption in the markets of the exporting country, at the place where the goods were consumed. If the invoiced goods are manufactured only for exportation, the value of the same is to be determined by a comparison with the goods most similar to them which may be sold for consumption in the exporting country. When the merchandise has once arrived in the United States, the above-mentioned invoice must be laid before the customs collectors, and if they have no objections to make, there is no further trouble. But if it appears to the officers that the prices are too low they may cause an appraisement to be made.
—Now if the appraised value is 10 per cent. higher than the invoice value, they must collect, in addition to the tax on the appraised value, an additional tax of 20 per cent. In case of intentional fraud, a fine of from $50 to $5,000, or two years' imprisonment, or both, may be inflicted.
—Of course an importer may appeal against the officers, and by depositing double the value of the invoice price and of the duty, he may get possession of his goods, and after six to eight months may expect a decision such as a jury is likely to give him. But the officials have other peculiar privileges: they may take possession of the goods of an importer, in his store rooms, upon which he has paid duty long before, if for any reason they may suspect an undervaluation. The merchant can appeal, and after months may gain his case, and in such case may even secure damages, and in the meantime, by depositing double the value, may get possession of his goods.
—Other countries have tried other measures as well as these. France reserves the right to buy any commodity at its valuation plus 10 per cent. if the officers, for any reason, think that the invoice is too low. According to the treaty of commerce with England this right was given up, and if the invoice value seem too low the officer shall summon an expert, and in case he decides that the invoice value is too low the importer must pay 50 per cent. of the duty as a fine. This provision has not been very successful; for the persons to whom the customs officers are compelled to have recourse refuse to give a decision, either to save themselves the trouble or not to injure their brother merchants or clients. It can easily be seen how many opportunities there are for fraud; how easily, on the one hand, the government may lose enormous sums by the carelessness or venality of its officers; how easily, on the other, commerce may be impeded or destroyed by the arbitrariness of the officials. The United States Government loses enormous sums every year by undervaluation. In the case of silk goods, it is estimated that the government loses from 15 to 20 per cent. on account of undervaluation, in spite of the most earnest efforts to prevent it. But worse than this loss is the delivering over of trade and commerce to the mercy of a set of officials. To leave an opportunity of arbitrary interference on the part of officials is to introduce into commerce an element which can never be estimated. Even the storms and winds of ocean may be subjected to an estimate of probabilities, but the whims of a bureaucracy defy all attempts at computation. This uncertainty bears hardest on the small importer, for if he gets into trouble with the customs officials he has neither time nor money to carry on the contest. He must make a compromise immediately, or be ruined. As a result, the man of small capital must disappear from the ranks of importers, as he has, in fact, disappeared in America. There is another objection to the system of ad valorem duties. It prevents even the wholesale dealer from taking full advantage of the fluctuations of trade; for the duties must be paid according to the ruling market price, and even if a merchant has purchased a lot of goods at favorable prices, he must pay just as much duty as if he had paid the ordinary price, and he is thus deprived of a part of his gain. In this manner the very foundation of all healthful trade is constantly undermined.
—If we add to these points two other considerations, we shall readily understand why ad valorem duties are gradually disappearing from the tariffs of civilized nations. The first of these is, that we need officials of a much higher grade to administer a system of duties ad valorem than to administer a system of specific duties, and that they must consequently be paid much higher wages. The United States government must now pay very large salaries to a great number of experts, most of whom could be dispensed with under a system of pure specific duties. The second is, that as the vigor of a system of ad valorem duties depends more completely on the administration, there is always danger that the custom houses of the various cities will vie with each other in leniency, in order to attract trade from one port to another. Some charges of this sort have been made in our own country by the officials of one city against those of another.
—If we now turn our attention to specific duties, we find that they are free from many of the objections to duties ad valorem. They are easily administered, offer less chance for frauds, require less skill on the part of the officials, and are therefore cheaper and more lucrative. The objection to them is, that they protect the coarser qualities of goods and so impel labor and capital to produce coarse and poor goods. For example, a woolen fabric called doeskin, which is manufactured very extensively in the United States, costs in Germany, whence it is imported, 75 cents and $1.50 a yard, according to the quality. The weight of both qualities is the same, viz., 12 ounces per yard. The duty is 50 cents per pound of 16 ounces, and 35 per cent. The cheaper quality pays, therefore, 37½ cents specific duty, and 26¼ cents ad valorem, or, in all, 63 8/4 cents per yard, i.e., 85 per cent. of the value. The better quality pays 37½ cents specific duty and 52½ cents ad valorem, or 90 cents per yard, i.e., 60 per cent. of its value. The poorer quality is therefore taxed 25 per cent higher than the better. The effect is a double one: 1. The manufacturer of the poorer sort may force his price relatively higher than the manufacturer of the better commodity, and there by injure the poor man. 2. As it is for his interest to produce and put on the market the poorest ware at a given price that the public will buy, it is very probable that a deterioration in the quality of the stuffs used by the poorer classes will follow.
—Suppose, for instance, that the manufacturers of the above-mentioned stuff put up their prices to the full amount of the duty: the first quality would cost $2.40 per yard, the second $1.38 per yard Suppose now, that the domestic manufacturers of the second quality offer their goods at $1.20 per yard, even if the ware is that much poorer: what will follow? Every one knows how great an attraction there is in low prices. The public begin to take the poorer commodity at $1.20. The foreign ware can not be offered for less than $1.38. Now, the poorer the quality of goods that the domestic manufacturer can produce and still find a sale at $1.20 per yard, the more he makes. Any one who has even superficially studied the facts of trade will acknowledge that this process of deterioration can be carried very far before the public will revolt and begin to pay higher prices for better wares. Nor will it do to say that the competition among domestic producers will prevent any such an occurrence, for it is a notorious fact that it has not. Other examples might be taken, but the one just given is a fair sample of the influence of specific duties. So powerful is this one consideration, that it leads to the adoption of ad valorem duties in many cases in spite of the evils connected with them. If the duties are low, this objection loses much of its force; but then, so do the objections to duties ad valorem diminish as the duties are lowered. An ad valorem duty of 5 per cent. could no doubt be collected with little trouble, and almost no danger of fraud or smuggling. It is when the duties are high that the question becomes difficult. With a reformed civil service there is no doubt that duties ad valorem could be much more faithfully collected than at present. The United States are favorably situated in many respects for the administration of the customs. All goods must come by water, and are imported through a comparatively small number of ports; and with a good administration duties ad valorem might be collected with reasonable accuracy. But even in our financial system specific duties are to be preferred wherever their influence is not too intensive on the industry of the country.
—The more European nations have reformed their tariffs in the direction of free trade and larger revenue, the more nearly they have approached a specific system; and as both parties in this country are now in favor of specific duties, (the free traders, because they are better adapted to yield revenue), we may regard them as the duties of the future, and are justified in calling them, as we did at the beginning, the fiscal duties.
—Two other kinds of duties have been adopted in American tariffs, known respectively as minimum and compound duties. The principle of minimum valuation, according to which all wares which have cost less than a certain sum are valued at that price and taxed accordingly, was adopted as early as 1816 in the case of cottons, and further developed in 1824. In the last case the rate was put so high that the duties on the coarser grades were really prohibitive, e.g., a pound of coarse cloth was taxed 10 cents, while it was selling in the markets of the country for 9 cents.
—Compound duties are a device of protectionists to reconcile the conflicting interests of the producers of raw material and the manufacturers. They are levied on manufactures of which the raw material is taxed, and consist of two parts, a specific duty and a duty ad valorem. The specific duty is to equal the amount levied on the raw material, and thereby put the manufacturer in the same position compared with the foreigner which he would have had if he had secured his raw material free of duty. The duty ad valorem is intended to give the manufacturer protection. For example, in order to make a pound of woolen cloth of a certain grade, four pounds of wool are necessary. The duty on wool is 11½ cents per pound. Besides the raw wool the manufacturer needs drugs of various kinds, such as dyes, etc., on which the duty is 2½ cents. This amounts to 48½ cents; and if we add to this the interest on the sum advanced until he can sell his cloth, we shall get about 50 cents per lb. Consequently, we find in the tariff act of 1867 a specific duty of 50 cents per pound on woolen cloths, and, besides that, a duty ad valorem of 35 per cent. Such duties appear very often in our tariffs since 1860. In 1870 there were 109 such duties in the customs tariff, the principal of which are the duties on woolens adopted in 1867 as a compromise, after a hard fight between wool growers and wool manufacturers.
—Purposes. Customs have been laid from various reasons and for various purposes. They were employed in ancient times solely for purposes of revenue, although the higher duties imposed on luxuries on certain occasions would seem to indicate a desire to use them as a sort of sumptuary legislation. The same thing is true of the middle ages. The duties were kept as high as they could be kept without driving away trade, and with it of course the revenue. The customs offered to the rulers a means of obtaining revenue without having a contest with the nobility, which almost always occurred on the increase or imposition of any direct tax; and the more their need of money increased the more did they exploit this source of revenue. In the imposition of duties no great consideration was paid to a desire to protect home manufactures. If a ruler wished to develop a branch of industry in his realm, he simply prohibited the importation of foreign commodities which came in competition with those he wished to protect. It was not until the time of the reformation that the idea of using the customs as a means of developing industry appeared almost at the same time in Germany, Italy, England, and later, also, in France. The idea was quickly incorporated in practice, as in this way the old system of prohibitions was very much alleviated and a new source of revenue was opened to the governments. About the same time the so-called mercantile system (see
—As already stated, the customs form, and have nearly always formed, one of the principal sources of national revenue. How large a proportion of the revenue of-ancient states was derived from this source we have no means of knowing. During the middle ages the larger part of the ready money of the sovereign was obtained through the tariff, and in modern times this branch has been constantly increasing in importance.
—In the United States the national revenue has proceeded more largely from the customs than from all other sources combined. The following table presents this fact in a clear light. By subtracting the amount of the customs from the net ordinary receipts, the income from all other sources is obtained. Cents are omitted:
It will be seen that the revenue derived from customs equals 57 per cent. of the total ordinary income for the last 90 years.
—Other countries vary considerably from this proportion. In the following table we have given the gross income and the income from customs of 12 nations for various years:
It will be noticed how large a proportion of the total income the customs form in the cases of Brazil, Chili, Norway, Switzerland, England and Germany, while in the other nations the proportion is much smaller varying from 10 per cent. to 7 per cent. of total income.
—In what manner the duties can be laid so as to yield the largest amount of revenue, has long been a question of theoretical and practical finance. But modern governments have pretty generally come to see that low duties are, on the whole, more profitable from a revenue point of view than the high duties so long in vogue. It has further been pretty generally admitted of late by financiers, that moderate duties on a few articles of general consumption will yield a larger revenue, considering the cost of collection, than the old system of taxing everything. An exception is sometimes made to these rules in favor of luxuries of every kind, particularly intoxicating liquors of all kinds.
—The English customs tariff has been entirely remodeled within the last 30 years according to the above principles. The number of articles taxed has been constantly diminished. In 1826 the English tariff contained 432 enumerated articles, while in 1863 it only had 52 enumerated articles. The duties in the former year were generally much higher than in 1863. Yet the income from the customs in 1826 amounted only to £19,562,000, while in 1863 it had increased to £23,641,544. At the present time less than a dozen commodities pay all the duties collected in England. In 1859 the following articles, sugar and syrup, tobacco, tea, brandy, wine, coffee and raisins, paid about 90 per cent. of the total revenue from customs of that year. Of the revenue of the Zollverein in 1863, 75 per cent. was paid by 10 articles. The same general statement holds good of other tariffs, that a very small number of articles pays by far the largest part of the revenue; and the general tendency of tariff legislation, so far as it is shaped by fiscal considerations, is toward limiting the number of taxed articles, and lessening the rate of taxation.
—Customs duties are properly classed as indirect taxes, i.e, as taxes which are collected from one set of persons with the expectation that they will shift the burden of taxation to another class. They share all the advantages and disadvantages of indirect taxes. (See
—BIBLIOGRAPHY. The literature of this subject in English is scanty. The general subject of the influence of customs duties on the economy of a nation is discussed in all the standard works on political economy in French, German, English and Italian. The budgets of the British parliament since 1842, the various acts consolidating and reforming the custom house administration; the reports of the various American administrations to congress; the reports of congressional committees; the reports of David A. Wells, while commissioner of revenue, and the annual reports of the British and American custom house commissioners, contain many valuable facts in relation to American and British customs legislation and a few valuable discussions of important points. M'Culloch's treatise on the Principles and Practical Influences of Taxation and the Funding System; the various works on the science of finance in German, particularly Hoffmann's Lehre der Steuern, Rau's, Stein's and Umpfenbach's Text Books on Finance, (Lehrbucher der Finanzwissenschaft), are all valuable and indispensable to a proper study of the customs. In French, de Parier's Traité des impôts, Proudhon's Théorie de l'impôt, de Girardin's De l'impôt, and, most important of all, Ame's Etudes sur les tarifs de douanes et sur les traités de commerce, are the principal works of value. The various encyclopædias, in English, French and German, all contain articles of interest. The Dictionnaire de la politique, by Block, under the head of Douanes; the Staatswörterbuch, by Bluntschli and Brater, under the head of Zoelle; Rees' Encyclopedia, under the head of Customs; all contain interesting and valuable articles, from which many of the facts in the above article have been taken. Boeck's Public Economy of the Athenians, and the Dictionary of Antiquities, by Smith, were used in preparing the account of the customs at Athens and Rome.
E. J. JAMES.
Notes for this chapter
Henry Carey Baird, in Letters to Prof. Perry.
End of Notes
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