Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924030264596 HJ2373 .Az"*" ""'""*">' '■'""'y "^'?i?ii;i?,.,Sl,,?.,.?ommissipn appoinfed for olin EEPOETS OF A COMMISSION APPOINTED FOR A REYISION 0¥ THE REYENUE SYSTEM THE TJN^ITED STA.TES- 1865-'66. DAVID A. WELLS, "j STEPHEN COLWELL, icoMMissio.\EBS. SAMUEL S. HAYES, ] Secretary to the Commission, E. B. Elliott. WASHINGTON: O O V E R N M B X T P B I N T I X G OFFICE. 1866. TABLE OF CONTENTS. General Report of the Commission, Special Reports : Tea No. J. Coffee No. 2. Cotton No. 3. Sugar, &c No. 4. . Distilled Spirits No. 5. Malt Liquors - No. 6. Petroleum No. 7. Proprietary and other Medicines, Perfumery, Playing Cards, &c No. 8. Influence of Duplication of Taxes on American Industry No. 9. Relations of Foreign Trade to Domestic Industry and Internal Revenue.. No. 10. Copper Mining and Manufacture No. 1 1 . Iron and Steel No. 12. Wool and Manufactures of Wool No. 13. LETTEE PROM THE SECRETARY OE THE TREASURY, TRANSMITTING The report oj a commission appointed for the revision of the revenue system of the United States. Treasury Department, January 29, 1866. Sir : Herewith I have the honor to present to you a report from Messrs. David A. Wells, Stephen Oolwell, and S. S. Hayes, appointed a commission for the revision of the revenue system of the United States, in accordance with the provisions of the 19th section of the amendatory act of Congress, approved March 3, 1865. In presenting this report, it may be proper for me to remark that, with the single exception, perhaps, of the one in regard to the time at which the pay- ment of the principal of the national debt should be commenced, the recommen- • • dations of the commission have my hearty approval. The very important work de- volved upon the commission, as far as it has been prosecuted, has been most admirably performed. I earnestly ask that the report may receive the early and careful consideration of Congress. I am, very truly, your obedient servant, HUGH McOULLOOH, Secretary of the Treasury. Hon. Schuyler Colfax, Speaker of the House of Representatives. EEPORX OF THE UNITED STATES REVENUE COMMISSION. Treasury Department, Office of the U. S. Revenue Commission, January, 1866. Sir : The undersigned, members of the commission appointed by the Secre- tary of the Treasury in accordance with the provisions of section 19 of the amendatory act of March 3, 1865, " To provide internal revenue," &c., have the honor to submit the following report : The following are the provisions of the act, above referred to, constituting this commission : "That the Secretary of the Treasury is hereby authorized to appoint a commissicn, con- sisting of three persons, to inquire and report at the earliest practicable moment upon the subject of raising by taxation such revenue as may be necessary in order to supply the "w ants 2 EEVENUE SYSTEM OF THE UNITED STATES. of the ffoverriment, having regard to and including the sources from which such revenue should be drawn, and the best and most efficient mode ofraising the same, and to repoit tne lorm of a bill ; and that such commission have power to inqun-e into the manner ana etli- ciency of the present and past methods of collecting the internal reyenue, and to taHie testi- mony in such manner and under such regulations as may be prescribed by the becretary ot the Treasury." The commissiim', thus authorized, became fully organized in June, 1865, by the appointment of the following members : David A. Wells, of New York ; Stephen Colwell, of Pennsylvania; and Samuel Snowden Hayes, of Illinois— with E. B. Elliott, of Massachusetts, as secretary ;_ and has, since then, been constantly engaged in the discharge of the duties assigned to it. The creation of a commission charged with the investigation of important public questions with reference to future legislation, and, at the same time, con- sisting of other than members of the National Legislature, was undoubtedly a novelty in American experience. It finds, however, frequent precedents both in Great Britain and in France, and is believed to present some obvious advan- tages over the methods, ordinarily followed, of conducting such investigations through congressional committees. In the present instance, a more unrestricted opportunity has been afforded to the commission for personally inquiring into and making themselves practically acquainted with the nature and character of some of the great sources of na- tional revenue, and of observing the operation of the revenue laws in respect to the same, than could have been well enjoyed by a congressional committee, upon the members of which would have rested, at the same time, the onerous and responsible duties of legislation, the many and varied claims of constituents, and also, to a greater or less extent, the claims of important private interests. The commission, therefore, in view of these advantages, confidently anticipate that the first result of their labors, as now presented, may receive the unbiased judgment of the Congress to which they are to be submitted. Previous to the year 1861 the United States stood before the world in the anomalous position of a"g:ceat nation with, substantially, no national debt. Since then the measures required for the maintenance of the national existence have entailed upon the nation a debt rivalling or exceeding in magnitude the accumu- lated, deficits of any of the old states of Europe, and rendering necessary the collection of an annual revenue which, though at present somewhat indefinite, may be safely stated as unparalleled by the collections of any other nations, with the exception of France and Great Britain. The question of the hour, then, is, " In what manner shall this debt be treated, the payment of its interest be pro- vided for immediately and recurringly, and the payment of its principal gradu- ally, without impairing the strength and resources of the nation, or of arresting its progress and development 1" ' To endeavor to answer this question in part, is the business with which the commission find themselves charged by the ap- pointment of the Secretary of the Treasury and the authority of Congress. The same exigency which created the debt, has also rendered it expedient that the nation should thus far avail itself of every means in its power to raise, by direct and indirect taxation, the largest possible revenue in the least possible time, witliout much regard to acknowledged politico-economic laws or prece- dents ; so that, at the present time, the sources of national revenue may be said to be commensurate and co-extensive with every department or sub-department of trade or industry in the country, as well as of every form of fixed or circula- ting capital. It accordingly became apparent to the commission, at the outset, that any attempt to embrace in their investigations, prior to the time of the presentation of a first report, the whole field of inquiry assigned to them, would not only be impracticable, but, also, that any efibrt with this object in view would, from its REVENUE SYSTEM OF THE UNITED STATES. 3 necessary diffuseness, lead to no practical or satisfactory results. They there- fore, in default of any specific instructions, either from Congress or the Secre- tary of the Treasury, other thaa were contained in the act authorizing the com- mission, adopted the plan of taking up specifically, for investigation, those sources of revenue which our own experience and the experience of other coun- tries have indicated as likely to be most productive under taxation, and most ca- pable of sustaining its burdens. The result of these investigations the commis- sion propose to submit in the form of independent and special reports. In carrying out this plan, they have sought to make themselves practically acquainted with each subject of inquiry by personal inspection, (when the in- vestigation related to a specific branch of industry,) and by putting themselves in all cases into direct and frequent communication with revenue oiiicials, and with representative business men from every section of the country. The com- mission have also, in most cases, caused the information communicated to them to be received in the form of testimony, under oath, and to be faithfully reported ; and they express the hope that Congress will consider it expedient to order this record to be preserved in printed form. Eepresenting, aS' it does, the ex- perience and matured opinions of the best business men of the country, each speaking about his own profession, and often revealing facts which, in daily life, are screened from the public eye, this testimony cannot but be of great value for future reference ; and in laying it before Congress and the people of the country, the commission feel that they will have rendered an important service, whether their specific recommendations shall be adopted or not. The parlia- mentary archives of Great Britain contain many such repertories of evidence, to the value of which the public men of England, and the scientific inquiries of all countries, have again and again testified. It is evident that the work of the commission, prosecuted in^ the manner de- scribed, must necessarily be protracted and laborious. The six months during which they have been occupied have scarcely been sufficient for becoming ac- quainted with the requirements of their work, and for the gathering of materials to serve as the basis of investigation ; and the unconsidered statements and memorials touching the relation of the business interests of our country to our revenue system, which have thus far accumulated in their hands, will require at least six months for their proper examination and discussion. They accordingly offer no apologies, if in this their present report the extent of their investiga- tions should seem too limited for the time during which they have been occu- pied. One of the greatest difficulties encountered from the outset has been to obtain exact and comprehensive information ; and the commission, as the result of their experience, feel warranted in asserting that no full and reliable statistics con- cerning any branch of trade or industry in the United States, with possibly a few exceptions, are now or have ever been available. The census of 1860, only made available for detailed reference some four or five years after its enumeration, has been to the commission of but little service. Nor do the statistics which have been furnished from time to time by the Treasury Department afford the knowledge of those facts which are so essential as a groundwork for the labors of the commission. On the 9th day of August, 1865, in response to a call for information relative to the importation of spirits distilled from grain, and the duties accruing there from, the following returns were sent: REVENUE SYSTEM OF THE UNITED STATES. Statement (submitted August 9) exhibiting the '^quantity of spirits distilled from grain imported into the United States, with rates of duty and imposts accruing thereon, during the fiscal years ending on the ^Oth of June, 1862 to 1864, inclusive. Year ending — Gallons. Duty per gallon. Duties. June 30 1862 1,137,082 1, 064, 576 667, 163 $0 50 1 00 I 00 $568,541 June 30 IfifiS 1,064,576 June 30 1864 667, 163 Subsequently the commissiou, finding that the above returns did not in any degree correspond with the statements of the New York trade, called for a re-examination of the same, and, in answer to their call, were furnished with a re-statement of the foregoing returns, as follows : Statement (submitted November 2) exhibiting the duties collected upon the im- portations of spirits distilled from grain, at Boston, New York, Philadelphia, Baltimore and San Francisco,* during the fiscal years ending June 30, 1862, 1863, and 1864. Year ending — Gallons. Duty per gallon. Duties. June 30, 1862 June 30, 1863 June 30, 1864 30, 190 45, 363 175, 144 $0 40 to 50 I 00 1 00 |14, 5.34 45, 363 175, 144 In further illustration, they also submit copies of the returns sent to the com- mission, under dates of September 12 and November 2, 1865, respecting the im- ports and duties accruing on chiccory. Statement (submitted September 12 J exhibiting the quantity and value of chiccory imported into the United States, with rates of duty and imposts accruing thereon, for the following years : Pounds impoi-ted. Duties accruiug. Year ending June 30, 1862 7,451,771 8215,842 Year ending June 30, 1863 10, 641, 350 305, 983 Year ending June 30, 1864 5,243,760 107,033 Statement (submitted November 2, 1865^ exhibiting the duties collected on the importations of chiccory, Sfc, at Boston, New York, Philadelphia, Baltimore, and San Francisco* for the following years: Year ending — Pounds. Duty per pound. Duties. June 30, 1862 7,069,186 5,215,105 5,825,346 1 to 2 cents. 2 to 3 " 3 to 4 " S;102,600 30 140,402 98 t 160,750 83 Juno 30, 1863 June 30, 1864 * Eeturns from San Francisco received only up to April 30, 1864. t Although the latter table embraced only the jive principal ports, yet it will be observed that the quantity and value of chiccory imported in the year 1864, as given therein exceed in amount those given in the former table, which pui-ported to include the returns from all the ports in the United States. ^ REVENUE SYSTEM OF THE UNITED STATES. Subsequently the commission called for a statement of imports, exports, and values of various articles for the fiscal year 1864-'65, and under date of Decem- ber 19, 1865, they received the following statement, with others, respecting the coflfee trade of that year : Imports : Quantity, pounds 104, 316, 581 Value $10, 966, 541 Exports : Quantity, pounds 21, 962, 943 Value 15, 687, 856 Estimated consumption : Quantity, pounds 82, 353, 638 Value $5, 278, 685 The duties received on the above quantity consumed were, at five cents per pound, $4,117,681. It will be seen from the above statement that the value of all the coffee im- ported during the year was returned at ten and a half cents per pound, when the actual fact was that the average invoice price of the coffee imported in the Uni- ted States during the year 1865 was not less than thirteen cents, and was prob- ably in excess of that figure. Looking next at the treasury statement of the exports of coffee, we find that the 21,962,943 pounds sent out of the country during the same year had the extraordinary value of nearly twenty-six cents per pound ; while the 82,353,638 pounds retained for consumption had a value of only six and four-tenths cents per pound ; and finally, the value of the quantity retained for consumption, $5,278,685, paid, at the duty of five cents per pound, an aggregate of $4,117,681, being seventy-eight per cent, of the whole value. The truth is, that until of late no occasion has existed to call for the prepara- tion by the Treasury Department of currect statistical data concerning the com- merce of the country, and consequently but little attention has been paid to this matter. The changed state of affairs, the present difficulties experienced by this commission, and the future difficulties which in many ways must occur from the want of correct and detailed commercial statistics, -will, it is hoped, induce Congress to make careful provision for their preparation and publication. In the Bureau of Internal Revenue a better system prevails, and the published returns of revenue and the amounts received from specific sources are believed to be substantially correct. Overburdened, however, as this bureau was with work, and delayed by a want of promptness on the part of district collectors,* many of whom are destitute of business experience, it was unable to furnish the commission with any detailed statement of its specific sources of revenue for the fiscal year ending June 30, 1865, until nearly six months thereafter. Another great source of difficulty experienced by the commission in conduct- ing their investigations, with a view of arriving at any correct estimates of the future revenue of the country, has been the abnormal and disturbed condition of every branch of trade and industry since 1861, owing to the effects of the war, the frequent alterations of the tariff, and the inauguration of the internal revenue system. Many branches of trade and industry have been curtailed du- ring this period from thirty to seventy-Uve per centum, and some few have been entirely destroyed.! Every advance made in the tariff andHn the excise has, * By a circular of the Commissioner of Internal Eevemie, dated December 29, 1865, it' ap- pears that during the previous four months alone over three hundred and fifty eiTors in the returns of district collectors, in sums varying in amount from a few cents to nearly sirty thousand, dollars, were detected. t See Special Report on Distilled Spirits. 6 EEVENUE SYSTEM OF THE UNITED STATES. moreover, been anticipated to sucli an extent by every class of importers, dealers, manufacturers, and speculators, that it cannot be said as yet that the govern- ment has fully tested the capacity of any one of what may be considered as its great and legitimate sources of revenue. Thus, for example, the commission estimate that on the 1st of July, 1864, the date when the advance in the tax on distilled spirits, of from sixty cents to one dollar and fifty cents per gallon, took effect, there were made and stored, in anticipation of this advance, at least forty millions of gallons, or a quantity sufficient to supply the wants of the country for fit least a year in advance. Since July 1, 1864, therefore, the receipts of the government from distilled spirits have, from this cause, necessarily been in- considerable. Of cigars, in lilie manner, it is estimated that from seventy to eighty millions were manufactured and stored in the city of New York alone, in anticipation of the tax. The stock of spices imported into the country, previous to the advance of the tariff, was also probably equal to nearly two years' sup- ply ; while in the case of the insignificant article of matches, on which the tax is only one cent per bunch, the stock accumulated in anticipation of the tax was so large, that it has not, even at the present date, (January, 1866,) been en- tirely exhausted. This abnormal condition of things, coupled with the fact that the excise has been levied, to a great extent, on a basis of greatly inflated values, renders it extremely difficult to predicate anything with certainty concerning the future from the immediate past. Before entering into any discussion on the working of our present revenue system, and of the changes which it may be expedient to make in it, the com- mission would ask attention to a brief resume of the revenue systems of the two countries of Europe which are most akin to the United States in population, re- sources, and development — France and Great Britain. In both of these coun- tries the necessity of large taxation, extending over a period of many years, has induced a thorough investigation of the subject, and the record of their ex- perience cannot be profitably ignored in the framing of a permanent system for the United States. REVENUE SYSTEM OF GREAT BRITAIN. The close of the great European war, in 1815, found Great Britain with a complex system of taxation, the growth of her necessities at a period when vast military and naval expenditures, and the burden of an increasing debt, had tasked the ingenuity of ministers to devise new sources of revenue. " The love of imposts was omniscient ; it seized on every article which by any possibility an Englishman could want." More than a thousand different kinds of foreign pi-oduce paid tribute at the custom-house, while the heavy hand of the excise- man was laiti on many articles of home production and of indispensable domes- tic use. Navigation laws — long before adopted to control the carrying trade between Great Britain and her colonies and the rest of the world — had operated to repel foreign commerce ; and corn laws, enacted in the interest of the landed aristoc- racy, had carried the food of the people to starvation prices. The law of 1815 wholly prohibited the importation of foreign wheat till the home price reached eighty shillings a quarter, or about $2 50 a bushel. Under the operation of this law the price of wheat rose from sixty-four shillings a quarter in 1815 to an average of ninety-four shillings in 1817, and in June of that year reached the frightful figure of one hundred and twelve shillings and eightpence, or .S3 50 a bushel. Trade languished, the peopk were starving, and bread riots disturbed the peace and menaced the safety of the kingdom. This state of things gave birth to the struggle between the landed proprietors and the mfinufacturers, which ended thirty years afterwards in the repeal of the corn laws and the triumph of free trade. The workmen clamored for cheaper food, while their REVENUE SYSTEM OF THE UNITED STATES. 7 employers petitioned Parliament to extend their markets. The war, with its restrictions on foreign intercourse, had made England the chief manufacturer of the world. A dense population, colonies planted in every clime, a great mer- cantile marine, and the possession of abundant coal and iron, and of much pri- vate capital, supplied conditions to cheap production and a wide diffusion of products such as set the competition of other nations at defiance. These natural and acquired advantages were, however, in a measure neutral- ized by unwise commercial restrictions and burdensome taxes, but with the res- toration of peace these burdens began gradually to be removed. The commerce of the east had been set free from the monopoly of the East India Company in 1814. The treaty of reciprocity with the United States in 1815, which was followed by similar treaties ■ with the European powers, and alterations made in the navigation laws in 1822, opened the British islands more freely to foreign commerce, and at the same time enlarged the carrying trade of British ships. Heavy duties on raw materials, and materials partly wrought, entering into domestic manufactures, were repealed or greatly lessened ; and though the duties on foreign fabrics were, also lowered, the importation of some of them seriously interfered with the home manufacturer. In silks alone the French were su- perior, and against that superiority the British manufacturer was protected by restrictive duties, down to the ratification of the treaty with France in 1860, when, for the sake of advantages to be gained in the export to France of coal, iron, machinery, and other British products, the silk duties were repealed. From 1815 to 1840 the condition of the manufacturer was steadily improving;, but great ameliorations were still needed before the productive capacity of the country could obtain its full development. Foreign competition in the home market had long ceased to be feared, and the only hindrances now lay in do- mestic restrictions. A parliamentary report in 1840 showed that out of a cus- toms revenue of .£22,000,000, e£20,000,000 was derived from duties on raw ma- terials and on food ; and it disclosed the still more remarkable fact than ninety- four and a half per cent, of this revenue was levied on seventeen articles, while more than eleven hundred articles contributed to make up the residue of five and a half per cent., being the insignificant sum of .£1,250,000. In the more numerous category were included all foreign manufactures except of silk. It thus appeared that the duties on the foreign imports of Great Britain were a direct tax on the home producer ; the high price both of raw materials and of food helping to swell the cost of manufactures, and thus benefiting the foreign competitor. "A nation of manufacturers can only subsist as they sell their produce, and they can sell their produce only as they sell it cheap. But the ability to sell their produce cheaply implies a cheap command of the raw ma- terial and of the workman's food ; to tax these is to decree the nation's ruin and involve all classes alike in bankruptcy and pauperism." This was the argument of the Manchester party in 1840, and it speedily came to be the creed of the nation. The policy of protection to agriculture yielded at last, and the revenue system was subordinated to the more important end of creating national wealth. All duties burdensome to the manufacturer were repealed, both in the nature of customs and excise, the policy being to enable the British producer to apply the largest amount of home labor to the smallest value in foreign staples, under conditions which enable him to put his product into foreign markets at the lowest possible cost. This principle is the key to British free trade, and it is claimed to be of uni- versal applicability ; but it may be gravely questioned whether it is not protec- tion in a more subtle form. Such is the opinion of M. Block, a modern French economist of eminence, who classes under protective measures the freeing of raw materials and of food from customs duties. Having described the influences which have determined the present revenue system of Grreat Britain, we proceed to give the details of the modern budget. 8 REVENUE SYSTEM OF THE UNITED STATES. The gross revenues of the United Kingdom for the year ending March 31, 1865, were as follows : Customs $115,023,808 Exir 97,048,180 Stamps';;.';.'.';;;;;:.'.'.'. ;:::;. 47, 659, 87o Land and assessed taxes ^^' ^^^i °^0 Income and property taxes 39, 928, 865 Post office.. ^..^.... ,. ^^'l^l'lll Crown lands .!'^i^'?°2 Miscellaneous 14,967,183 Total 354,131.773 Of the customs revenue ($115,023,808) twenty-five specified articles yielded $112,819,781 , while all other articles (not specified) yielded only $49,431. The balance, appearing under the head of customs, was derived from the duty ou British spirits collected at the custom-house, ($1,468,445,) and from sundry petty sources. The chief portion of this class of revenue was derived from the following twelve articles : Oofi'ee and chiccory $2, 604, 803 Corn-meal and flour 2, 839, 979 Currants and raisins 1, 825, 626 Spirits 16, 522, 249 Sugar and molasses 27, 113, 370 Tea 22, 355, 431 Tobacco and snuff 30, 679, 9S9 Wine 6, 597, 023 Wood and timber 1, 389, 450 111,827,920 Of the excise ($97,141,618) the sum of $97,048,180 was derived from nine specified articles, viz : Chiccory $52, 315 Hackney carriages 513, 235 Licenses, including game licenses 10, 7"i2, 015 Malt 31, 972, 765 Eace-horses 38, 730 Kailways 2, 196, 660 Stage-carriages 645, 890 Spirits 50, 883, 655 Sugar 22, 915 97, 048, 180 All other articles 93, 438 97, 141, 618 Of the stamp duties ($47,659,870) the greatest portion was collected under the following heads : Deeds and other instruments $8,183, 920 Probate of wills and letters of administration 7, 555^ 805 Bills of exchange 3, 846^ 555 EEVENUE SYSTEM OF THE UNITED STATES. 9 Commutation on bank notes $645, 015 Receipts, drafts, and other Id. stamps 2, 50 1, 245 Marine insurances 1,993,840 Licenses and certificates 655, 920 Newspapers 587^ 735 Legacies and successions 11, 689, 970 Fire insurances 7' 861^ 980 Probate court fee stamps 674, 300 Patents for inventions 567, 895 Sundry minor classes 47, 659, 870 The land tax yielded $5, 619, 600 The assessed taxes were mainly under the following heads : Inhabited houses $4, 584, 030 Servants 1, 056, 220 Carriages 1, 794, 005 Riding horses 1, 256, 785 Other horses and mules 690, 000 Dogs 1,051,650 Armorial bearings 307, 495 Unennmerated 79 885 10, 820, 070 The following are about the percentages yielded by each item to the revenue : customs, 32; excise, 28; stamps, 13J; land and assessed taxes, 5; income and property taxes, 11 ; post office, 5 J ; miscellaneous, 5. Of the customs revenue, ninety-one per cent, was derived from five articles : spirits, sugar, tea, tobacco, and wine. Of the excise, ninety-seven per cent, was derived from licenses, malt, and domestic spirits. Intoxicating beverages and tobacco yielded nearly forty per cent, of the total revenue. The most productive stamp duties were those on the conveyance and trans- mission of property, deeds, probate of wills, and legacies and successions. Next to these stood stamps on policies of insurance. The direct fax on land seems very small, being only about one and a half per cent, of the total revenue ; but estates and interest in land are reached through the income tax, of which nearly sixty per cent, (under schedules A and B) is assessed on real property and the profits of occupying it. The income tax is at present six pence in the pound, or more than four per cent, on the assessed valuation. This tax, originally created by Mr. Pitt, in 1798, as a war tax, was repealed in 1815, when it yielded $75,000,000. It was re-imposed by Sir Robert Peel, in 1842, to enable him to make his reduc- tions of the tariff. It has varied from five pence to one shilling and four pence, (during the Crimean war,) and, though long treated by the chancellor of the exchequer as a temporary expedient, has been found too useful to be dispensed with, and it is likely in future to have a permanent place in the Budget. Such are the leading features of the British revenue system. Having always a regard to the exemption of home industry from burdens. Great Britain thus raises her taxes : 1. From articles of necessary and large consumption, as tea, 10 ' EEVENUE SYSTEM OF THE UNITED STATES, sugar and coffee. 2. From articles of indulgence, as spirits, beer, (malt,) to- bacco, and wine. 3. From licenses and other taxes on occupations. 4._irom stamps on legal documents, the conveyance, and descent of property, and mstru- ments of business. 5. From occupied houses, and the luxuries of living, ser- vants, horses, dogs, and carriages. 6. From incomes derived from realized property and professional and other earnings. 7. From the post office. REVENUE SYSTEM OF FRANCE. The ordinary revenue of France, according to the Budget of 1865, was de- rivable from the following sources : Direct taxes ^^3, 072, 280 Eegistration, stamps, and public domains 81, 537, 883 Eoyal forests 8, 051, 300 Customs duties and salt 29, 485, 000 Indirect taxes 115. 600, 400 Post office 14, 482, 000 Sundry revenues 26, 441, 989 Produce of miscellaneous taxes 11, 736, 360 Total 350, 407, 212 To understand the foregoing table, it will be necessary to analyze the several, items, and finally to rearrange them, arbitrarily, with a view to a more intelli- gible classification. The direct taxes are made up as follows : Land tax #33, 660, 000 Tax on persons and on tenant occupancy 9, 687, 600 Doors and windows 7, 272, 240 Licenses ("patentes") 11,801,440 Pleasure horses and carriages 540, 000 Fu'St warning to newspapers Ill, 000 Total 63, 072, 280 The land tax is assessed, not on the real value of the land, but on the net rental or income, receipts and expenditures being estimated on an average of ten years. If there are buildings, they are separately assessed on the same principle, the land on which they stand being valued as if for cultivation. The tax on persons is in the nature of a poll-tax, and is estimated at the value of three days' labor, according to the average price paid in the commune. The tax on tenant occupancy (" contribution mobiliere") is imposed on all occupants of rented dwellings, and is usually nine or ten per cent, of the rental. The tax on doors and windows is according to a fixpd scale ; it is levied only on occupiedhouses, and is usually paid by the tenant. ' The license tax ("patente") is a tax on trades and occupations, and on cer- tain of the liberal professions. The amount of it is regulated by the nature of the occupation, having regard to the population of the city or town where it is exercised, and by the rental of the premises in which it is carried on. So in- dispensable is this license, that without it the person of whom it is required cannot sue in a court of justice, have the benefit of any judicial decision, or receive any magisterial certificate. REVENUE SYSTEM OF THE UNITED STATES. 11 The revenue from registration, stamps, axidi public domains is thus distributed : Registration, mortgages, &c $63, 844, 400 Stamps 15, 255, 600 Sales from and income of public domains, &c 2, 437, 883 81, 537, 883 Registration is the necessary mode of authenticating various private acts and events, and it is imposed chiefly with a view to revenue. All judicial and magisterial acts are required to be recorded for this purpose, as well as for per- petuating evidence. Stamps are of two sorts — the one, impressions stamped by government officers on paper, which is required to be used for certain classes of documents ; and the other, movable stamps, like the revenue stamps of the United States, which are used and cancelled in the same manner. The receipts for sale of property and other income from the public domains are of a miscellaneous character, and of small amount, and need not be specified. The chief produce of the royal forests is wood and timber, the sale of which yielded the considerable sum of eight millions of dollars. Customs duties and salt. — This head of the revenue is divided into import duties on — Miscellaneous merchandise $14, 439 200 Colonial sugar , 7, 058, 600 Foreign sugars 2, 285, 000 23, 782, 800 Exportduties 82,000 Navigation dues ' 832, 600 Sundry customs duties ■ - . 278, 000 Duty on the consumption of salt, collected through the custom- house 4,509,600 29, 485, 000 Indirect taxes are thus distributed : Duties on beverages $42, 685, 400 Duties on consumption of salt, not collected at the customhouse, 1, 683, 000 Duties on domestic sugar 11, 786, 000 Produce of government sale of tobacco 45, 295, 600 Produce of government sale of gunpowder 2, 550, 800 Sundry and miscellaneous duties 11, 699, 600 115, 600, 400 Under the head of sundry revenues are the following : Revenue from the universities $671, 700 Revenue from Algeria - - 3, 850, 000 Sums reserved and saved from civil pensions 2, 915, 740 Increase of sinking fund ]9, 104, 549 26,441,989 12 REVENUE SYSTEM OF THE UNITED STATES. Among the miscellaneous taxes ($11,736,360) are taxes on estates in mort- main; on patents for inventions ; on telegraphs ; profits in new issue ot Dionze currency ; revenues from prisons and houses of correction, &c., &c The following classification seems to us to present the sources ot revenue more clearly than that adopted in the French budget : Direct taxes, ownership and use of land and buildings, poll- taxes, licenses, &c ^f^'3f^■, Eegistration, stamps, &o o asi oon Koyal forests (wood and timber sold) »• "^1 , ^00 Customs duties on foreign merchandise - 14, 4d9, ^00 Exports, navigation, and other miscellaneous customs duties ... 1, 192, 600 Sugar, import duties on colonial $7, 058, 000 Sugar, import duties on foreign 2,285,000 Sugar, excise duties on domestic 11, 786, 000 ^ 21,129,600 Salt, collected through custom-house 4, 509, 600 Salt, collected elsewhere than custom-house 1, 683, 000 6, 192, 600 Beverages 42,685,400 Tobacco, sale of 45, 295, 400 Gunpowder, sale of 2, 550, 800 Sundry indirect taxes (not enumerated) 11> 699, 600 Post offiee 14, 482, 000 Eevenue from Algeria 3, 850, 000 Income of sinking fund 19i 104, 549 Miscellaneous 15, 223, 800 Total 350,407,212 It will be seen by the foregoing analysis that direct taxes, registration, stamps, customs duties, sugar, beverages, and tobacco, yielded more than seventy-six per cent, of the whole revenue, in the following proportions : direct taxes eigh- teen per cent. ; registration and stamps, twenty-three per cent. ; customs duties, (excluding sugar,) four and a half per cent.; sugar, six per cent.; beverages, twelve per cent. ; and tobacco, thirteen per cent. The deficit in the French budget for 1864 is reported at about 50,000,000 francs. Comparing the French with the English revenue system, we observe the same exemption from taxation of home industry, especially of those manufactures which find a market in foreign countries. Land is subjected to heavier burdens in France than in England, and the freedom of occupation and action is re- strained by heavier exactions in the way of licenses, stamps, and registrations. The revenue derived from foreign imports is trifling in comparison with the cus- toms revenue of Great Britain. The appetites and indulgences of the people are reached alike in both countries by heavy taxes on sugar, beverages, and to- bacco, and in both the post office is made to contribute a large revenue. Of the two systems, the nature and details of which we have thus briefly sketched, the English is the only one which especially commends itself to the attention of the American investigator ; and this system, the result of a long experience in the economy of taxation and national development, and for the perfecting of which the best efforts of British statesmen for at least the last quarter of a century have been assiduously given, affords, in the opinion of the commission, some indications for determining what ought to be the future revenue policy of the United States. And in saying this the commission do not wish to be understood as recommending any servile imitation of details, for nothing seems more evident than that a revenue system for a particular country EEVENUE SYSTEM OF THE UNITED STATES. 15 cannot be framed theoretically or copied from any other, but must in every case be adapted to the resources of the country for which it is designed, and the fiscal aptitudes and capacity of its people. Thus, upon no one point are writers on the theory of taxation better agreed than that taxation of raw materials is to be avoided as far as possible ; but yet, with the experience and practice of the government of British India in respect to opium, saltpetre, and shellac ; of Holland in respect to the coffee, spices, and sugar of Java and Sumatra ;' of China with her tea ; Portugal with her wines, and Peru with her guano, it would be hardly the part of wisdom and sound policy for the United States to legislate on general principles only in respect to articles of which they, like the nations referred to, have also a virtual monopoly, and for the supply of which other territories than their own are dependent. THE NATIONAL EEVENUE SYSTEM. The diffuseness of the present revenue system of the United States is doubt- less one of its greatest imperfections, and under it the exemption of any article from taxation is the exception rather than the rule. To assert this, however, is no reflection on the judgment or skill of its authors. The system was framed under circumstances of such pressing necessity as to afford but little opportu- nity for any careful and accurate investigation of the sources of revenue ; but it has most certainly accomplished the attainment of the end designed, namely, the raising of revenue, and the country to-day is undoubtedly receiving by tax- ation far more revenue than is necessary for its legitimate expenditures. As a ■ success, therefore, our present revenue system is a most honorable testimonial not only to the wisdom of its authors, but to the patriotism of the people, who not only endured but welcomed the burdens it imposed upon them. A system of taxation, however, so diffuse as the present one, necessarily en- tails a system of duplication of taxes, which in turn leads to an undue enhance- ment of prices, a decrease both of production and consumption, and consequently of wealth, a restriction of exportations and of foreign commerce, and a large increase in the machinery and expense of the revenue collection. In respect to the injurious influence of this duplication of taxes upon the industry of the country the commission cannot speak too strongly. Its effect has already been most injurious. It threatens the very existence — even with the protection of inflated prices and a high tariff — of many branches of industry ; and, with a return of the trade and currency of the country to anything approxi- mating its normal condition, it must, by checking development, prove highly disastrous. The influence of the duplication of taxes in sustaining prices is also, in the opinion of the commission, far greater than those not conversant with the sub- ject generally estimate ; and were the price of gold and of the national currency made at once to approximate, and the present revenue system to continue un- changed, it would be impossible for the prices of most products of manufac- turing industry to return to anything like their former level. In proof of this -the commission ask attention to the following illustrations : By section 94 of the' act of June 30, 1864, a tax of five per cent, (or its equivalent in specific duties) was imposed upon the sale of most of the industrial products of the country ; lumber, breadstuffs, maple and sorghum sirups and sugar, whale and fish oils, and a few other articles, excepted. By the amended act of March 3, 1865, an increase of twenty per cent, was made to the above rates, making the present general manufacturing excise tax six per cent, ad valorem on the sale prices of the product. Under the operation of this law the government now levies and collects from eight to fifteen per cent, (and even in some instatices twenty per centum) on almost every finished industrial product. In order to fully understand the 14 REVENUE SYSTEM OF THE UNITED STATES- reason of sixch conclusions, it must be boriie in mind that but comijaratively few products of manufacturing industry come to the consumer as the result of one process, but that the finished product is almost always an aggregate of several distinct and separate manufacturing processes. A good illustration o£ this principle, and of the working of the revenue laws in respect to tlie same, drawn from one of the many statements of experience submitted to the commission, is presented in the manufacture of umbrellas and parasols, as carried on in the cities of New York and Philadelphia. It was formerly the practice of umbrella-makers to manufacture the main constituents of their product as one business ; but now the business of an umbrella manufac- turer is rather to assemble the various constituents of an umbrella or parasol, which are made separately, and in different parts of the country. Thus, for example, the sticks, when of wood, are made in Philadelphia and in Connecticut, part of native and part of foreign wood, on which last a duty may have been paid. If the supporting-rod is of iron or steel, it is the product of still another establishment. In like manner the handles of carved wood, bone, or ivory, the brass runners, the tips, the elastic band, the rubber of which the band is com- posed, the silk tassels, the buttons, and the cover of silk, gingham, or alpaca, are all distinct products of manufacture ; and each of these constituents, if of domestic production, pays a tax when sold of six per cent, ad valorem, or its equivalent. The umbrella manufacturer now aggregates all these constituent parts, previously taxed, into a finished ■ product, and then -pays six per centum on the whole. It is therefore evident that under the present excise sys- tem all the parts of the umbrella are taxed at least twice, and in some instances three times, thus adding from twelve to fifteen per cent, to the cost of the um- ■ brella direct ; while we may feel certain, moreover, that each separate manufac- turer makes the payment of the six per cent, tax on his special product an occa- sion for adding from one to three per centum additional to its cost price. In some instances known to the commission this addition, thus made by the manu- facturer, by reason of the payment of his general manufacturing tax, has amounted to over six per cent. Again, in the case of books, pamphlets, &c., a tax imposed on which, being a taxupon knowledge, can only be justified on the grounds of imperative neces- sity.it is claimed that, including licenses and income tax, the finished book, and its constituent matei'ials, pay from twelve to fifteen distinct taxes before it reaches the reader. Every separate item that enters into the book — paper, " cloth, boards, glue, thread, gold-leaf, leather, and type material— pays from three to six per cent, in the first instance, and then five per cent, on the whole combined ; and this not upon the cost of the manufactured article, but upon the price at which it is sold. On cotton fabrics the tax now levied and collected ranges, according to the quahfcy of the goods, from nine to fowteen cents per pound. On refined sugars, the tax on gross sales, by reason of an inequality of ad- justment between the tariff and the excise, is now claimed to be nearly equiva- lent to all the additional value conferred upon them in refining by all the labor employed therein. Other articles, such as wagons, locomotives, &c., might equally well be cited as illustrations. Such a system as this violates all the fundamental principles of taxation, inas- mucii as the taxes are neither definite in amount, equal in application, nor con- venient of collection. While this system prevails, furthermore, it seems useless to talk of reducing prices to anything like their former level, by a reduction or contraction of the currency. A similar duplication of taxation to that above described must, in the opinion of the cornmission also attend the adoption of a tax on sales, which at present seems o find much favor throughout the country. Local taxes on industrial circulation m every State, county, township, and village of the Union would be EEVKNUE SYSTEM OF THE UNITED STATES 15 confessedly calamitous ; but they could not be as bad as a frontier drawn around each individual in the nation, over which nothiog could pass in or out, not smit- ten with a tax — repeated at each border. Another matter of more serious importance, in its bearing upon the industry of the country, thau the duplication of taxes, is the lack of equalization or ad- justment between the tariff and the excise. This subject, which the commission, from lack of time, have not been able to investigate as fully as they desired, but upon which they propose to present a special report, demands the serious and prompt attention of Congress. The nature of this inequality can be better illustrated by example than by argument. We take as before, and as offering the most striking illustrations, the cases of the umbrella and the book industries. In the case of the umbrella and parasol maniifacture, the cover, as a constituent element of construction, represents from mic Jialf to two-thirds the entire cost of the finished article. The silk, the alpaca, and the Scotch gingham, of which the. covers are made, are all imported ; the former paying a duty of sixty per cent., and the latter two about fifty per cent, ad valorem ; the variation being slight on the quality of texture. The manufactured umbrella, covered with the same material, whose constituent parts are not taxed, either on the material used in their fabrication or on their sale, is, however, admitted under the present tariff at a duty of thirty-five per cent, ad valorem, or at a discriminating duty against the American and in favor of the foreign producer of from fifteen to tioenty-five per cent. If we make allow- ance for the various United States internal revenue taxes, it is claimed by the American manufacturers that the discrimination in favor of the foreign producer is fully equal to forty per cent. It needs hardly to be added, that during the past six months imported umbrellas have been sold at auction in New York and Boston, with the original cost, duty, freight, and charges paid in gold, for a less price than the American article can be manufactured ; or that the business of making umbrellas and parasols in New York and Philadelphia, involving a capital of $2,000,000, and employing the labor of some five thousand persons, a majority of whom are females, is threatened with utter destruction. In two instances cited to the commission, umbrella manufacturers have closed their factories in the United States', and, with a view of exporting to this country, have transferred their capital and skill to Europe. In a communication sub- mitted to the commission by a committee of umbrella manufacturers, they state that, " unless relief is speedily obtained, we can perceive no other possible course to pursue but the alternative of retiring entirely from the field, and leaving it to foreign hands." In the case of books, the commission quote from a recent circular from a lead- ing member of this trade: "In England, books, papers, &c., are especially exempted from taxation. Here there is a duty of thirty-five per cent, on sized book-papers, and an internal revenue tax equal to about eleven per cent, on books, including the tax on paper and on the difference between the cost and the wholesale price, while the duty on imported books is only twenty-five per cent. With all these odds against us, the English manufacturer should be able to pay his duties and land his books in New York or Boston at about one-half the pi'ice at which we can make them here, to wit : His paper costs him only one-third what paper costs here ; his labor and materials less than one-half, while we pay an amount about equal to his duties in internal reTteuue ; even more, for he invoices his goods at cost, or nearly so, sending them to his own house here, while our tax is upon every separate item that enters into the book. " * * * An average book would, perhaps, take one pound of paper. This in America now costs 30 cents. Other material, say 10 Labor 12 " ] 1 per cent, internal revenue tax — ' "7^ Total cost in the United States 59icents. 16 REVENUE SYSTEM OF THE UNITED STATES. T, . T, , 1 10 cents. Paper in England , ., Other material g ,, Labor ci u Tariff _^ Total cost of English book delivered here ^^i cents.* " The difference in exchange at the present time probably would make the tariff about equal to the internal revenue on the American book, still leaving the English book, landed in New York or Boston, to cost only about half as much as the Amencan book made here. How long will it take, with this state of things existing, to transfer all the miscellaneous book publishing to London, and to cripple our paper-mills, and send our skilled workmen into other channels to get a livelihood 1 * * *«,,, ,. ,• c ■ "That a repeal or modification of the paper duty would not afford adequate reliet is appsr rent from the fact that foreign paper can be imported now cheaper than it can be furnished of similar quality here. If this be true of what may properly be termed a raw material, so far as books are concerned, the inference is patent that the matured product should have at least equal protection with that raw material ; and while the monarchical governments of Europe, especially Great Britain, make it a matter of public policy to exempt books and literature from all taxation, it is also evident that it is neither just nor equal, in a countiy where, above all others, the public welfare depends upon the universal diffusion of knowledge, that there should be levied upon the medium of this diffusion a higher tax in internal revenue than the foreigner who seeks our trade has to pay in duties to the customs." The commission would add that at the present time the one article which, above all others, would seem to be a peculiar product of American industry, viz : Webster's Spelling Book, is now being printed in large quantities in Lon- don for the use of American schools. Another striking illustration of the necessity for the equalization and adjust- ment of the tariff and the internal revenue act is afforded in the case of Manilla rope. By the present tariff act, Manilla hemp imported direct from Manilla is charged with a duty of $25 per ton ; and when imported from Europe, an ad- ditional duty of 10 per cent, ad valorem, amounting to between $15 and $25 per ton, (according to its cost in Europe,) making, in such case, the whole duty amount to from $40 to $50 per ton. On the other hand, the duty on imported or Manilla rope is only 2^ cents per pound, or $56 per ton. By the internal revenue act, the tax on the manufacture of cordage is fixed at 6 per cent, on the market value, which at the present time amounts to about \\ cent per pound, or over $33 per ton. It seems evident, therefore, that while the American man- ufacturers of cordage are paying a duty on hemp imported directly, of $58 per ton, (and when imported indirectly, of $73 per ton ;) and while the duty on imported rope is but $56 per ton, that not only are they without protection, but that there is a difference in the taxation agaiast them, and in favor of foreign manufacturers, which must result most injuriously to this branch of business. We need only add that under this state of things the importations of Manilla cordage from Europe seem to be rapidly increasing. PROPOSED REVENUE POLICY FOR THE FUTURE. In respect to the evils arising from excessive duplication of taxes under the internal revenue system and from a lack of equalization between the tariff and the excise, it may be urged that the remedy for the latter difficulty is m6st easy, viz : hy increasing the tariff. To this, however, as a permanent measure, there are most serious objections, inasmuch as the lack of equalization is not confined to the articles specified in our illustrations, but is very general, and will be more and more extensive as the value of currency approximates to that of gold ; while an increase in the tariff, sufficient to remedy all the difficulties, would render the tariff itself almost prohibitory, or at least so high as to invite continued assaults, deprive it of all elements of stability, and increase the business of the contra- * The commission would, however, call attention to the fact that no allowance is here made for freight, insurance, and other charges of transportation, and that the cost of the English book is given in gold, the American in United States currency. REVENUE SYSTEM OP THE UNITED STATES. 17 bandist. The remedy, therefore, for the difficulties above pointed out and illus- trated, save in a few striking instances, which have probably resulted from over- sight in the framing of the law, must, in the opinion of the commission, be sought for in such a revision of the present internal revenue system as will look to an entire exemption of the manufacturing industry of the United States from all direct taxation, (distilled and fermented liquors, tobacco, and possibly a few other articles excepted.) This the commission are unhesitatingly prepared to recommend. As, however, the revenue derived from the excise on the industrial products of the country amounted to nearly sixty per cent, of the gross internal revenue in 1863 ; to sixty-four and a half per cent, in 1864 ; and to nearly fifty per cent, in 1865, it is evident that a radical change of the kind recommended should not be made at once, but gradually, and according as experience satisfies us of our ability to substitute other and less objectionable forms of taxation adequate to produce a revenue corresponding to that relinquished. To endeavor to remedy the difficulties growing out of the present duplication of taxation and want of equalization between the excise and the tariff, by specific enactments of exemptions, as has been proposed by some, would, in the opinion of the commission, be impracticable, and would crowd the statute book with such a detail of enumeration as would render the law exceedingly difficult of comprehension, and open the way for more gigantic frauds than are now prac- ticed. The evil is radical, and the remedy must also be radical. Looking back upon the history of the country for the last quarter of a century, we find that during the decade from 1840 to 1850 the population of the United States increased 35 per cent., while the national wealth during the same period experienced an increase of 89 per cent. During the next decade, from 1850 to 1860, the increase of population was SSi'o per cent., and of wealth over 126 per cent.* Now, without undertaking to deduce any estimates of the future from the past, the commission, nevertheless, think they are warranted in asserting that the circumstances favoring the future increase of the country, both as re- gards population and wealth, find no parallel in the history of experience of any other nation ; and it need hardly be added that if a development in any degree approximate to the past can be maintained and continued, the extinguishment of the national debt, in a comparatively brief period, becomes a matter of no uncertainty. To secure this development, both by removing the shackles from industry, and by facilitating the means of rapid and cheap intercommunication between the different sections of the country, is to effect at the same time a so- lution of all the financial difficulties which now press upon us. Until these ends are effected, it is of no avail to enumerate the natural re- sources of the country, or to dwell upon the energy or intelligence of our people. The experience of Great Britain and New England on the one hand, and of Mexico on the other, affords striking examples of the truth of the maxim of modern political economy, that " those countries are the richest where men are the most active, and not those where nature has been the most bountiful." Assuming, then, that the policy indicated — which we may here restate in brief to be the abolition or speedy reduction of all taxes which tend to check de- velopment, and the retention of all those which, like the income tax, fall chiefly * " The estimated value of all the real and personal estate in the United States belonging to individuals, in 1850, was $7,135,780,228. This included the value of 3,204,3)3 slaves, which, at $500 eaph, amounted to |1,602, 156,500. This deducted from $7, 135,780,228 would leave $5,533,623,728. " The estimated value of all the real and personal estate belonging to individuals in 1860 was $16,159,616,068. This included the value of .3,953,587 slaves, which, at $500 each, amounted to $1,876,793,500. This deducted from$16,159,6J6,068, would leave$14,282,822,- 568. Thus the total capital stock of the country increased from 1850 to 1860 at the rate of 158 per cent." 2 R c 18 EETENUE SYSTEM OF THE UNITED STATES upm realized wealth— \s, accepted as the desirable future revenue policy of the country, the question next arises, In what manner and to what extent can it be carried out, and at the same time insure to the government a revenue ade- quate to its necessities ?. SOURCES OF REVENUE. This brings us to the consideration of the nature and capacity of the sources available to the government for revenue, and to the special department of inves- tigation assigned to the commission. According to the estimate of the Secretary of the Treasury, there will be re- quired for the year ending June 30, 1867, to meet the expenditure of the gov- ernment, and to provide for the interest on the public debt, a revenue of $284,317,181. Assuming this estimate as a basis, let us now examine in detail the sources whence the revenue necessary to meet this expenditure can be drawn. We would first ask attention to the revenue derivable from IMPOSTS, OR CUSTOMS. The following table exhibits the annual imports and exports of the United States from 1859 to 1865, inclusive: Value of imports. Value of exports. Duties received. Fiscal year 1859 1860 1861 1862 1863 1864 1865 $338, 765, 130 362, 163,941 350, 775, 835 205, 819, 823 252, 187, 587 328,514,559 234, 434, 167 $356, 789, 462 400, 1-22, 296 410,856,812 229, 790, 280 331, 809, 459 340, 665, 580 336,697,123 $49, 565, 824 53,187,512 39, 582, 186 49, 056, 398 69,059,642 102,316,153 84, 928, 260 For the five years prior to and including 1861, the average annual value of imports was in excess of three hundred and fifty millions of dollars ; and for the three years next succeeding June 30, 1861, the annual average has been about two hundred and sixty-two millions. For the five years prior to and including 1861, the average annual value of exports was, including gold, not far from three hundred and seventy-one millions of dollars; and for the three years next succeeding the fiscal year 1861, the annual average was a Httle over three hundred millions, also including gold. With the return of at least one and a half million of men from unproductive to productive avocations, and with a renewed demand for cotton and naval stores at greatly enhanced prices, coupled with a renewed ability to supply the same, the commission think it safe to estimate the average value of our exports for the three years next succeeding June 30, 1866, at not less thun four hun- dred millions of dollars ; and as experience has shown that the demand for for- eign commodities by the people of the United States is limited mainly by their capacity to piii^chase the same, we believe that we are further warranted in as- suming that the average annual value of importations from abroad for the same period will not be less than three hundred and fifty millions of dollars. The commerce of Great Britain is estimated to be increasing at the present time at from eight to ten per cent, per annum. With the continuance of peace, and with the expansion of our population to thirty-eight millions in 1868 a number at least one-fifth in excess of that of Great Britain — prooression, not retrogression, in American commerce, should be anticipated. ° As the average of the present tariff is understood to be upwards o1 forty per REVENUE SYSTEM OF THE UNITED STATES. 19 cent, upon the invoiced value of those importations upon which duties are lev- ied,* the average having been greatly increased during this past few years by the imposition of duties upon tea, coffee, and other articles previously on the free list, as well as by some additions to other articles, the commission, after making due allowance for a possible reduction of some duties, and an increase of the free list, think it safe to estimaite the amount of revenue derivable from customs, for the fiscal year 1867, to be at least one hundred and thirty millions of dollars.^ Indeed, in view of the facts developed by the commission in their investiga- tions, showing the enormous reduction in the consumption of some of the lead- ing articles of importation by reason of the war, (see special reports on tea, cof- fee and sugar,) and the almost equally rapid increase in the consumption of the same articles since the war, they think they may safely assign a greater rev- enue from customs than that above given. As will be seen by reference to these specific reports, the consumption of cofee in the United States decreased from the annual average of 200,000,000 pounds in 1860, to less than 80,000,000 pounds in 1863. During the same period the consumption of sugar decreased from thirty-one to nineteen pounds per capita ; and of tea for the whole country about twenty-three per cent. The gain in revenue from the increased consumption of these articles in 1866, as compared with 1863-64, will not probably be less than $200,000,000, while the aggregate revenue for that year from the same three articles will probably ex- ceed $40,000,000. It should also be borne in mind that, by the termination of the reciprocity treaty, many articles which are now admitted from the British provinces free of duty will hereafter be subjected to duty, and thus form another element of future increase in the customs revenue. INTERNAL REVENUE. We come next to the consideration of those sources of revenue referable to the excise or internal taxation. * The following table, prepared for the commission by Lorain Blodget, esq., of the Phila- delphia custom-house, appraiser at large, exhibits the duties paid on imports, and the average percentages of the same on the value thereof for the fiscal year 1864-'65 : Total imports. Dutiable im- ports. Duties paid. Cl, l^ New York Philadelphia Boston, (quarter ending March 31, 1865, only) Average of the above 1155,841,013 8, 126, 085 5,193,931 169,161,029 $143, 347, 382 7,265,314 4,735,742 155, 348, 438 $61,169,479 3, 874, 815 1,991,600 67,035,894, 39.25 47.67 38.34 39.63 42.67 53.33 42.05 43.15 The above statement is of duties paid on merchandise entered for consumption, and on all merchandise withdrawn from wareiouse for consumption for the above periods, excluding imports going into warehouse, and all estimated duties. From this statement it appears reasonable to assume that the existing tariff levies an average of about 40 per cent, on the total value of imports, and about forty-three per cent, on the values of those paying duty. t It is worthy of remark that the revenue derived from customs since 1861 has, in every year, exceeded the estimate of the Treasury Department. The estimate of the Secretary of the Treasury for the year 1863-'64 was $70,000,000, while the receipts were over $102,000,000 ; for 1864-65 it was also estimated at $70,000,000, while the receipts were nearly $85,000,000. For the first quarter of the current fiscal year the receipts from customs were over $47,000,000, and the estimate of the Secretary for the remaining three quarters was $100,000,000; making a probable total for the year of $147,000,000. 20 REVENUE SYSTEM OP THE UNITED STATES. The aggregate receipts of internal revenue for the fiscal years 1863, 1864, and 1865, are returned as follows : 1863* $41,003,191 93 1864 116,850,672 44 1865 211,129,529 17 •The following table shows the amount derived from the principal specific sources of internal revenue in the above years, the aggi-egate annual amount^, and the percentage ratio of the amount derived from each specific source to the whole fur the same periods : Articles. Maaufactm-es and products : Books, magazines, &c Boots and slioes Bullion Clothing Carriages Caudles Chemical productions ....... Cigars, cheroots, ifcc Clocks, timepieces, &c Confectionery Coal Cotton, raw Cotton fabrics, yarns, threads. Distilled liquors Fermented liquors Furs ; Furniture and manufactures of wood Gas, illuminating Glass, all manufactures of. . . Gold manufactures, jewelry, &c Gunpowder Glue "" Gutta-percha manufactures . . India-rubber, manufactures of Iron, blooms, &c Ii'ou, bar, rod, baud, sheet, &c Iron, plate Iron, railroad Iron, railroad, re-rolled. .... Iron casting Iron castings, (stoves and hollow-ware) Iron, cut nails and spikes. "' Iroii, pig Iron rivets, nuts, &c ,0 as a "to ^ o $31,241 243,704 117, 133 476, 589 17,771 153,824 318, 425 351,311 1,600,947 3, 229, 991 1,558,083 78,852 435, 600 138, 908 85, 599 78, 696 9,048 112,700 258, 536 52,221 78, 750 66, 336 50, 349 79, 9.52 110,905 6,812 .07 .59 .28 ,o a S '^ ■ " MOO M -^ o 1.16 .04 .37 .77 .85 3.90 7.87 3.79 .19 1.06 .33 .20 .19 .02 .27 .60 .12 .19 .16 .12 .19 .27 .02 $350, 486 320, 076 186, 228 1,255,424 39, 166 465, 793 .572, 436 1,268,412 3, 548, 173 28,431,798 2, 223, 720 113,827 1,679,940 714,740 303, 268 218, 914 155, 302 25, 629 5, 425 233, 783 435,911 86, 535 175,838 119,220 242, 737 123, 489 184,500 .30 .27 .16 1.07 .03 .39 .40 l.OfT 3.03 24.33 1.90 .09 1.43 .61 .26 .19 .13 .02 .20 .37 .07 .15 .10 .20 .10 .16 43,729 .037 g ox* $354,528 3, 280, 627 379,5)8 6, 820, 937 880, 021 326, 583 317, 383 3,087,421 569, 473 835, 994 1,772,983 7,331,148 15,995,701 3,657,181 222, 559 2,733,248 1, 348, 324 585, 430 543, 430 248, 376 44,517 31,282 635, 976 52, 158 807,239 150,292 284, 783 37fl, 265 798, 201 2)1,849 328,940 1,484,383 56, 498 .17 1.55 .18 3.23 .41 .15 .15 1.46 .27 .39 .84 3.47 7.58 1.73 .10 1.27 .63 .27 .26 .11 .02 .014 .30 .024 .38 .07 .13 .18 .37 .10 .15 .70 .02 are\^uuK t'Shf V^[^L;tty?r^^^^^^^ '''^^''^ ^^ *« ^-^^ ^^ '^' office ofthe Secretary of the Treasu^^Th"--?^^^ amounts and those from the tared upon the books^f the two oZ;s on'thrsameTv "Th^'l-ff""^^ '^^"'''^ ^°^ ^""^ account. ®'^™^ ^^y- -^^^ difference is only one of REVENUE SYSTEM OF THE UNITED STATES. 21 TABLE— Continued. Articles. J2 f^ o_2 CM— t • M Iron, miscellaneous Iron, manufactures of . $969, 082 2.36 $1, 891, 062 1.61 $221,071 3,723,310 Total iron and manufactures . Lead, sheet, lead pipes, and shot Lead, white Leather of all descriptions. .. Oil, coal, refined petroleum, &c Oil, lard, linseed, &c Paper of all descriptions, binders' boards, &c Petroleum, crude Pianos and other musical in- struments Pickles, preserved fruits, veg- etables, meats, &c Pins Pottery ware Sails, tents, shades, awn- ings, &c Salseratus and bicarb, of soda. Salt Screws, (wood) Ships and other vessels Silk, manufactures of Silver, manufactures of Snu£f. Soap of all descriptions Starch Steel Steel, manufactures of Sugar, brown or raw Sugar, refined Tobacco, manufactured Turpentine, spirits of Umbrellas and parasols Varnishes Water, mineral, sarsaparilla, &c Wine Woollen fabrics, and all manufactures of wool Zinc, oxide of Miscellaneous articles 1,672,943 4.08 3, 303, 027 2.82 8, 494, 989 $54,614 23, 080 1,982,004 649, 962 114, 219 301,472 .13 .056 4.83 1.58 .28 .73 $110, 527 48, 564 4,004,047 2,255,329 217,291 917, 141 .09 .04 3.43 1.93 .018 .80 62, 534 15, 403 22, 962 3,771 23, 003 118, 579 28, 760 1,748 44, 167 18, 372 34, 466 266, 406 15, 680 40, 657 149, 226 134,228 220, 234 2,576,889 .15 .04 .056 .29 .07 .107 .044 .08 .65 .04 .10 .36 .32 .53 6.28 110,791 22,010 47,425 35,946 32,974 298, 912 62, 943 167, 514 97, 653 36, 950 240, 934 449, 001 36, 261 91,768 299, 373 1,267,616 873, 140 7,086,685 .09 .02 .04 .03 .03 .25 .05 .14 .08 .03 .20 .38 .03 .08 .25 1.09 .79 6.32 49, 735 40, 131 833 8, 824 1,880,029 15, 806 4, 793, 932 .12 .10 4.58 .04 11.69 68,770 92,356 7,014 28,303 3, 655, 132 28,276 7,297,163 .06 .08 .02 3.1 .02 6.24 $74, 460 52, 067 4, 337, 266 3,047,213 414, 547 1,082,476 229,546 259,384 172, 314 24,802 93, 221 78,272 31,609 335, 349 122, 693 347, 218 216, 189 59, 768 283, 352 791,416 131,232 174, 052 549, 767 86,510 1,957,893 8, 017, 020 8,462 111,147 149, 981 85, 546 43, 216 7,947,094 41,641 12, 382, 569 Total manufactures and pro- ductions 24,403,091 59.71 75, 403, 386 64.53 104,156,911 Animals slaughtered. $710,812 1.73 $695,202 59 $1, 261, 357 Gross receipts — Advertisements Bridges and toll-roads. Canals Express companies . . . Ferries $40,629 18, 674 2,680 20,852 .10 .0451 $133, 315 36, 354 .11 .03 .05 267,773 60, 074 .22 .05 $227,530 75,269 92, 421 529, 276 126, 133 22 REVENUE SYSTEM OP THE UNITED STATES. TABLE— Continued. Articles. Receipts for fiscal year 1863. O ffl Receipts for fiscal year 1864. 1^ Receipts for fiscal year 1865. contain one hundred. The adoption of this method, thereiore, practicolly reduces the tax one-half. ' ^ REVENUE SYSTEM OF THE UNITED STATES. 31 ing the last six months the manufacturer referred to purchased no less than 10,895,000 one-cent stamps, which were affixed to the same number of bunches of matches, and paid the government for the same a-tax o/"$108,950 ! From the returns submitted to the commission, of the match manufacture of the United States, it appears that there are now in the country about fifty large establishments, and that from the present demand for the consumption of matches they anticipate it will require for the next fiscal year a production of 2,400,000 gross, or 345,600,000 bunches, which will yield a revenue of $3,456,000. The revenue derived from the stamp excise in Great Britain for the year ending March 31, 1865, was 669,531,947, ($47,655,735.) This, however, in- cludes legacy and succession duties, the taxes on insurance, gold and silver plate, and on newspapers, which, under the United States excise system, are included in other departments. Excluding the receipts from these sources, the amount returned from stamps under the British excise was 663,631,717, ($17,658,585,) showing an excess of more than six millions of dollars as com- pared with the receipts from the same source in the United States for the last fiscal year. The commission, however, from such examination as they have been able to give to the subject, are inclined to the opinion that the capacity of this source of revenue in the United States will prove very much greater than the results of the experience of Great Britain. In proof of this they have but to call attention to the facts before cited in reference to matches. Another illustration to the same effect may also be found in playing cai-ds. In Great Britain the amount received in the year ending March 31, 1865, from a stamp duty of three pence (six cents) per pack on cards was 568,801, ($44,005,) indicating a manufacture of 704,080 packs. In 1860 the average number of packs of cards manufactured in the United States was believed to be in excess of six hundred gross per week, or about four and a half millions of packs per annum. This, with a stamp duty corresponding with that levied in Great Brit- ain, would have yielded a revenue of $269,568. The high prices of paper, colors, and other materials have considerably reduced the demand for cards within the last four years ; but it is the opinion of a committee of card manufac- turers, as presented to the commission, that, with a uniform stamp tax of five cents per pack, an annual revenue of at least two hundred thousand dollars may be derived from this source.* , With this and some other amendments relating to proprietary medicines, and similar stamped articles, the commission are of the opinion that a revenue of at least twenty millions of dollars may be hereafter collected from stamps. Legacy and siiccession duties. — When it is considered that the entire property erf the country probably changes hands once in thirty -two years, (the lifetime of a generation,) it is evident that a small rate of tax, in the form of legacy and succession duties, must be productive of a large revenue. As such taxes, more- over, unless excessive, have little influence in checking the development of in- dustry, their adoption and enforcement as a part of the present revenae policy of the country is to be strongly recommended. Thus far — by reason, probably, of some imperfections — the law relative to this subject in the United States has been practically a dead letter, as is proved by the very inconsiderable amount ($546,703) which accrued from it during the last fiscal year. Prom the corre- sponding fiscal year the amount received from the same source in Great Britain was 662,337,994, ($11,689,970.) * From returns made to the commission it appears that a single playing-card manufacturer in New York city paid for stamps in the year 1865 on the product of his manufacture $41, 731 10. Of these stamps two-thirds were of the two-cent and four-cent denomination. The number of packs returned as manufactured by this firm in Wo'i, was one and a half million, (1,500.000.) During the last fiscal year, owing mainly to the high price of paper, the man- ufacture and sale of playing cards has probably diminished to the extent of fifty per cent. 32 REVENUE SYSTEM OP THE UNITED STATES. The commission submit the form of a bill intended to render the execution of, the present law more effectual, and they are of the opinion that, with its adop- tion, or by the enactment of some equivalent provisions, a revenue of at least three millions of dollars may be secured from this source. By an estimate made for the commission by a gentleman connected with the surrogate's office of the city of New York, the amount of property annually pass- ing in that city by will or inheritance by kin is about thirty-one millions of dollars, which, if assessed at the present lowest rate of legacy duty, one per cent., would have yielded an amount in excess of one-half the receipts from this source for the whole country during the last fiscal year.* Tax on gross receipts. — From gross receipts the revenue for the fiscal year 1865 was $9,697,866.. Under this head are included, mainly, the taxes levied on transportation and intercommunication ; and as the majority of them, rail- roads excepted, yield but inconsiderable amounts, and are in opposition to the general system of revenue which the commission recommend, sound policy re- quires that they should be repealed as soon as practicable. Thus the receipts from bridges and toll-gates for the fiscal year 1865 was $75,269; from canals, $92,421; from ferries, $126,133; from stage-coaches, wagons, &c., $469,188 ; and from railroads, $5,917,293. Under this head are also included telegraph and express companies, the for- mer of which pay five per cent., and the latter but three per cent., on the gi'oss amount of their receipts. For this discrimination the commission can see no good reason. Express companies, as at present constituted, are, for the most l)art, monopolies, and the average rate of profits paid by them is believed to far exceed the ratio of profits in almost any legitimate business. The commission, therefore, recommend that the tax on the gross receipts of telegraph and express companies be equalized, and are inclined to the opinion that the tax on receipts of express companies might be well advanced to a higher figure than five per cent. Ail increased revenue from such an advanced rate will compensate in some degree for any reductions that may be made on the taxes now levied on bridges, toll-roads, ferries, ships, &c. The revenue receipts from telegraph companies, for the fiscal year 1865, were $215,050 62; and from express companies $529,275 89. Under the present law (section 120) the dividends and interest upon the bonds of certain corporations therein enumerated are made liable to the income tax, which is payable by the proper ofiicer of such corporations. The commission are unable to discover any valid reason why the moderate dividends of banks and railroad companies should be thus taxed, while the larger profits of express companies, manufacturing and other corporations, are omitted. As these returns are invariably made by an officer who has no pecuniary interest therein, it is believed that they are uniformly more nearly correct than the average returns of income made by individuals ; and they, therefore, recommend an amendment of the law, which will include in the provisions of the above section all import- ant incorporated companies for whatever purpose organized. The commission assume that the revenue derivable from gross receipts for the fiscal year ending June 30, 1867, will continue as at present, about $9,000,000. Tax on sales. — Under this head are included the sales by auction, by mer- chandise, stock and gold brokers, &c. — the whole affording a net revenue of $4,062,243 54. The present rate of tax upon the sales of stock-brokers is one-twentieth of one per cent., or five dollars on the sale of ten thousand dollars of the par value * The value of the whole real estate and personal property in the United States in I860 was upwards of sixteen thousand millions of dollars, (16,159,000,000.; Allowing thirty-two years as the lifetime of a generation, and assuming the legacy and succession duty at an average of one per cent., the receipts from this source should yield annually five millions of dollars. REVENUE SYSTEM OF THE UNITED STATES. 33 of the stocks sold. The testimoiiy of the leading brokers in New York dealing in stocks, as sworn to before the cojnmission, seems to establish the fact tliat the above rate is far too heavy to be raised from the whole amount of business transacted. The business is not able to pay it, and in consequence of this, there can be no doubt that the tax, as now imposed, is largely evaded. By the regular members of the stock-exchange of New York and other cities the tax is probably regularly paid, but the business done at these centres forms but an inconsiderable part of the great daily transactions in stocks, bonds, and other securities. Of the remainder of the business a very large part, undoubtedly, escapes taxation altogether. As an illustration of this, it may be stated that there are a large number of dealers who employ brokers to sell stocks, and then deliver them themselves, paying to the broker simply his commission for selling. The broker does not follow up such transaction, cannot control it, and cannot enforce the payment of the tax. ,It is the opinion of experienced men in Wall street that if, during the last twenty years, the present rate of taxation had been paid on all their transac- tions, the revenue received by the government would far exceed what those engaged in the business during that time are now worth. It should also be borne in mind that the stock-brokerage business is taxed otherwise most frequently ; a tax being imposed on every certificate of stock taken, and on every contract for the delivery of stock. The rate of stock- brokerage is, on the average, one-eighth of one per cent.; the ordinary commis- sion of merchants is two and a half per cent. — twenty times as large as the commission of brokers. To reach the same result at the end of the year, a bro- ker must do twenty times as much business as a merchant does ; hence twenty times as many checks must be passed, which checks all bear stamps ; thus showing that the stamp duty upon checks in brokerage is twenty times as much as it is on the general mercantile business of New York. It is the opinion, further, of those most conversant with the stock-brokers' business of New York, that if it were possible to absolutely enforce the law as it at present stands, the brokerage business for the sale of stocks would be nearly or completely extinguished. From a review of the whole subject, in which they have been aided by the judgment of the leading members of the New York stock-exchange, (one of them having formerly been a prominent member of the Committee of Ways and Means, that draughted the internal revenue law, ) the commission would recom- mend that the present law imposing a tax of five dollars on every ten thousand dollars, or one-twentieth of one per cent, on the par value of all stocks sold, be repealed, and in lieu thereof a tax of one dollar on ten thousand dollars, or the one-hundredth fjoo ■^ of one per cent, on the par value of the stock, be substituted, and collected in thefolloiving manner : That each sale of stock be accompanied by a bill or memorandum of sale with necessary stamp attached, and in default of affixing the necessary and re- quired stamp on such bill of sale, the parties selling the stock and receiving the money shall be liable to a penalty, one-half to go to the informer and the re- mainder to the government ; the same to be recoverable at any time prior to the expiration of twelve months from the date of the transaction. Such a tax thus levied can, in the opinion of the commission, be collected almost universally, will fall equally on all, be oppressive to none, and will afford to the government an increase of revenue. It should also be stated that the bulk of the transactions in government secu- rities at present is done (according to the statements made to the commission) at about one-sixteenth of one per cent, {f-^ of one per cent.) profit, which is $6 25 on $10,000. If the present tax of $5 on $10,000 be deducted from this, ($6 25,) it does not afford sufficient profit to continue the business. Further- more, as the business of the great cities increases, the transactions become more 3 R c 34 . REVENUE SYSTEM OF THE UNITED STATES. concentrated, and much larger business is done at a . smaller rate of profit than formerly. The large dry-goods jobbers of New York, who a few years ago sold goods to the value of one million dollars per annum at from ten to fifteen per cent, profit, now sell from thirty to forty millions per annum at from two to five per cent, profit; and what is thus true of the dry -goods business is more strikingly true of the transactions of the stock-brokers. In adopting, therefore, the principle of subjecting large and frequent busmess transactions, turning on small profits, to the minimum specific tax, the govern- ment will but follow a long-recognized and sound commercial policy. There is at present no tax in)posed on government securities, but they are included in the phrase, " stocks, bonds, or other securities," of the section (99) which subjects brokers' sales to taxation. The commission believe, however, that it would be a sound and wise policy to exempt all transactions for the sale 'and purchase of national securities from every form of internal taxation. The commission also recommend that the rate of tax levied on the sales of exchange and gold brokers be made to correspond with that proposed in refer- ence to sales of stock-brokers, and they submit a form of bill to that effect. From the aggregate tax op sales, the commission assume, for the ftiture, an' annual revenue of at least four millions of dollars. Miscellaneous. — For the fiscal year ending June 30, 1865, the revenue re- ceipts of the United States from miscellaneous and incidental sources were $32,978,284 47. For the year ending June 30, 1867, the Secretary of \he Treasury estimates the receipts from lands and miscellaneous sources ( premium on gold, confiscated property, penalties, &c.,) at twenty-one millions of dollars. ' For the future, although it is to be expected (and hoped) that a large part of the revenue now included under the head of miscellaneous (viz., all derived from the premium on gold) will be diminished ; yet it is altogether probable that, under any circumstances, a considerable amount of revenue will always be de- rived from miscellaneous sources. For the fiscal year 1867, the commission adopt the estimates of the Secretary of the Treasury — viz., twenty-one millions of dollars ; and they are of the opinion that in subsequent years an equivalent amount will accrue from inci- dental sources — sales of land, fines, and penalties, new forms of taxation, or unexpected increments of old ones. AGGREGATE ESTIMATES. A recapitulation of the foregoing estimates gives us the following aggregate results for the fiscal year ending June 30, 1867 : From customs $130, 000, 000 From excise, viz : Distilled spirits $40, 000, 000 Fermented liquors 5, 000, 000 Tobacco and its manufactures is, 000, 000 Gotten, (raw) 40, 000, 000 Coal oil, refined petroleum, &c 3, 000, 000 Spirits of turpentine, and rosin 2, 000, 000 108, 000, 000 Licenses 15, OOO, 000 Incomes 40, 000, 000 Salaries 2, 000, 000 Banks 15, ooo, 000 Stamps 20, 000, 000 REVENUE SYSTEM OF THE UNITED STATES. 35 Gross receipts $9, 000, 000 Sales 4, 000, 000 Legacies and successions 3, 000, 000 $108, 000, 000 Miscellaneous receipts, 1866-67 21, 000, 000 Aggregate 367, 000, 000 Adding to the above sum the amoiint received in the fiscal year 1865, from the various direct and indirect taxes on industry, which, excepting the amounts derived from the excise on spirits, beer, tobacco, cotton, petroleum, and naval stores, the commission estimate at about sixty-eight millions of dollars, we have as the gross revenue possible to be derived from all sources, under the present rates, with the amendments above proposed, four hundred and thirty-five MILLIONS OF DOLLARS, ($435,000,000.) The estimates of the Secretary of the Treasury for the expenditures of the fiscal year ending June 30, 1867, including interest on the public debt, are, as already stated, two hundred and eighty-four millions of dollars. Allowing the annual expenditures to be increased sixteen millions of dollars above these esti- mates, (making an aggregate of three hundred millions of dollars,) and setting aside fifty millions additional for the reduction of the principal of the public debt, A SURPLUS will remain (assuming the correctness of the estimates of the commission) applicable for the reduction of taxation, of eighty-five MILLIONS OF dollars, ($85,000,000.) These estimates of revenue, as above submitted, are less in the aggregate than what the commission believe will actually be realized, without some un- looked-for interruption of the trade and industry of the country ; and the re- sults of their continued investigations and enlarged experience deepen their con- victions that the capacity of all the great sources of revenue have been under rather than over estimated. It was the opinion of the late Commissioner of Internal Revenue, founded upon his large experience, that if the excise law, as it stands, were thoroughly and exactly enforced, the revenue from the excise alone would equal or EXCEED five HUNDRED MILLIONS OF DOLLARS ($500,000,000) j9er annum; and in this opinion the commission, from their own observation, fully concur. It need, therefore, be no matter of surprise, that with an increased- efficiency and experience on the part of the revenue officers, the average monthly and quarterly receipts of internal revenue also continue progressively to increase. Accepting, then, the results indicated as substantially correct, the possibility of adopting and carrying out the revenue policy advocated by the commission, viz., of concentrating the sources of revenue, and of relieving industry of all those burdens which tend to check its development, is demonstrated. Such a system — which, in contrast with the present " diffused" system, may be termed the " concrete " — is, in the opinion of the commission, the only one adapted to the age and to our condition — the only one compatible with great fiscal results, and with that large freedom to industry and circulation which alone can ever adequately supply the coifers of an enterprising, competitive, and free people. Concentrated taxes can be easily, cheaply, and surely collected, and distribute themselves with a satisfying equality ; for it is to be remembered that a tax on one of the necessaries of life is, in effect, a tax upon all, without the vexations of infinitesimal application. " The oil operators find that one well, intelligently sunk in the right spot, will drain the whole basin, better than many, with less expense, and no disturbance of the surrounding country. In like manner we 36 REVENUE SYSTEM OF THE UNITED STATES. must draw our revenue from few sources, and avoid the error of many and use- less perforations." Again, the productiveness of a tax— like, for example, the tax on industry- is not its first consideration. The three hundred millions of revenue annually required to meet our national expenditures and interest is a very large amount to take from the resources of the nation ; but it is nothing serious in comparison to the blight which may result from the manner of taking it — a blight which ruins the harvest it cannot gather. Freedom from multitudinous taxes, espion- age, and vexations ; freedom from needless official inquisitions and intrusions; freedom from the hourly provocation of each individual in the nation to conceal- ments, evasions, and falsehoods ; freedom for industry, circulation, competition, everywhere — give the nation these conditions, and it will give in return a low- ing revenue. Deprive the people of freedom in industry, and there will be dis- appointing revenues, discontent, embarrassment, and demoralization everywhere— cheerfulness and prosperity nowhere. It may, however, be urged in opposition to the plan of the commission for relieving manufacturing industry from taxation, that the enormous profits which have recently accrued to nianufacturers is a good reason for continuing to inl- pose upon them, at least, some considerable taxation. It should, however, be borne in mind that the present and recent condition of affairs is entirely abnor- mal, and cannot continue for any great length of time ; and that for every case cited as an illustration of excessive profits realized by persons or corporations engaged in manufacturing, there is an equal or greater number in which no profit whatever has been realized ; and furthermore, that the profits in the first in- stance are quite as likely to have accrued from a superior ability and discretion exhibited in management, as from any actual advantages of the business.- It is an error, moreover, to assume that manufacturing establishments, large or small, are always profitable. It can, undoubtedly, be shown that in most departments they do not yield large profits in more than three years out of ten, and they scarcely ever escape two years of heavy losses in every ten years. These losses arise from a variety of causes, such as the fall of prices, disasters to machinery, the bankruptcy of customers, commercial revulsions attended with stoppage of business and cessation of demand. Fluctuation of prices is the bane of doniestie industry, for though a great rise yields at times an enormous profit, it cai-ries fear and perilous change into every business, and causes men for years to stand on the very verge of insolvency. Not less than a third of those who engage in the production of any commodity subject to competition from abroad, and the special fluctuations of foreign trade, are utterly ruined before they can attain that capital and strength which will enable them to maintain themselves under all contingencies. Men who are paying from $6,000 to $60,000 annual tax cannot continue it five yeai-s, and most of them not three years. A conjunction of any heavy loss, with such a burden of tax, will inevitably crush them, and at the same time pro- duce a diminution of revenue. It should also be remembered that, as the law imposing taxation on the pro- ducts of industry now stands, the tax is. liable to fall equally upon the losses of Ihe manufacturer as upon his profits. Many instances of the former character have been cited to the commission,* in some of which the effect of the tax, * The 'commission would call attention, in this connexion, to the following extracts from the testimony of a witness having large experience and knowledge of the manufacturing in- dustry of New England, taken by them in their investigations relative to cotton as a source of revenue : Question. What is the condition of the cotton-manufacturing industry in this country at the present time, (October, 1865?) Answer. The results are, certainly, very profitable to the manufacturer, and have been for the last three months. REVENUE SYSTEM OF THE UNITED STATES. 37 coining conjointly with losses, has been to compel a discontinuance of the business. But notwithstanding the demonstration which the commission believe they have presented of the desirability, and also of the practicability, in a financial point of view, of so amending the revenue system of the United States as to relieve industry and simplify the collection of taxes, they are not prepared to recommend that an entire and radical change be immediately made. In the present condition of the currency, and, of the trade and commerce of the country, any financial estimate which can be made of the future must be somewhat problematical, and is liable to be affected by causes which the most sagacious cannot now foresee. The commission, therefore, recommend V that while the system proposed by them should be accepted substantially as the revenue policy of the county for the future, the change from the old to the new system should be made gradually, and only so fast as experience and renewed examination of the subject will demonstrate that it can be done with prudence and safety. The present condition of the revenue, however, warrants, in their opinion, a recommendation that at least the following reductions or changes be made, to take eflfect at the commencement of the next fiscal year, July 1, 1866, or sooner, if, in the judgment of Congress, it is considered expedient : 1st. A repeal of section 100 of the amended act of March 3, 1865, (generally known as schedule A,) such of its provisions as relate to and impose a tax upon " billiard tables " excepted. The taxes imposed under this section and schedule, viz : on wagons, carriages, watches, pianos, plate, yachts, &c., although laid mainly on articles of luxury, are inquisitorial in their character, and are productive of more annoyance to the people and of trouble and expense to the government than is commensurable with any revenue derivable from them. Thus, for the fiscal year 1865, the revenue derived from gold platea mounted only to $126 62; from piano-fortes, $7,751 82; from watches, $9,138 61 ; from yachts, $2,098 33 ; and from billiard tables, $67,754. The amount by which they will be reduced in consequence of a repeal of section 100, the tax on billiard tables excepted — taking as a basis the returns of the fiscal year ending Jtine 30, 1865— is $469,822 54. 2d. A repeal of all that part of section 94 of the amended act of March 3, 18Q5, which provides for the assessment and collection of taxes on repairs of engines, cars, carriages, ships, i(c. Taxes of this character are taxes upon prudence and economy, and their ex- istence upon the statute-book can only be justified by imperative necessity. The following examples strikingly illustrate the difficulty and annoyance of Question. How has the business been, as regards profit, for the last twelve months ? Answer. The results of the business for the six months previous, say from the 1st of Jan- uary to the 1st of July, (1865,) were disastrous — extremely disastrous — to the cotton man- ufacturers ; many of the large companies making up with a loss of from |50,000 to |300,000 for the six months. Question. Can you give any specific instances of losses sustained by cotton corporations during the last twelve months ? Answer. Yes ; I can give an instance of a corporation, having 18,000 spindles only, that made up with a loss of 196,000, say from the 1st of December, (1864,) to the 1st of June, (1865.) Question. How much tSx did they pay during that time I Answer. I should say $12,000. Another mill of about the same size lost $120,000 for the six months. Question. What tax did they pay 7 Answer. They must have paid 1 18, 000 tax. 38 REVENUE SYSTEM OP THE UNITED STATES. interpreting and enforcing the tax upon repairs : tlius a worker in iron or tin makes a stove one hour, upon which he pays a six per cent, manufacturing tax, and the next hour repairs a stove, on which, if the repairs exceed ten per cent, of the value, he is required to pay a tax of three and six-tenths per cent. A hlacksmith in like manner makes a taxable article, and then in a like manner repairs one just like it. Neither of these persons can reasonably be expected to keep separate accounts of these transactions, upon which the rates of tax differ. Furthermore, the tax on repairs must necessarily depend entirely upon the workman's own estimate of the value of the article before the repair, as it is not taxable unless its value is increased ten per cent, by the repair ; and the asses- sor, or assistant, cannot, and should not, be present as a spy to appraise all articles repaired. Again : if the worker in wood repairs a wheelbarrow worth one dollar, by adding ten cents to its value, it is taxable, but if he repairs a carriage or piano worth five hundred dollars, no tax accraes unless he adds fifty dollars to its value. The tax, with this limitation, therefore, is generally favorable to articles of luxury, and bears stringently upon articles of necessity. Again : by the present limitation of the tax on manufactures and repairs, to such manufactures and repairs as together exceed the rate of six hundred dol- lars a year, (or fifty dollars a month,) and a tax On the difference when the same exceeds the rate of six hundred dollars, and does not exceed the rate of one thousand dollars, a new calculation must often be made after it is ascertained that the repairs have increased the value ten per cent. Thus, if the manufac- tures and repairs amount to eighty dollars, which amoutjt is less than the rate of one thousand dollars per year, (estimated monthly,) then the tax is upon the excess of fifty dollars, namely, thirty dollars. The tax upon this excess, namely, thirty dollars, is to be apportioned at different rates of tax, in the pro- portion which the amount of repairs bears to the amount of manufactures. It is, moreover, often found practically impossible to assess a tax on repairs upon the principles of the present law. Thus, for example, a wheelwright re- pairs a carriage to the amount of three per cent., and knows nothing more about it. The owner or his agent then passes it to another tradesman blacksmith, trimmer, or painter, neither' of whom knows what the extent of entire repairs may be, nor the value of the carriage before the repairs. The result is, that the repair, however extensive, must go untaxed, oi; the owner must be taxed. By the strict construction of the present law, it is doubtful whether an owner can be taxed as a manufacturer, unless he furnishes materials in whole or in part, and whether the subject of repair furnished by the owner is in itself a material for the repair. For it is the " repair " which is by the law made a man- ufacture. But whether this be the case or not, it is the universal testimony of all revenue assessors and collectors that all taxes which are intermittent, occa- sional, or exceptional, like this on repairs, should be avoided, inasmuch aa the tax is not understood by the tax-payers, is difficult of collection, tends to render the law odious and inquisitorial, and requires more, labor and expense on the part of the government to collect it than is compensated by any revenue accru- ing therefrom. The revenue derived from this source during the fiscal year, 1865, was as follows : From repairs of engines, cars, carriages, &c #294, 437 15 From repaurs of ships, steamboats, and other vessels 36, 835 61 Making the whole reduction of the revenue by the repeal of this section, assuming as a ba,sis the returns of 1865 331, 272 76 REVENUE System of the united states. 39 3d. A repeal f subject to certain exceptions J of all that part of section 94 which provides for the assessment and collection, of taxes on wearing apparel. ■ Of all the taxes imposed under the present revenue system, none, probably, has been more effectual in " grinding the faces of the poor" than this ; while there are few which have given more annoyance and trouble to the revenue officials intrusted with their assessment and collection. The main object which induces the commission to ask for a repeal of this portion of the law is a desire to free from taxation a great multitude of small operators, such as milliners, dressmakers, shoemakers, and small tailors. The products of industry, whose exemption from excise is recommended, are, in the main, of prime necessity to the poor as well as to the rich, and do not admit, beyond a certain extent, of any economy in their use. The component parts of clothing, such as are taxed within the extent of that portion of the law referred to, are furthermore, almost without exception, heavily taxed before being fabricated, and an additional tax on them, therefore, as finished articles, necessarily involves excessive duplication of taxation. By the operation of this law, moreover, small taxes are collected from a great number of small and poor operatives — milliners, dressmakers, shoemakers, and others — in a rnanner unworthy the dignity of a great nation, and obviously not contemplated by the original framers of the law.* It is doubtless true, that many who ar^ engaged in the manufacture of wear- ing apparel are in affluent circumstances, and are abundantly able to pay the tax ; but the condition of the great majority is far otherwise ; and the commis- sion, after a review of the whole subject, can see no way of making a discrimi- nation between the two classes. Besides, if it be assumed that the tax in this instance falls upon the consumer, the repeal of this section of the law will con- sequently be for the relief of the whole people, rather than for the benefit of the producers, or manufacturers. The commission, therefore, recommend the fol- lowing enactment : " That on and after July 1, 1866, wearing apparel of all descriptions, whether made to order or for general sale — clothing, boots, shoes, gloves, mittens, moc- casins, hats, caps, and bonnets, or other articles of dress made for the wear of men, women, or children — shall be exempt from excise : Provided, That such exemptions shall not apply to any articles of clothing manufactured for sale by weaving, knitting, or felting, (hats excepted ;) nor to any articles made sepa- rately for sale as constituent parts of clothing, or for the ornamentation of the same; or to any article made from fur, or fur-skins dressed with the fur on, or from India-rubber ; or to hoop-skirts, or paper collars : And, provided further, That every person, firm, or corporation, who shall manufacture any of the fore- going articles, exceeding annually the sum of one thousand dollars, shall pay * The character of this taxation may be better illustrated by the following copies of returns from the book of the collector of the eighth district of New York, for September, 1865 : Amount of tax. Louisa Epstein, milliner '. $] 04 Sarah Abernethy, dressmaker 1 20 E. Gallagher, milliner 1 .58 Ann Purman, dressmaker 1 75 Nathan Stern, manufacturer of cloaks 42 &c., &.C. The total collections in this month, in the above district, from twenty-four persons pm'su- ing the above vocations, amounted to only $49 23. From the ninth district of the same city the commission have also before them a return ot assessments for the month of November, 1865, on thirteen persons, for repairs to clothing, &c. ; the specific amount charged to each ranging from 5 1 cents to |5 83, and showing an aggregate of but $28 57. The value of the monthly industrial product on which the above taxes were assessed ranged ft-om $15 up to §162, but the returns of only two exceeded $100 ; while those of the majority were under $60. 40 REVENUE SYSTEM OF THE UNITED STATES. five dollars for a license ; if exceeding two thousand dollars, ten dollars ; and for every additional one thousand dollars, five dollars." The amount by which the revenue will be reduced by a repeal of the excise on these articles, taking as a basis the returns for the fiscal year 1865, will be as follows : Clothing $e, 820, 936 65 Boots and shoes 3, 280, 627 29 Gloves, mittens, &c 30, 180 14 Making an aggregate of 10, 131, 744 08 This amount will be somewhat further augmented by the revenue from hats, caps, and other articles, the revenue from which, not being returned separately, cannot be ascertained by the commission. 4th. A repeal of the excise duty of two dollars and forty cents per ton levied upon pig iron ; the repeal of the duty of six cents per ton levied on mineral coal, and of the duty of one dollar per harrel on crude petroleum. These articles are all raw materials lying at the basis of great branches of industry ; and it is for the interest of the country that their production and sale should be, to the greatest possible extent, increased and cheapened. The reduction of the revenue by the repeal of the duties on these articles, adopting the returns of the fiscal year 1865 as a basis of computation, will be as follows : From pig iron $1, 484, 382 82 From coal 835, 993 91 From petroleum 2, 320, 376 73 The amount of revenue derived from the tax on crude petroleum, (one dollar per barrel,) for the fiscal year ending June 30, 1865, was $229,545 94. As the revenue from this source was not included in the aggregate estimates of future receipts heretofore given, no allowance is now made for it in the above reductions. For similar reasons to the above, and in view of the termination of the reci- procity treaty, the commission would recommend that the duty now imposed on bituminous coal of foreign production, imported into the United States, be re- duced from one dollar and twenty-five cents to fifty cents per ton. The quantity of coal imported into and exported from the United States during the fiscal year 1865, according to the returns of the- Treasury Depart- ment, is as follows : Imported under the reciprocity treaty, free of duty, 13,025,432 bushels, valued at $1 209 504 Paying duty, 6,131,608 bushels, valued at ' 568i 076 Exported, of domestic production, 3,708,264 bushels, valued at. . 1, 348! 371 Exported, of foreign production, 25,536 bushels, valued at 3, 437 5th. A repeal of all excise taxes on printed hoohs, magazines, pamphlets, re- views, and all other similar printed publications. The amount by which the revenue will be reduced by exempting these arti- cles from taxation, taking as a basis for estimate the returns for the fiscal year ending June 30, 1865, will be $354,528. Assuming that all the taxes above indicated are repealed, the aggregate re- duction of the revenue likely to be experienced, therefore, taking the returns of REVENUE SYSTEM OF THE UNITED STATES. 41 the fiscal year 1865 as a basis for estimate and comparison, will probably amount to about fifteen millions * But, in addition to the reductions above specifically referred to and recom- mended, the commission would further recommend, that on and after the \st day of July, 1866, the taxes levied and paid upon all goods, wares, and mer- chandise, enumerated in section 94 of the amended act of March 3, 1865, be reduced fifty per centum ; and that no allowance or deductions whatever, in the payment of the same for freight, and commissions and other expenses of sale, be authorized or permitted. Such a reduction would at once compensate, in great part, for the excessive duplication of taxes now complained of; and, with the continuance of the pros- perity of the country, (which such a deduction must necessarily promote,) would not, in the opinion of the commission, impair the revenue to an extent sufficient to cause any anxiety. The adoption of further reductions, the commission recommend, should be made dependent on the experience of another year. REDUCTION OF THE PUBLIC DEBT. In their estimates of revenue and expenditures, it will be seen that the com- mission have assumed fifty millions of dollars as the sum that may be set aside, annually, for the redemption of the principal of the public debt. They, how- ever, do riot wish it to be understood that they are in favor of the withdrawal of any such amount, at prisent, from the annual revenues of the nation, for such a purpose. On the contrary, they believe that it is for the interest of the gov- ernment that taxation should be reduced, at the earliest possible moment, to its minimum, thereby making sure the future industrial development of the country ; and that no considerable sum should be, for the present, raised by taxation, for the jreduction of the principal of the public debt. The burden of taxation is now, undoubtedly, at its maximum, and the pres- sure of local taxation increased to pay the interest on local war expenditures is, probably, more severely felt than even the burden of national taxation, inas- much as the general government has taken to itself nearly every source of rev- enue, except the single one of real estate, which had been before burdened with large expenditures for schools, roads, and other matters with which the local governments stand charged. Cases can be cited in which taxation upon real estate even now falls but little short of confiscation ; and in others, where property has been but partially im- proved, the demands for the several classes of taxes absorb nearly the whole receipts derived from it ; the burden in every case becoming more ^nd more severe with every step in the direction of appreciation in the gold value of the currency in which the taxes must be paid. Justice and wise policy, therefore, would seem to demand that the national government should not now adopt any measures calculated to maintain or increase these burdens ; but, on the contrary, should do all in its power to diminish them. Such a course, so far from protract- ing the time at which the national debt can be discharged, would, it is believed, greatly accelerate it ; inasmuch as " the power of contributing to the public revenue increases almost geometrically as the activity of the societary circula- tion increases arithmetically." Looking to the past, we find that while our population has been accustomed to duplicate itself in about twenty-fojir years, our production has been supposed to increase twice as rapidly, or to quadruple itself in the time required for the *The probable reduction consequent upon the changes in the income tax recommended by the commission, does not need to be taken into account in this estimate, inasmuch as it was fully allowed for in the estimates heretofore given of the revenue likely to be derived from this source. 42 REVENUE SYSTEM OF THE UNITED STATES. duplication of tlie other. While looking to the future, in view of this fact, we have reason to believe that the power of national production ten years Hence will be more than twice as great as it is at present. That it will be so, provided that we soon remove all those taxes that now tend to impede national develop- ment, cannot be doubted; and if so, the revenue system, which may- be now framed to yield three hundred millions of dollars per annum, cannot fail to yield, in 1875, at least double that amount. , , „ , In confirmation of these views, the commission would refer to the experience of Great Britain, whose revenues have, in the short period of twenty years, (trom 1842 to 1862,) increased fifty per cent.; or, from ^48,000,000 ($240,000,000) to ,£73,000,000, ($360,000,000,) notwithstanding the exemption from taxation, during the same period, of 1,119 out of 1,163 articles that had been previously subject to impost duties. i_ • t The more completely, therefore, that we now close our eyes to the existence of the principal of our debt, and the more we give our attention to the adoption of measures tending to increase the productive power of the country, and to reduce the rate of interest payable on public and private liabilities, the more rapidly will be the increase in the money value of the landed property ot the Union, the more readily will all the local taxes be paid, and the sooner shall we arrive at that condition of affairs in which it will be possible to boast that the war debt, local and general, whether held at home or abroad, has been once again extinguished. THE RECIPROCITY TREATY. ' ■In accordance with the resolutions of Congress and the notification of the Ex- ecutive, the commercial arrangement known as the " reciprocity treaty," under which the trade and commerce between the United States and the British provinces of North America have been carried on since 1854, expires on the 17th day of March, 1866. The consideration of the effect which the termination of this important commercial arrangement is likely to have upon the revenue, as well as upon the trade and commerce of the United States, has legitimately formed a part of the duties devolved upon the commission, and has also been especially commended to their attention by the Secretary of the Treasury. _ The ■ commission do not, however, propose to present in this connexion any review of the history of the treaty, or of the circumstances which, in the opinion of Con- gress, have rendered its termination expedient. This work has already been performed under the auspices of the Treasury Department, by E. H. Derby, esq., of Boston, to whose able and exhaustive report the commission would refer, without, however, indorsing its conclusions. There are, however, certain points connected with this subject to which the commission would ask special attention. The first of these is, that during the continuance of the reciprocity treaty the trade and commerce between the United States and the British North American provinces has increased, in ten years more than three-fold, or from seventeen millions in 1852 to sixty-eight millions in 1864; so that at present — with the exception of Great Britain, the commercial relations between the United States and the British North American provinces outrank in importance and aggregate annual value those existing between this country and any other foreign state.* ■ ' = -• ' ~~ *The value of the import and export trade of the United States with the following countries for the year ending June 30, 1864, was, according to the treasury report, as follows, (in round numbers : ) Great Britain $317,000,000 British North America 68,000,000 Spanish West Indies 57,000,000 REVENUE SYSTEM OF THE UNITED STATES. 43 It may also, they think, be fairly assumed, that taking into consideration the growth of the two countries in population and wealth, (that of Canada for the last ten years having preserved a nearly eC[ual ratio in this respect with that of the United States,) the trade as at present existing is really but in its infancy, and that the future may be expected to develop an increase equally as great as that of the past. A change in the conditions under which a reciprocal commerce of such magni- tude is carried on, and is now developing, ought not, therefore, to be made without the most seriotis consideration. As regards the present treaty, the commission, as the result of their investi- gations, have been led to the conclusion that its continuance, under existing cir- cumstances, unless accompanied with certain important modifications, is not de- sirable on the part of the United States. They, however, are also unanimous in the opinion, that in view of the close geographical connexion of the United States with the British provinces, (gen- dering them in many respects but one country,) ' and of the ma'gnitude of the commercial relations existing between them, it would be impolitic and to the det- riment of the interests of the United States to decline the consideration of all propositions looking to the re-establishment of some future and satisfactory in- ternational commercial arrangement. Such a course would be in entire opposi- tion to the spirit of the age, the liberality of our people, and the policy of rapidly developing our resources as a means of diminishing the burden of our public debt. In view of such an arrangement, the question of whether either of the parties to the treaty has, or has not, conformed to the spirit of its stipulations, is of little importance. It is the future, not the past, that we are to consider ; and if ad- vantageous terms for the future are offered — terms which are calculated to pro- mote the development of the trade and commerce of the United States, encourage good feeling and prevent difficulties with our neighbors, and at the same time protect the revenues of the country from serious and increasing frauds — it would be, in the opinion of the commission, most impolitic to disregard them. The offer on the part of the provincial authorities to re-negotiate in respect to the commercial relations of the two countries, is in itself an expression of desire to make an arrangement that must be in every respect reciprocal, inasmuch as it is evident that no treaty can, for any length of time, continue that does not con- duce to the benefit of both parties. It is evident that the necessities of the United States will for many years re- quire the imposition of high rates of taxation on many articles, and that with the production of such articles, free or assessed at low rates of duty in the British provinces, the enforcement of the excise laws on the borders will be a matter of no little difficulty, annoyance, and expense ; and tinder all ordinary conditions a large annual loss of the revenue must inevitably occur. The experience of all the nations of Europe has shown that to attempt to wholly prevent smug- gling, under the encouragement of high rates of duty, is an utter impossibility. If, however, such an arrangement can be made with the British provinces as will insure a nearly or quite complete equalization of duties, excise and customs, it must be apparent that all evasions of the revenue laws by smugglers would instantly come to an end, and that the attainment of the above result would be of immense advantage to the United States in a revenue point of view. Prance. ,$29,000,000 Hamburg and Bremen 29,000,000 Mexico.: 20,000,000 Brazil 19,000,000 China 19,000,000 Britisli West Indies 12,000,000 44 REVENUE SYSTEM OF THE UNITED STATES. Again : it is also urged that under the existing system the products of Ameri- can industry subject to high rates of excise are injuriously brought into competi- tion with similar products of provincial industry which are subjected to little or no excise, and then admitted into the United States free of duty. That such is the fact cannot be denied, and is itself a reason why the abrogation or modifica- tion of the present reciprocity treaty has become imperative. But if it were possible to effect such an aiTangement with the British provinces as would allow the imposition o'f duties equivalent to the Amfe-ican excise on all articles of pro- vincial production passing into the United States, it seems clear that the afore- mentioned objection would be entirely removed. As the whole subject, however, is now before Congress for consideration, the commission do not consider it as within their province to submit any specific recommendations, but would content themselves with merely pointing out that under certain circumstances, conditions of great advantage to the United States, in a revenue point of view, might be secured. ORGANIZATION AND ADMINISTRATION OF THE REVENUE SYSTEM. Under the terms of the act authorizing the commission, they were required to consider the best and most efficient mode of raising the revenue, and were in- trusted with power to " inquire into the manner and efficiency of the present and past methods of collecting the internal revenue." In accordance with this provision the commission have devoted as much time as was at their command to the consideration of the above subject. It must be obvious, in the outset, that however perfect may be the system of revenue law devised, unless an efficient and judicious administration of the same is also provided for, the results will be anything but satisfactory; As the case now stands, there can hardly be said to be any general and effi- cient organization of that department of the revenue which relates to the customs. The system demised in the infancy of the nation has been gradually enlarged and modified to meet the requirements of an increasing and now enormous com- merce ; but so imperfectly and irregularly has this been done, that the whole system at present seems wanting in method and centralization ; and the govern- ment, in this department of its business, is obliged, as it were, to do the work of a giant with the toy instruments of a child. The commission believe, further- more, that there is not, at this time, any individual connected with this branch of the revenue who possesses such an acquaintance with the relations of our cus- toms system to the trade and commerce of the country as is possessed by the supervising official of the customs departments of either Great Britain or France j and what is more, there probably never will be any such, so long as appoint- ment and continuance in office are made dependent on political considerations. As regards the New York custom-house, the channel through which about two-thirds of the custom receipts of the whole country pass, want of time has prevented the commission from making extensive personal inquiry ; but judging from the numerous statements presented to them, and from the evidence elicited by the Committee on Public Expenditures (H. of Eep., 38th Cong., 2d sess., Keport No. 25—1865,) they feel satisfied that 'the necessity of reform in the manner of doing business in this institution was never more urgent than at pres- ent. Of the officers employed in the New York custom-house, it is believed that a majority of them have no special qualifications for their places, and little knowl- edge of the law under which they discharge their duties ; while the estimates presented to the commission of the annual losses experienced by the government, through the frauds perpetrated in connexion with this institution, range from twelve to twenty-five millions of dollars. A very large part of these frauds arises from the undervaluation of invoices, REVENUE SYSTEM OF THE UNITED STATES. 45 coupled with neglect and incompetence in the department of the appraiserf. To enter into any detailed account of the manner in which these frauds are perpe- trated would, however, require more space than is at the command of the com- mission in the present report ; but as an illustration of the common, systematic, and shameless manner in which it is conducted, they would state that they have had exhibited to them two invoices received during the past few months from one of the leading and most respectable houses of one of the chief cities of Europe, one of which invoices, sworn to falsely for the payment of duties, was nearly forty per cent, less in amount than the other which was transmitted for the private account of the importer.* The attention of the commission has, furthermore, been called to a case which has occurred very recently, concerning a foreign publication imported in sheets into New York, for which an American house offered to double the price at which the sheets were invoiced, and use them as a raw material for the manu- facture of printing paper, although rags and like materials are admitted free of duty. The sheets of the publication in question were invoiced with their covers at three farthings, could be bound for a fraction of a cent each, and are sold in the American market at from eighteen to twenty-five cents. The effect of such frauds is not to be measured merely by the actual loss of revenue sustained by the government, but also includes the injury inflicted upon the honest importer or the American manufacturer, who is forced to submit to a competition against which no skill or industry will enable him to protect him- self. And it is undoubtedly true that, in this way, no tariff enacted of late years has fully accomplished the end it was intended to subserve. Another prolific source of fraud in the customs is connected with the present system of refunding duties paid or alleged to be paid in excess. " The number of such cases pending in the New York courts averages five hundred and over a year, sometimes running up to one, two, or even three thousand, and involving millions of dollars," to which must be added an aggregate of costs of no small dimensions In some of these cases, it is the conviction of old and experienced custom-house officials that the government has been made to refund duties three or four times in succession, and that a large part of the business can be charac- terized as nothing less than shameless and systematic robbery, involving, it would seem, not unfrequently, collusion on the part of government officials. * The following is a list of prices, per thousand litres, at which Rhine wines have been recently passed through the custom-house, and a list of the real prices discovered by reference to the books of the importers : Custom-house inyoice. Real invoice. 220 florins 530 florins. 150 " 330 " 250 " 580 " 180 " .L 450 " no " 240 " 320 " 700 " 350 " 700 " 19i " 460 " 153 " 320 " All these goods were passed by the New York appraisers at the lowest prices. (Report of the Committee on Public Expenditures, page 93. ) "There are probably no more honorable merchants in the Union, or in the world, than are to be found in New York, but we have also always a laree number who look upon our reve- nue laws as simply an instrument to be set aside, if possible, in order to defraud the revenue. There is no moral restriction whatever imposed on them. They look upon our revenue laws, as they do in Europe, as baiTiers which they are justified in getting over, if they can. Catch them once, and they will laugh at you, and say you are not smart enough to catch them again. One of them, who paid $10,000 the other day, said to me, ' I do not believe you will be smart enough to catch me again.' They do not consider it any disgrace to violate the revenue laws." (Testimony of C. S. Franklin, deputy naval officer, Congressional Keport, page 101.) 46 ' REVENUE SYSTEM OF THE UNITED STATES. It ouglit to be clearly understood by the people of the country that a con- tinuance of this laxity in the management of the customs revenue is equivalent to increased taxation ; and that every dollar taken from the revenue under vari- ous pretences in this department must, necessarily, be made up by an equivalent assessment. In regard to the Internal Revenue department, the commission have no alle- gation of fraud to present ; but at the same time are constrained to say that, in point of organization and administration, it is very far from what it should be. In proof of this, they have but to cite the opinion of the late Commissioner, before referred to as concurred in by the commission, that if the law, as it now stands, could be fully and effectually executed, the receipts from it would not fall short of $500,000,000 pel: annum ; or, in other words, that a cdmplete administration of the law would justify wiping out more than one-half of the excise tax from the statute-book.* If we admit the truth of this statement, even in an approxi- mate degree, the commission might here rest their argument in favor of the ne- cessity of reorganization. They will, however, briefly call attention to some of the leading imperfections of the present system. One of the most prominent of these is a lack of power and authority in this department to control itself, especially in the matter of expenditures. In regard to this latter, the law itself allows but little discretion ; and what little there is, is vested in oflScers of the Treasury Department, who, although they may be the most faithful and vigilant guardians of the public moneys, have little or no experience in connexion with the collection of internal revenue, or practical knowledge of its workings. It therefore, undoubtedly, often happens that in an honest desire to prevent the waste of public money, a small sum may be saved at an expense of one of much greater magnitude. Thus, as illustrations of this character brought to the notice of the commis- sion, they might cite cases where vigilant officers, who have devised plans at slight expense for simplifying returns, or detecting fraud, have been obliged, after the government has adopted their recommendations, and been benefited by their services, to have the small expenditures thus incurred deducted from their salaries — a course equivalent, in fact, to offering a premium for continued ineffi- ciency and want of method. Again : officers who have been detailed on special service, and have performed such service, bringing back thousands of dollars to the treasury, have had their accounts for small expenditures, even when approved by the Commissioner, disallowed or reduced by the auditing officers. The com- mission would not be understood as intending to censure the auditing officers lor the course pursued by them, as it was undoubtedly in strict accordance with the law ; but they would say that they do not think it is for the interest of the gov- ernment or the country to allow the revenue system to be curtailed of its useful- ness, either by reason of such laws, or by any special interpretation placed upon them. Another cause of imperfection in the internal revenue system is undoubtedly due to a limitation in the number of highly competent and responsible officers, and to the inadequacy of the salaries paid to them. Starting less than four years since with one Commissioner and one clerk, the business of the internal revenue has increased to such an extent that probably it now exceeds in mag- nitude the entire Treasury Department previous to the war, and is at present recei-^ing more money every quarter than the whole annual revenue of the gov- * Thus a committee of the Association of Journeymen Boot and Shoemakers of the city of New Yorls, in a return to the commission, estimate the value of the boot and shoe iudustiy in that city as being |16,867,200 per annum. Deducting fifty per cent, from this to represent the exemptions of ft, 000 to each manufacturer, allowed by law, and for overestimates, the amount of revenue which ought to have accrued to the goveriiment from this source, under the six per cent, manufacturing tax, would be |506,016, while the amount actuallv collected was less than $100,000. REVENUE SYSTEM OF THE UNITED STATES. 47 ernment prior to 1860. The amount of mailable matter wticli leaves the office is reported to average one and a half ton daily. With all this labor and responsibility, the internal revenue is but a bureau of the Treasury Department, and, with the exception of the Commissioner, deputy commissioner, and cashier, no provision has been made for clerical assistance in- dependent of the department. . With the present organization of the office, the commission believe that no one man can be found mentally or physically competent to faithfully discharge all the duties devolving upon and expected from the Commissioner; while the clerk in charge of the division of accounts is required to possess as high an order of qualifications, and to perform more intricate, responsible, and laborious duties than any employe of any private firm or corporation in the country. The salary of the former of these officials is now fixed by law at four thousand dollars per annum, and that of the latter at eighteen hundred dollars. The operations of the internal revenue, and also of the customs, affect the character of nearly every industrial and moneyed interest in the country ; and all experience has shown that great numbers of designing persons are ever on the alert to take advantage of imperfections in the law, and of the inexperience of officials, to evade the law and defraud the government. The only counter-check, therefore, for government to rely upon is the in- tegrity, faithfulness, capacity, and experience of its agents ; and for the govern- ment to endeavor to procure and retain the services of men competent to dis- charge, responsible trusts at less salaries than is paid by leading banks, or private mercantile firms or corporations, will not only, probably, be impossible, but will result in very poor economy. The system under which drawbacks are allowed on products of American in- dustry exported from the country which have previously been subjected to ex- cise is also represented as being very imperfect and complicated, and as pre- senting an obstacle to the resuscitation and development of our trade with foreign nations, impaired by the events of the last four years. With the adoption, however, of the policy recommended by the commission, viz : of removing the excise from nearly all products of industry, many of these difficulties will undoubtedly be obviated. The present system of the allowance of moieties of forfeitures and penalties to informers is «also undoubtedly exercising a very demoralizing influence. In a mere pecuniary point of view, however, no expenditures. of the government probably produce so large a return, both direct and indirect, as flow from the distribution of these moieties, and so long as the present organization of the revenue is retained the commission find it difficult to devise a better arrange- ment. Attention should also be called to the fact that the chief business of the office of the internal revenue at Washington, and the chief depository of its records and papers, are located in a building which is not fire-proof, and that at any moment the whole machinery of the department is liable to be thrown into great confusion, with the infliction of irreparable losses, by reason of circumstances against which there is now no adequate provision. But an imperfection in our whole revenue policy more serious and radical than any yet adverted to, and which affects alike both the customs and the excise, is that of making the appointment, retention, and promotion of officers of the revenue dependent on other circumstances than qualifications of good behavior. So long as this policy prevails — a policy never adopted by any private firm or corporation having a due regard to their own interests, and one entirely ignored by all the leading states of Europe — a thoroughly efficient and economical ad- ministration of the revenue, coupled with the education of a competent corps of officials, cannot reasonably be expected. Under the present system, inspectors of spirits have been appointed who were entirely ignorant of the hydrometer 48 REVENUE SYSTEM OP THE UNITED STATES. and disregarded its use ; and inspectors of tobacco, who require to be instructed as to the nature of the different varieties of this article when m-inufactured, previous to entering upon the discharge of their duties. The commission are also informed that efforts for the removal of competent officers have, in some instances, undoubtedly been made for the sole reason that in the faithful discharge of their duties they have interfered with the private in- terests of wealthy and influential individuals. The commission consider it imperative that some action should be speedily taken by Congress on this subject ; and that the necessities of the country should override any advantages that now may accrue in the distribution of patronage in the revenue department of the government. Good men, honest, competent, and efficient, should be sought out and placed in all the positions re- quiring tact, skill, and judgment, and on such salaries as will enable them to live and continue honest ; they should, moreover, holcl their situations by such assured tenure as to induce application and faithfulness. Thus would the gov- ernment have the benefit of experience, every year growing more and more valuable. To remedy the imperfections of the existing revenue system, which the com- mission have thus briefly alluded to, an entire reorganization of the whole ma- chinery and policy of its administration seems necessary ; but, before offering any suggestions on the subject, they would call attention to some of the pecu- liarities of the administration of the British revenue. The leading features of the British administrative system consist in placing the customs'and excise under the charge of separate and distinct boards of com- missioners, each consisting of five members and a secretary. To each is also attached a law officer of great ability and large salary,* which are respectively known as the solicitor of the customs and solicitor of the excise. To these separate boards of commissioners (which the commission understand it is now contemplated to unite) very large powers are intrusted to make and amend the regulations under which the revenues are to be assessed and collected ; and ia respect to the appointment of all subordinate officials, who, before receiving such appointments, are required to undergo strict examinations as to education, busi- ness qualifications, health, and moral character. No distribution of moieties of fines and forfeitures to informers is allowed, but the boards of commissioners are empowered, at discretion, to pay for information, to distribute rewards, and to promote in office for good service. Superannuated and faithful officers are also allowed pensions on retirement from office. To such an extent, moreover, is the British revenue, in all its de- partments, divorced from party and politics, that all officers and employes of the revenue are even deprived of the right of suffrage while in service, though otherwise qualified; while it is understood that no influence on the part of any member of Parliament, or even of the chancellor of the exchequer, will avail for the securement of an appointment under the revenue, unless the candidate re- ceive, at the same time, the approval of a m.ajority of the board of commissioners, under whose supervision his duties are to be discharged. The consequence of this is, that the administration of the British revenue law is constantly improv- ing, while frauds and defalcations on the part of the officials are rarely, if ever, heard of. The responsibility of the collection, preparation, and publication of statistics of British revenue, trade, and commerce — to the accuracy and clearness of which we would bear testimony — is divided between the respective boards of commis- sioners and the board of trade. The decisiorl of all law points connected with the revenue, and the publication and legal enforcement of the same, appear to devolve upon the respective revenue solicitors. . ! '^^l ^^^^'7 0^ ^^^ solicitor of customs is £2,000, (|10,0CO in gold, ) and the appointment IS for life. ^'^ KEVENUE SYSTEM OF THE UNITED STATES. 49 Whether a plan analogous to the British system, as thus presented, could be' advantageously carried out in detail in the United States, and whether the same would be in all respects in accordance with the spirit of our institutions, is a question upon which the comtnission'are not prepared to express an opinion, but they have no doubt that some of its leading features must form the basis of any sound national revenue policy. In proposing a plan of change, however, they would suggest that the work of a reorganization should commence in the oifiee of the Secretary of the Q'reasury itself This office, with the exception of that of the Executive, is now undoubt- edly the most responsible and important of any under the government ; and the position of its occupant, as respects the future condition of the country, is not unlike that sustained by the commander-in-chief of the army during the most critical period of the war — a position in which the nation cannot afford to allow any risks of mistakes in judgment. "With far more power than is intrusted to the British chancellor of the exchequer, or the French minister of finance, the office of the Secretary of the Treasury is at the same time, by long usage and custom, in many respects merely clerical. He is called upon, at one hour, as a member of the cabinet, to participate in the decisions of grave political questions, and in the next to decide upon the transactions of his lowest subordinate. In- trusted with the supervision of the expenditures of hundreds of millions annu- ally, he is also the final arbiter for the settlement of the most insignificant dis- bursements. It is also the assumed privilege of nearly every individual in the country to address him on all subjects connected with either public or private interests ; and courtesy and usage demand that, in all instances, a reply of some nature should be given. The demands thus made at present upon the time and attention of the Secretary of the Treasury are wholly inconsistent with a proper consideration of those great questions of finance submitted to his decision, upon the wise determination of which the future welfare of the nation is inevitably dependent. To impose, therefore, any subordinate and trivial duties on this great officer of state is both to degrade his office and to imperil the financial in- terests of the country. The business of the Treasury Department, as at present constituted, may be classified under three heads : First, the collection of the revenue ; second, the supervision of its expenditures ; and, third, the management of the public debt and the national currency. ^ The commission would suggest that the first of these — the collection of the revenue — be transferred from the immediate responsibility of the Secretary of the Treasury, and, subject only to his general supervision, be placed under the charge of a new officer, subordinate only in rank and in amount of salary to the Secretary, who shall be styled the Under-Secretary of the Treasury in Charge of the Kevenue ; and that to this officer should be assigned the general over- sight and directioii of the collection of the revenues, and the preparation of an annual exhibit of the condition of the revenue, trade, commerce, and industry of the country. If it were also allowed to the Secretary and the Under-Secretary of the Treasury to participate, on the floor of the House of Eepresentatives, in all de- bates on revenue questions, the business of legislation might, probably, be greatly, facilitated. The commission would also propose that, in connexion with this new depart- ment of the Treasury, there should be appointed a commissioner of the customs, and a commissioner of the excise ; with a solicitor of the customs and a solicitor of the excise ; and that these five officers should constitute a board, to be known as the board of commissioners of the revenue, of which the Under-Secretary of the Treasury should be the chairman. To this board should be referred the determination of all rules and regulations relating to the collection of the revenue ; the expenditures to be incurred in re- 4 R c 50 REVENUE SYSTEM OF THE UNITED STATES. spect to the same ; the management of all revenue processes at law; and the distribution of all moieties, received from forfeitures and penalties, in reward for good service and for valuable information. They would also propose that no subordinate officer of the revenue should receive a commission until his quahfi- cations for the proper discharge of his duties had been examined into and ap- proved of by the board of commissioners. In the departments of the commissioners of customs and excise, they would further propose that each of the leading sources of revenue be recognized as a division of the revenue, and that the same be placed in charge of an officer, to whom the incentive of a permanent position and a good salary should be offered as an inducement for the attainment of a thorough acquaintance with, and effi- cient management of, his special trust. This plan, which the commission have mferely presented in outline, seems to them susceptible of being carried out in a manner which would remedy nearly , all the imperfections of the present system, and greatly conduce to the beat in- terests of the country ; and if, in the judgment of Congress, it may seem expe- dient, and sufficient time be allowed for a careful study and examination of the whole subject, the commission will be prepared to submit a bill in accordance with the above suggestions. If Congress should concur in the opinion that a reorganization of the revenue system, either according to the plan proposed, or some other, be expedient, the commission recommend that the change should be made as soon as practicable, especially before, in the Internal Revenue department, custom has developed into routine, and usage has acquired, through time, the binding effect of law. It required the best efforts of the most enlightened ministers of finance in France (Count Mollier, the Marquis d'AudiGret, and others) for thirty or forty years to replace the cumbrous and awkward system of fiuance which prevailed in that country at the commencement of the present century with the existing system, which is now acknowledged to be one of the best, if not the very best, in Europe. It ought also to be borne in mind that no revenue system, in its details, can or ought to be considered permanent. As resources develop, as forms of industry and commerce modify or change, and as revenue receipts, from particular sources, increase or diminish, the rate of taxes and the method of assessing them will need to be correspondingly modified. To prepare the basis for such changes by • legislation would seem to require that tlie industry, the commerce, and the rev- enue of the country should be made the subject of special and continued study and investigation by some competent persons. The commission feel certain that such labor, properly executed, would be of immense service, if not indispensable, to Congress. The discharge of such service, however, does not seem to properly devolve upon congressional committees, to whom should be assigned the duty of exam- ining And passing judgment, rather than of preparing material 9,nd digesting statistics. The commission, therefore, would commend this subject to the special atten- tion of Congress, and recommend that some arrangements for continued inquiry and investigation, of the nature indicated, should be provided for, either in con- nexion with or independent of the regular administration of the revenue. In the mean time, in order to provide for a more perfect administration of the law in certain respects, the commission present the following forms of bills, which they would recommend to the attention of Congress : First. A form of bill authorizing the Secretary of the Treasury to appoint, in such one or more collection districts as he may deem advisable, " solicitors oj the revenue," who shall discharge the duties, now devolving on United States district attorneys, in all cases relating to frauds or violations of the revenue laws. The commission believe that the experience of the last three years, in the REVENUE SYSTEM OJ' THE UNITED STATES. 51 administration of the internal revenue, warrants the adoption of such a measure. In the British system this plan has been found to work very advantageously. Secondly. A form of bill, authorizing the Secretary of the Treasury to ap- point officers, to be known as supervisors of the revenue, who shall discharge such general and specific duties as are therein enumerated. Thirdly. A form of bill, authorizing commissioners of the courts of the United States, under certain circumstances, to take cognizance of cases of forfeiture and frauds committed under the revenue laws of the United States, and to give judgment in respect to the same, in accordance with the laws, subject to appeal to the district courts of the United States. CONCLUSION. In submitting this general report, the commission would again state that they have been unable, from lack of time, to consider many of the topics of import- ance which have been referred to them. A number of special reports on vai-i- ous sources of revenue, with forms of bills, as by law directed, are herewith submitted, and others will be presented at the earliest practicable moment. Among the separate reports which will be submitted is one by an individual member of the commission in relation to national securities — a topic which has already excited some discussion, and is likely to produce more. It is thought by a majority of the commission that this report, and the bill accompanying it, should be referred, with your consent, to Congress, not only on account of the importance of its suggestions, and the arguments by which they are sustained, but as a preventive of crude projects and plans which may be presented to Congress by those who have not devoted so much time to the consideration of the 'subject. If the policy of a sinking fund shall be adopted by Congress, that suggested in the report alluded to is worthy of consideration. The commissioQ also desire to say that, in respect to some of the points dis- cussed in their reports, there is a difference of opinion existing among its mem- bers, but that each recommendation of the commission offered is sustained by a majority of the commission, and that, as regards the report as a whole, it has their unanimous concurrence. The commission would also again allude to the very great difficulty which they have experienced in their investigations in obtaining exact statistical in- formation. The returns furnished by the Treasury Department do not, in any degree, correspond with those furnished to the commission by the trade, or pub- lished in the various commercial circulars ; and these latter, furthermore, do not always agree with each other. They cannot, therefore, claim that the statistics of production and consumption, given by them in their general and special re- ports, are absolutely correct. They are, however, believed to be approximately so, and are the best results derivable from the data placed at their disposal. The commission, furthermore, in closing their report, would take occasion to express their sense of obligation to the Secretary of the Treasury and to all officers connected with his department — especially to the late and present Com- missioners of Internal Eevenue — for the prompt and effective assistance which has at all times been rendered to them in furtherance of the objects of their investigations. , As another gratifying feature of their labor, the commission are also enabled to report a most cheerful and prompt co-operation on the part of the represent- atives of nearly all the industrial interests of the country, for all which ser- vices they herewith tender their unqualified acknowledgments. KespectfuUy submitted : DAVID A. WELLS. STEPHEfT COLWELL. S. S. HAYES. Hon. Hugh McCulloch, Secretary of the Treasury. 52 REVENUE SYSTEM OF THE UNITED STATES. SPECIAL EEPORT No. 3. Report of the 'United States revenue commission on tea as a source of national revenue. Treasury Department, Office of the United States Revenue Commission, January, 1866. Sir : The following are the estimates of tlie consumption of teava the United States since 1813 :* Pounds. 1813 to 1820, mean annual consumption "- - - ^'^°^'°^° 1821, mean annual consumption c' olVnnn 1830, mean annual consumption io ^I» nnn 1831 to 1841, mean annual consumption :f '„ ' 1841 to 1850, mean annual consumption 16,246,000 1850 to 1861, mean annual consumption 27,363,965 Tor the ten years from 1831 to 1841 the mean annual consumption of tea in the United States is believed to have been 12,448,000 pounds. Assuming the average number of the free population in this period to have been 13, 137,000, we have j%V °f ^ pound as the consumption per capita. For the nine years from 1841 to 1850 the mean annual consumption of tea in the United States is estimated at 16,246,000 pounds, which, for an average free population of 17,819,000, would be equal to yVd of apound_^er capita. It would thus appear that from 1831 to 1850 (a period of nineteen years) the increase in the consumption of tea in the United States only kept pace with the increase of population. During the eleven years from 1850 to 1861 the whole amount of tea im- ported into the United States was 351,314,031 pounds. During the same time there were exported from the country 50,310,420 pounds, leaving for home con- sumption 301,003,611 pounds, or an average of 27,363,965 pounds per annum. Assuming the average number of the free population for this period to have been 24,640,000, we have, therefore, IJJg- of a pound as the average annual consumption of tea per capita for that period ; showing a gain of one-fifth (f^) of a pound on the average of the years included between 1831 and 1850, or an increase in consumption of between six and seven per cent, per annum, while the increase in population was only three and a half per cent, per annum. This great increase in the consumption of tea may be referred, in part, to the gi'eat prosperity of the country and the opening 6f the California trade ; par- tially to the increased facilities and cheapness in transportation, by railroad, to all parts of the country, and partially to the cheapness of tea itself. From 1850 to 1856 the import of tea into the United States was largely in excess of con- sumption ; so that in January, 1866, there was an estimated stock of tea on hand of at least 30,000,000 pounds. During the next five years, however, or from 1857 to 1861, inclusive, the excess of the imports over the exports fell short of consumption, so that on the 1st of January, 1862, the country was almost bare of tea. The annual consumption of tea for the whole country for the year previous to the breaking out of the rebellion was estimated at about 30,000,000 pounds. Of this amount, the States which seceded and the State of Kentucky — in all comprising a free population of 8,000,000 — are estimated to have consumed 3,000,000 pounds, or -jo'Tj-of a pound per capita ; while the remaining States, with a free population of 20,000,000, consumed 27,000,000 pounds, or J j3j5_of a pound per capita. * There are records showing the quantity of tea shipped from Canton to the United States far back as the year 1784-8. REVENUE SYSTEM OF THE UNITED STATES. 53 Of this consumption by the free States, about 17,000,000 pounds may be set down to the credit of the " black" teas, and 10,000,000 pounds to " green" teas. The following, according to the returns made to the commission by the Treasury Department, were the gross importations of tea into the United States for the fiscal years 1861-'62, 1862-'63, 1863-'64 : 1861-'62 24, 739, 983 pounds. 1862-'63 29, 761, 006 " 1863-'64 37, 229, 176 As no allowance is here made for re-exports, the above figures do not in any way represent the consumption of the country. This the commission, from data obtained from the trade in New York, believe to have been approximately as follows for the years ending December 31, 1861, 1862, 1863, 1864, and 1865 :* Green Japan. Black. Total. 1861 Pounds. 7, 485, 000 13,871,600 14, 490, 680 13, 564, 295 18, 874, 199 Pounds. 18, 035, 000 13, 597, 000 12,415,685 9,573,251 10,979,234 Pounds. 25, 520, 000 1862 27,468,600 1863 . 26,906,365 1864 . 23, 137,546 1865 t 29, 853, 433 It would thus appear that the eifect of the war was to reduce the average consumption of tea in the loyal States during the war, as compared with the year 1S60-'61, less than Jive per cent. There is no allowance made in this calculation for smuggling. Whatever quantity may have been smuggled has increased the consumption to that exlent. The influence of the imposition of a duty on tea in restricting consumption has, in the opinion of the commission, been very slight as compared with other causes. For some time past, the first cost of the article itself in China has been unusually high. High rates of freight have also been paid in gold for its trans- port in neutral vessels, (from five to seven cents per pound,) while the high premium upon gold operating on prime cost, freight and charges, has forced the ■ price to the consumer to more than twice what it would have been with a hun- dred per cent, increase of duty, and gold at or near par. By referring back to the record of the imports heretofore imposed on tea im- ported into the United States, we find that, by the act of April 11, 1816, the following comparatively heavy schedule of duties was adopted : On Bohea ---ty American vessels, 12 c. per lb.; by foreign vessels, 1-1 c. per lb. Souchong and other black do. 25 " do. 34 " Imperial and gunpowder do. 50 " do. 68 Hysou and young hyson do. 40 "' do. 56 " Hyson skin and other green do. 28 " do. 38 " These duties amounted to from seventy-five to a hundred per cent, on Bohea, and sixty to a hundred per cent, on Souchong and green, according to the then existing prices. "* This estimate of consumption is based upon imports, direct and indirect, and upon the quantity of tea, re-exported. The movement of tea between the United States and the Canadas is also included, but it does not, however, include the consumption of the Pacific States. + During this year we had four months of actual war, and less than six months of peace- ful internal commerce with the lines of communication open with all parts of the country. The trade statistics for the six months ending June 30, 1865, indicate that the consumption of tea, for that period, was in excess of fifteen million pounds for all kinds. 54 REVENUE SYSTEM OF THE UNITED STATES. This act remained unaltered until March, 1833, when, by an act previously passed, (July, 1832,) all duties on tea imported in American vessels were re- mitted ; the former rates being, however, retained as respects teas imported in foreign vessels. The importation in the latter class of vessels was, however, very small. The following table shows the quantities of tea imported and re- exported for the several fiscal years, ending September 30, from 1828 to 1840, inclusive : Year ending- September 30, .1828 1829 1830 1831 1832 1833 I f^'"^^^ \ free — 1834 1836 1836 1837 1838 { -^"''^^^^ 1839 { ^"^''^^^'^ 1840 j ''"'^■^^^^ Imports. Pounds. 6,636,790 5, 182, 867 8,609,415 9,906,606 2,051,182 12, 588, 640 16, 274, 769 14, 412, 380 16,381,126 16, 973, 742 4,066 14,414,046 9,756 9, 340, 06 25,119 19, 981, 476 w Exports. Pounds. 1,417,846 1, 033, 995 526, 186 1,736,324 1, 279, 462 748, 297 ■ 964, 482 3,081,126 2, 080, 742 1, 896, 342 2, 508, 02(1 2, 435, 302 1,592,033 3, 120, 692 After the repeal of the duties in ] 833, the importations (as will be seen by reference to the table) increased very considerably, but being almost wholly in American vessels, very little revenue accrued from them. For the year ending June 30, 1850, the imports were in American vessels, free, 28,244,462 pounds, and in foreign vessels, dutiable, 508,355 pounds. Up to 1846, tea imported in foreign vessels continued to pay the rates of* duty imposed on the same in 1816, but in the act of 1846 they were left to pay twenty per cent, as unenumerated articles. By the tariff of March 3, 1857, tea imported indirectly paid fifteen per cent., also as unenumerated. By the act of August 5, 1861, which took effect on its passage, teas imported in American vessels were again charged with duty for the first time since 1833; the duties being .ipccific, and upon all teas at the rate oi fifteen cents per pound. By the act of December 24, 1861, this rate was increased to twenty cents per pound ; and by the act of June 3, 1864, the rate was further advanced on all teas to twenty-five cents per pound, and has since then remained unchanged. In answer to a call made on the Treasury Department for information respect- ing the customs revenue derived from the importations of specific articles, the commission were informed at the outset of their labors, that " it is impossible to define the precise amount of the revenue received from the duties levied at various times upon tea. No distinct return of the actual receipt* of revenue from particular articles was received until the commencement of the current fiscal year," (1865.) And again, " it cannot definitely be said what amount of revenue has been received from teas since the duties of 1861 were laid. The import statement embraces all going into warehouse, and the exports are not REVENUE SYSTEM OP THE UNITED STATES. 55 only from -wareliouse, witbout^payment of duty originally, but also from stocks which have paid duty, and on which drawbacks are not admitted." In November, 1865, however, in answer to a second call of the commission for information, the department furnished the following statement of the imports of teas and the duties accruing on the same, for the fiscal years ending June 30, 1862 and 1865, inclusive, from the_^ye ports of Boston, New York, Philadelphia, Baltimore, and San Trancisco.* As to the reliability of these statements the commission express no opinion. It will be observed, however, that there is a wide discrepancy between the returns of the department and the tables indicat- ing consumption furnished to the commission by the trade in New York. Year ending — Amount. Eate. Duty accrued. June 30, 1862 Pounds. 315,283 11,773,307 Cents. 15 20 20 20 25 $47 292 45 1862 2, 354, 661 40 Total 12, 088, 590 18,711,646 33, 195, 957 18, 595, 314 2, 401,953 85 1863 3, 742, 329 20 1864 6,639, 191 40 1865 3, 999,^24 50 Present consumption of tea. — Estimating the total population of the whole country in 1866 at 36,000,000 of all classes, the commission believe it will be perfectly safe, and probably within the mark, to base a calculation for present revenue upon an annual consumption of 30,000,000 pounds of all kinds of tea ; which consumption, the duties remaining the same as at present, (i. e. twenty-five cents per pound,) will yield a revenue of seven million five hundred, thousand dollars ($7,500,000,) showing again of revenue as compared with the estimated consumption based on trade returns o/'1864, and at the then rate of duty, (twenty cents per pound,) of two million eight hundred and seventy -two thousand four hundred and ninety-one dollars ($2,872,491.) With a fall in the price of gold and a continuance of the general prosperity of the country, the commission, in common with some of the leading trade authorities on this subject, are further of the opinion that the consumption of teas in the United States will continue to increase hereafter at the rate of at least three and a half (3J) per centum, or about one million of pounds per annum, giving thereby a proportionate increase of revenue. The consumption of tea in different countries of Europe during the year 1860 was estimated as follows : Great Britain 2.659 pounds per capita. Eussia 20 German States Oil " Belgium 02 France , 089 Austria 0013 " In the United States, during the same year, the consumption of tea, per cap- ita, for the whole population, was probably about one pound. In Great Britain, during the year 1860, two and a half pounds of tea were consumed for every one and a quarter pound of coffee. In the United States, for the same year, about six and a half pounds of coffee were consumed for *From San Francisco, only until April 30, 1864. 56 REVENUE SYSTEM OP THE UNITED STATES- every pound of tea. It may here be remarked that one pound of tea is gen- erally considered as equal to three pounds of coffee. At present the consumption of tea in Great Britain is largely m excess ot that of any of the other countries of Europe, as well as that of America. " Phe recent rise and present magnitude of the British tea trade," says MeGullM'b, " are among the most extraordinary phenomena in the history of commerce." The quantity of tea consumed in Great Britain in 1830 is estimated at 31,676,000 pounds; in 1840, it was estimated at 37,588,000 pounds; and in 1848, at 48,734,000 pounds. Since 1852 the increase in the quantity of tea retained for consumption in Great Britain, according to the official returns, and the distribution of consumption ^cr capita, has been as follows : Year. Population. Pounds consumed. CansumpLJon per oapita. 1853 27, 806, 145 27, 961, 569 28,116,993 28,272,417 28, 427, 841 28,583,265 28, 738, 689 28,894, 113 29, 049, 540 29, 204, 964 29, 360, 388 29,515,812 58, 834, 087 61, 953, 041 63, 429, 286 63,278,212 69, 159, 843 73,217,484 76, 362, 008 76, 842, 016 77, 949, 464 78,817,060 85,206,779 88,637,099 « 2.11,') 1854 2.215 1855 2.255 1856 2.238 1857 2.433 1858 2.561 1859 2.657 I860 . .. ^ 2.659 1861 2.683 1862 2 698 1863 3.902 1864 3.003 This extraordinary consumption of tea in Great Britain cannot, in the opinion of the commission, be regarded as any indication of prosperity on the part of the consumers. The view taken by the most recent chemical authorities in relation to the physological action of tea is, that it tends to diminish the waste of the system, and therefore supplies to a certain extent the lack of other nutri- tious food. That the same conclusion has been practically arrived-at, through experience, by the working and poorer classes of Great Britain, seems evident from the statement made by Professor Leone Levi, in 1860, in his work on Brit- ish Taxation — that tea, next to bread, is regarded by the above-mentioned classes as a pure necessity of life. " In various parts of England," he continues, "those whose wages range from eight shillings (two dollars) to twelve shillings (three dollars) per week almost live on bread and tea, and the women espe- cially take it at all meals. Many of the working classes use tea three times a day ; and among the working females tea and sugar constitute the chief articles of their diet. In Ireland tea and sugar are consumed even by the poorest, although they thereby deprive themselves of more nourishing food ; and in the south of Ireland, among the agricultural population, those who cannot afford to use these articles for general diet purchase small quantities, about sixpence worth, at Christmas and other holiday times." If the above supposition that the extraordinary increase in the consumption of tea in Great Britain during the last thirty years is due in great part to the circumstances of its being used as a substitute for. other and more concrete food, it is evidently useless to expect that any increase in the consumption of tea in the United States will take place from similar causes. It might possibly be further inferred that a part or all of the enormous increase in the consumption of tea in Great Britain was due .to a progressive decrease in REVENUE SYSTEM OF THE UNITED STATES. 57 tlie rates of duty. An examination of the subject will not, however, in the opin- ion of the commission, warrant any such inference. Tea is probably less affected in price to the consumer, by any increase or de- crease of duty, than any other article that enters into consumption among a civ- ilized people. There is practically but one producing country, and the trade, therefore, partakes of the features of a monopoly ; a decrease of duty inuring to the advantage of the producer, and conversely an increase of duty inuring to the disadvantage of the producer. This statement is abundantly proved by the fol- lowing table, taken from the report of the British commissioners of customs for 1865: Year. Average rate of duty. Average price ofteaper lb. in bond. JTear. Average rate of duty. Average price of tea per lb in bond. 1848 s. d. 2 2i 2 2i 2 2i 2 21 2 21 1 111 1 64 1 8 1 9 s. d. 1 (•! » 1 1 ] 31 1 2i 1 01 1 31 1 3i 1 3 1 n 1857 s. d. 1 5i 1 5 1 5 1 5 ] 5 1 5 1 li^o 1 s. d. 1 5,% 1 4t 1 6f 1 6f 1 5 1849 1858 1850 1859 1851 1860 1861 1852 18.53 1862 i 14 1 61 1854 1863 1855 1864 1856 We see, therefore, that while the duty on tea was reduced in Great Britain, between the years 1848 and 1864, to the extent of fifty-five per cent., the aver- age price of tea in bond during the same period exhibited a corresponding in- crease of about fifty per cent. ; and this, too, notwithstanding that (as the report of the commissioners of customs states) heavy importations of tea into Great Britain in J.862 and 1863 overstocked the market, leaving on hand in 1864 a much larger stock than was held in any previous year ; showing that the ad- vance in the price of tea in Great Britain was not owing to any diminution of supply, but rather resulted from a decrease of duty, in spite of a heavy supply. When the intelligence reached China, by telegram, of the last reduction of six- pence per pound in the British duty, the price immediately responded in an^ equivalent advance, owing partly to the more extreme views of the Chinese sell- ers — who are shrewd merchants and sensible of their monopoly — and partly to the increased competition among the English merchants as buyers. There being no material competition among buyers of tea of the green de- scriptions in the Chinese market, except for the American market, an inference that a further increase of duty in the United States (if Congress should deem the same expedient) would fall on the producing country to a considerable ex- tent, is, therefore, fully justified. Owing to the large profits of the trade, it is reasonable also to infer that not an inconsiderable portion of any increase of duty would be borne by the middle-men, whft stand between the importer and con- sumer, rather than by the consumer. The staple tea of Great Britain is Congou, of which there is little or no con- sumption in the United States ; and this, together with " Souchong," (both com- ing under the general denomination of " black,") forms, almost exclusively, the consumption of the British people. On the other hand, no " Congou," and prob- ably not more than 2,000,000 pounds of " Souchong," are used in the United States, whose consumption is mainly of " Oolong," (which is properly a " green" tea,, though classed as black,) "green," and "Japan," (also a green tea, and, until recently, unknown to commerce.) The " Bohea," which was so exten- sively used in the United States thirty or forty years since, is not now imported. 58 EEVENUE SYSTEM OF THE UNITED STATES. Attention should also be called, in this connexion, to the fact that the increase of the per capita consumption of tea in the United States has kept pace with the ^er co/'iVa increase in Great Britain since 1834. Since 1840 the average rates of duty imposed on tea in Great Britain have been as followa : s. d. From 1840 to 1845 2 2J sterling per pound- From 1845 to 1S52 2 2^ In 1853 1 Hi " In 1854 1 6J " In 1855 IS" In 1856 : 19" In 1857 1 5J From 1858 to 1862 15" In 1863 1 li^o " In 1864 -v 10" During the year 1865 the duty was further reduced to sixpence per pound, at which rate it now remains. Tea, with the exception of sugar and tobacco, constitutes the most productive article on the list of British customs. The largest gross receipts from tea in any one year were in 1852, and amounted to d£5,985,484 ; equal to about $29,927,- 420, in a consumption of 54,724,425 pounds, under the duty of 2s. 2^J. In this year the receipts from tea exceeded the receipts from sugar, wines and spirits, or tobacco, and constituted more than one quarter of the entire custom receipts. The gross revenue derived from the duties imposed on tea imported into Great Britain during the five years from 1860 to 1864 inclusive, has been as follows: 1860 665,442,923 or about $27,214,61o 1861 5,522,320 " 27,611,600 1862 5,582,793 " 27,913,965 1863 4,652,822 " 23,264,110 1864 4,431,868 " 22,159,340 The quantity of tea imported and consumed in France, Austria and Belgium is small, and the revenues derived therefrom very inconsiderable. Cost of tea. — By far the largest proportion of the cost of tea to the American consumer is made up of the profits of the jobbers and retailers. When it is considered that the " ship-off" price of good tea is about eighteen taels per pecul, or eighteen cents per pound, and that to be deducted from this is the export duty, two and a half cents, the toll levied at the various mandarin stations on its transit to the shipping port, the expense of packing, as. well as two or three profits before it reaches the hands of the exporting merchant, it will readily be seen that the portion of the price going into the hands of the original pickers and producers must be very sqiall. The average day's wages of those people do not probably exceed ten cents. The cost of staple grades of black (Oolong) tea, which is the staple tea of American commerce, is about thirUj cents gold, laid down in New York, free of duty — that is to say, " in bond ;" this includes all charges, selling commission, freight, insurance, &c. ; all over this price being profit. The profits of the tea trade, after leaving the importer's hands and before reaching the consumer, have been enormous. This statement accounts for the very numerous shops where nothing but tea (and perhaps coffee) is dealt in as a specialty ; and it is probably within the truth to say that of the profit paid by the consumer, probably not more than one-fourth reaches the ori- ginal importer. In proof of this statement the following test was made : REVENUE SYSTEM OF THE UNITED STATES. 59 A pound of OoloDg tea was purchased of each of two different and respecta- ble grocers in New York, on tlie same day, at one dollar and a half ($1 50) per pound. This tea was immediately taken to one of the leading " tea brokers," and valued by him at a market price of ninety (90) cents for one of the sam- ples, and ninety -three (93) cents for the other. The market for tea at this time was very steady, and had been so for some months ; gold was also steady, at 146 a 147, and had not been below ,144 for months, nor had it touched 150 for a like period. The broker's valuation, returned to the commission on the sam"- pies submitted to him, was the price at which the tea would have been sold by the importer. The tea in question cost probably about eighty (80) cents (cur- rency) in New York, laid down, including duty and all charges ; the profits of the importer ranged from ten to thirteen (say 12) cents per pound, while the balance of the cost to the consumer — about fifty -eight cents (or seventy-two per cent, on the cost to the importer) — was taken by whoever stood between the im- porter and consumer. A condition of trade that permits such an iniquitous profit to be made out of the consumer certainly needs reformation. It is im- 'possible to say what profits have been paid by the consumers of tea in remote sections of the Union ; but it is probable that the average of two or three cents per pound will cover the cost of transportation to the remotest sections of the Atlantic and western States. Fifteen cents in gold (five for the importer and ten for the trade) is a liberal profit to be divided between the importer and who- ever may stand between him and the consumer, making forty-five cents for a good tea, suitable for the middling classes, and as good probably as they are in the habit of using, allowing for duty. " Green" teas cost more than " black," but the consumption of the former is giving way to that of Oolong and Japan teas. Rates of duty. — As regards the rate of duty, the commission are inclined to the opinion that the present rate (i. e., twenty-five cents per pound) is the proper revenue standard, and they would recommend that the s,s.va.Qbe neither increased nor diminished. But whatever may be the duties laid upon tea, they should, as now, be made specific and without distinction of quality. The almost infinite varieties of grades and values of tea, and the impossibility of precisely indicating any distinctive and certain lines of demarcation between the several qualities, render the assessment of discriminating or ad valorem, duties extremely difficult, and the attempt to institute such a system, after hav- ing been tried in Great Britain, has been abandoned as impracticable. Specific duties, moreover, discourage the adulteration of teas, and encourage the impor- tatifin of good qualities, thus indirectly benefiting the consumer. Differential duties. — By the present law a differential duty of ten "per cent, ad valorem upon indirect importations of tea (i. e., tea imported from the place of production through other countries) is imposed in addition to the regular duty . The bulk of the indirect importations oitea at present are made via England. All such teas come to the American consumer laden, probably, with the cost of two freights paid to the British carrying trade, one of which, probably, would be an expensive steamer freight.* Such indirect importations also come laden with the expense of landing, stow- ing, taring, fire insurance, &o., &c., with, perhaps, one or more selling commis- sions of two and a half per cent, each, altogether amounting to, perhaps, thirty per cent, on the market value in England.! Every package of tea landed in * Freight by tbe Liverpool steamers is 60s. per ton. Freight to England from China is about $ia, equal in all to more than/oitr cents gold on a pound of tea. t Indirect importations of tea via England are paid for originally by o-pium from British India, or cotton and woollen manufactured goods, or metals, or other merchandise the pro- duce of Great Britain. Teas imported direct are paid for to a great extent by the products of American industry. 60 EE VENUE SYSTEM OF THE UNITED STATES. England is opened, and being thus exposed to the air, absorbs moisture, which increases its weight and deteriorates its quality. The increase in weight on English teas landed in New York is about three per cent. ; the cost of which in- crease falls, of course, upon the consumer, and augments the profit to the Eng- lish merchant in proportion. The New York charges on a sale of tea hy wholesale (exclusive of the du- ties) are abont Jifteen per cent., but they are all paid to our own people, and are, therefore, no loss to the country. It may doubtless be objected, that it is the in- terest of the consumer that there should be no obstacles in the way of indirect importations, if thereby he can get his tea cheaper. It is not probable that he would get his tea any cheaper ; probably the difference between the American market price and the cost of indirect importation laid down in New York would disappear before it (the English tea) reached him, and therefore the indirect importation would not benefit the consumer, whose interest, next to that of the government and the country, is to be consulted. It is of the first importance to the American consumer that he should not unnecessarily pay thirty per cent. of the cost of the tea a.wa,j out of the country ; but it is his interest and the real' 'interest of the country that all of the cost of the tea which is not paid to the producing country should be paid within the United States, thereby hastening the time when the government can abolish the duty altogether, or reduce it to a very low point. If the present differential duty of ten per cent, ad valorem were abolished, it is probable that in a very few years direct importations of tea would cease entirely, and London would become the commercial emporium of this country, so far as regards tea, as it now is of Continental Europe. Even with the present duty, large quantities are now indirectly imported, and the trade is passing out of the hands of the American importers. The following table shows the great increase of the export trade of Great Britain in tea, and the decreased direct import trade of tea to the United States ; Total exports of tea from China and Japan to the United Kingdom and United States. To Great Britain, season 1861-2 107,351,649 Its. To the United States 29,068,746 lbs. " 1862-3 118,692,138 " " " " 21,941,427 " " 1863-4 119,689,238 " " " " 24,204,193 " " " " 1864-5 121,236,870 " " " " 18,093,462 " The superior advantages of the liberal bonded-warehouse system of Great Britain, her large market, her great and commanding resources of capital, neces- sarily place the United States on the defensive, if we desire eminence either as a commercial or manufacturing nation. Advices from New York via London, thence by telegram to Point de Galle, thence by steamer to China, reach China in thirty days, so that the American market could not be short supplied with teas for any length of time, and there- fore circumstances favoring indirect importation could only be of temporary du- ration. The commission, therefore, recommend that the present differential duty often, •per cent, ad valorem he repealed, and in lieu thereof a specific duty often cents per pound on all indirect importations of tea he substituted. With this differential duty the American merchants will be enabled to go into the importing business with some degree of security against loss, if they manage their business properly ; and, by an active, healthy competition with each other, to keep prices at a low point. American importers are now thrown into compe- tition with English merchants under the most unfavorable circumstances. The interest of money in England is only half what it is in the United States, and this IS the great item of cost to the merchant in importing and carrying a stock of tea, so that he can be ready at all times to supply the market. The lea business requires a large capital, and a comparatively high rate of interest is the EEVENUE SYSTEM OP THE UNITED STATES. 61 greatest obstacle with which our merchants have to contend. The heavy stocks of tea constantly on hand in G-reat Britain are against them. During the year 1864 the surplus stock thus held was estimated at upwards of 100,000,000 pounds. Any portion or all of these heavy accumulations may be at any time precipitated upon the American market, to the derangement of all the busi- ness of the American importer, whose transactions, involving a period of at least eight months, are subjected to all this risk, and against which he cannot possibly protect himself. No abatement pf duty in consequence of damage. — It is a provision of the British tariff that " No abatement of duty shall be made on account of damage received by any tea during the voyage ; but it shall be lawful for the importer to Separate the damaged parts, and to abandon the same to the commissioners of the custom^ for the duty." The commission deem it of importance that an analogous provision should be incorporated into the American revenue system, and they would further enlarge the scope of the act for the following reasons : It frequently happens that teas damaged by fire in bonded warehouses, as well as by salt water on the voyage of importation, are sold at auction, and the duties on the same are remitted pro rata, according to the •pro rata deterioration of value ; such teas, however, the commission are informed, are generally made over and pass into consumptiSn, thus taking the place of sound teas, and de- frauding alike both the government and the consumers. This business of re- newing, by various methods, and revending damaged teas, is believed to consti- tute a considerable part of the business of the so-called popular " tea companies" which of late years have been established in most of our large cities. The commission, therefore, recommend that an amendment of the revenue law be enacted to this effect : " That all teas or coffee, damaged by water or otherwise on the voyage, or by fire, water, smoke, or otherwise, while in bonded warehouses, on which duties accruing, or any portion thereof, are remitted, shall be abandoned to the government and forthwith entirely destroyed, under the direction and supervision of the collector of the port." The commission, in conformity with the act authorizing their appointment, submit herewith a form of bill, in accordance with the recommendations made by them in the foregoing report. Respectfully submitted for the commission : DAVID A. WELLS, CJiairman. Hon. Hugh McCnLLOCH, Secretary of the Treasury. 62 REVENUE SYSTEM OF THE UNITED STATES. SPECIAL EEPOET NO. 2. Report of the United States revenue commission on coffee, SfC, as sources of national revenue. Treasury Department, Office of the United States Revenue Commission, January, 1866, Sir : The following table exhibits the quantities and value of coffee imported into the United States, with the rates of duty and the revenue accruing there- from, for the nine fiscal years from June 30, 185C, to June 30, 1864, inclusive: a i . Si ^ "^ u ^ »^is ^ f.,S Year ending June 30. Gross importa- Value. 3:3 ° 3 J3 Duties ac- tion. ^S g 26| 27i 31 32 to 30i to 33 to 35^ to 33i to 33| to 32 to 31 ■ to 28 to 28 to 32i to 33| to 34 cts. cts. cts. cts. cts. cts. cts. cts. cts. cts. cts. cts. 30 1% to 34 ^A cts- 1864. Currency. 33* 36 39 454 43 44 47i to 48+ to 36i 414 43 34 34 37 40 47 44 46 52 50 cts. cts. cts. cts. cts. cts. cts. cts. cts. 37i cts. 43 cts. 44| cts. 40 A^ to 42A\cts. The following table shows the average prices of coffee in New York at the close of the calendar years 1862, 1863, 1864, and 1865 : Java, Eio, per pound. per pound. 1862 33 to 34 .cents currency. 27 to SO J cents currency. 1863 40 to 41 cents currency. 33 to 34| cents currency. 1804 to 50 cents currency. 41|^ to 45| cents currency. 1865 28 to 29 cents gold. 17| to 20 cents gold. The bulk of the coffee consumed in the United States prior to the war ap- pears to have been in the western and southwestern States. The annual requirements of the southern States for consumption were formerly estimated at from thirty to thirty-Jive thousand tons ; while the imports of coffee into the 5 R c 66 REVENUE SYSTEM OF THE UNITED STATES. port of New Orleans prior to 1860 were from three hundred thousand to four hundred and twenty thousand bags per annum. In 1860, the requirements of the various ports of the United States were as follows : Pounds. New York 63, 523, 547 New Orleans - 47, 380, 326 Baltimore 28, 257, 480 Philadelphia : 15, 431, 985. Boston . : 9. 409, 849 Other ports 13, 108, 736 Total .• 177, 1 11, 923 It should also be remarked, that the consumption of the western and south- western States is confined almost exclusively to Brazilian co^ee. In New Englandthe consumption of coffee appears to be diminishing, and the consump- tion of tea increasing. It is also the opinion of the dealers that a larger pro- portion of adulterated cofiees is used in New England than in any other section of the country. In the western States and middle States substitutes for, rather than adulterations of, coffee are used. But notwithstanding the enormous consumption of coffee in the United States, an examination of the whole subject has led the commission to the con- clusion, that even before the war its use wsfe restricted to less than one-half of the population. Thus, assuming the average annual consumption of the coun- try to be two hundred millions of pounds, and the average consumption of each person using coffee to be one-fourth of a pound a week, (a low estimate,) or thirteen (13) pounds per annum, we have, as the number of consumers of coffee, fifteen and one-half millions, or somewhat less than one-half oUhe: entire popu- lation. Estimates, furthermore, made by authorities in New York, restrict the consumption of imported coffee to a much less proportion than the one above indicated. ^ A part of the large decrease in the importation of coffee during the last five years is undoubtedly due to the very general introduction and use of adulterated coffee or substitutes for coffee. The business of preparing such adulterations or substitutes, which for many years has been somewhat extensive, received a great encouragement from the extraordinary advance in the prices of coffee in the years 1863 and 1864. The principal substances made use of are the root of the chiccory, peas, and rye, burnt and ground. Of these, the two former aie undoubtedly wholly innoxious, and by many the addition of chiccory to coffee is considered as effecting a marked improvement in the resulting beverage. Rye-coffee, on the other hand, is reported in some instances to have produced decidedly deleterious effects ; but the truth of such reports may be doubted. It has also come to the knowledge of the commission that a favorite material for adulterating both coffee and pepper in New York and Philadelphia has been stale black bread, the surplus stock of emigrants arriving from Europe, and also condemned ship bread. This refuse material, collected on the arrival of vessels in port, or purchased with eager competition at the auction sales of con- demned naval stores, and burned and crushed, iS said to yield a product so closely resembling ground coffee, in color and weight, as to be exceedingly dif- ficult of detection. Molasses boiled down, and reduced by heat to the state of caramel, ia also largely used as a material for coloring and adulterating coffee and coffee substitutes} the headquarters of this department of the business being apparently in Philadelphia. With the close of the war, and the decline in the price of coffee, the demand REVENUE SYSTEM OF THE UNITED STATES. 67 for adulterated or cheap coffee substitutes is' reported to the commission to have largely decreased ; but that the consumption of these spurious articles will always be considerable, and will, to a certain extent, diminish the revenue derived from imported coffee, cannot be doubted. The bulk of the chiccory used in the United States at present is of foreign growth, and is subjected to a duty of four cents upon the root and five cents upon the ground. The following table shows the quantity, rates of duty, and duties received on the -chiccory imported into the ports of the United States for the fiscal years ending June 30, 1862, 1863, 1864, and 1865, as returned to the commission by the Treasury Department : Tear ending — Imports entered for consumption. Rates of duties. Duties received. June 30, 1862, root, pounds June 30, 1862, ground, pounds 3, 878, 341 3, 190, 845 $38,783 41 .63,816 90 Total 1862 nonnda 7, 069, 186 102, 600 31 June 30, 1863, root, pounds June 30, 1863, ground, pounds 1,785,017 3, 430, 088 37, 500 34 102,902 64 Total 1863 non-nds 5, 215, 105 140,402 98 2 cents 3 cents .... June 30, 1864, root, pounds June 30, 1864, ground, pounds '1,380,955 4,444,391 27,619 10 133,331 73 Total 1 864 Tionndfe _ . 5, 825, 346 160.950 83 4 cents June 30, 1865, root,* pounds .." June 30, 1865, ground, pounds 11,904 1,675,113 356 80 5 cents .--... 83,755 65 1,687,017 84, 112 45 The price of chiccory root (foreign growth) before the war was two and three- eighths cents per pound. The present price, duty paid, (December, 1865,) is nine cents (currency.) The increase of the rate of duty on foreign-grown chiccory since 1861, from one and two cents to Jour anijlve cents per pound, has naturally had its effect to stimulate and encourage the growth of this article in the United States, espe- cially in some of the western States, and the quantity annually produced is re- ported as already very considerable. As the only use which can be made of chiccory is the adulteration of coffee, and as every pound so used diminishes to the same extent the consumption of coffee, and, consequently, the revenue (American chiccory being at present untaxed,) it would seem necessary, in order to make the duty on coffee wholly effectual, that some excise should be imposed,, not only upon the production and use of this home-grown material for adultera- ting coffee, but also upon the preparation and sale of all spurious and adulterated coffee. In Great Britain the preparation and sale of coffee, adulterated other than with chiccory, is forbidden by statute, and the enforcement of the law is made a part of the duty of the officers of the inland revenue. In the United States a measure oif so restrictive a character would not probably be deemed advisable ; but, in legislating on the subject, it should be borne in mind that if there is any class of individuals whose interests the government can afford to disregard, it is * Re-exported 2,984 pounds. 68 REVENUE SYSTEM OF THE UNITED STATES. certainly those whose profits in business are based upon the sale to the public of spurious and adulterated articles in the place of those which are pure and genuine. The commission, therefore, recommend, as an experimental measure, that a license fee of fifty dollars ($50) be required of each and every person cultiva- ting chiccory for sale; and that a license fee of one hundred dollars (#100) be also levied and collected from all persons, firms, or corporations engaged in the preparation or manufacture of adulterated cofiiee, or in the preparation or manufacture of substances other than coffee, to be sold under the name of or as substitutes for coffee. They would also recommend that the existing excise of one Cont per pound on ground coffee be repealed, and that an excise of two cents per pound be im- , posed upon all ground coffee manufactured for sale, aud upon all substances other than coffee, manufactured for sale under the name of or as substitutes for coffee ; and that such excise be collected by means of stamps affixed to the packages in which such preparations are sold. Were excise duties on adulterated coffee, or substitutes for coffee, advanced to a still higher figure, the sale of such spurious- articles would not probably be appreciably restricted, owing to tbe much greater value aud cost of the coffee which they imitate or represent, and to the price of which such adulterations are made to approximate. The imposi- tion of some excise would, however, to some extent, diminish the premium or fraud afforded by the greatly increased cost of coffee. The following table shows the revenue which has been derived from the ex- cise on ground coffee and coffee substitutes for the fiscal years ending June 30, 1863, 1864, and 1865 : Eev. received. (Currency.) Fiscal year ending June 30, 1863, (rate of excise 3 mills) $58, 846 01 30, 1864, " "• 80, 198 81 From June 30, 1864, to March 31, 1865, (rate of excise 3 mills) ) „„, .„. ., From March 31, 1865, to June 30, 1865, ( " 1 cent) ) ' ^°^ ^° The experience of Great Britain, in respect to the use of chiccory ifor the adulteration of coffee, has been as follows : In the original act imposing a duty on foreign-grown chiccory, no reference whatever was made to the home-grown porduct, it being regarded as too incon- siderable in amount to merit attention. The duty on foreign chiccory, however, so rapidly promoted the cultivation of the plant in Great Britain, and to such an extent affected the revenue derived from imported coffee, that, in 1861, an ex- cise, by act of Parliament, was imposed of 8*. 6d. per cwt. on all British chic- cory. This rate was further increased, in 1862, to Us.; in 1863, to ^£1 Is. 9d.\ ■and in 1864, to ^61 4s. 3d., or equal to about five (5) cents per pound (our pres- ent duty;) thereby making nearly a complete equalization as respects the duties on coffee and foreign and home-grown, chiccoiy. This large and rapid increase in the rates imposed on chiccory appears to have little or no effect in restricting its production or consumption. The quantity of domestic chiccory assessed for duty in Great Britain, in 1864, was 1,233,972 pounds, yielding a revenue of about $52,000; while the quantity of foreign chiccory imported was returned for 1864 at 11,151,168 pounds, yielding customs revenue of 66129,104, ($645,520,) as compared with a revenue of ^664,220 ($321,100) in 1863. One effect, however, of the additional duties imposed on domestic chiccory in Great Britain, as reported by the commissioners of inland revenue, has been to cause the adulteration of chiccory itself with cheaper materials— as roasted peas, mustard seed, husks, &c.— and for this fraud the arrest and punishment of per- sons is noticed in the report of the commissioners for 1864. The experience of Great Britain in respect to the duties on the importation REVENUE SYSTEM OP THE UNITED STATES. 69 of coffee is also pertinent to this subject. In 1807 the duty on coffee imported into Great Britain was one shilling and eight pence per pound; and the quantity entered for home consumption amounted to 1,170,000 pounds, yielding a revenue of $806,000, (=£161,245.) In 1808 the duty was reduced from one shilling and eight pence to seven pence; and in 1809 the annual importation for, home con- sumption had increased to upwards of nine millions of pounds, yielding, not- withstanding the reduction of duty, a revenue of $1,229,000, ,(66245,800.) Ten years later, in 1819, the duty having been raised from seven pence to one shil- ling a pound, the quantity entered for home consumption, in 1820, fell to six million eight hundred and sixty-nine thousand (6,869,000) pounds, yielding a revenue of $1,701,000, (6e340,223.) In 1824, the duty on West India coffee being again reduced, the quantity entered for consumption largely increased ; and in 1830, the annual import was returned at twenty-one million eight hun- dred and forty thousand (21,840,000) pounds, producing a net revenue of $2,790,000, (66558,000.) In 1839, the duty on British coffee was still further ^reduced to four and one-fifth pence (or eight and two-fifth cents) per pound ; and in 1847, the consumption was returned at $37,441,000 pounds per annum. At this time the introduction and use of chiccory as a substitute for coffee began to seriously affect the annual importations; so much so that, in 1850, the annual amount returned for consumption was only 31,166,000 pounds. In 1851, the duties on coffee were still further reduced in Great Britain to three pence (six cents) a pound, which rate is still in force. The consumption of coffee, how- ever, in Great Britain, owing, probably to the increased use of chiccory, does not increase even with an increase of population ; the total importations entered for home consumption in 1864 being only 31,591,122 pounds, as compared with 36,983,000 pounds in 1853; while the duty collected from imposts on coffee was 6617,433 less in 1864 than in the preceding year 1863. The importation ; of cocoa into Great Britain also exhibits a similar reduction. It is also interesting to note, in this connexion, the great disparity in the amount of coffee consumed per annum in Great Britain and the United States, the population of the two countries being nearly the same. Thus the present demand for consumption in the former country is about sixteen thousand tons ; and in the latter sixty thousand tons, or an average of ninety thousand tons for the ten years preceding 1861, equal to about 200,000,000 pounds. In order to further aid in estimating the future relation of the article of coffee to the commerce and revenue of the United States, the following data are submitted. The total amount of coffee annually supplied to the world by various coffee- producing countries, from 1856 to 1864, inclusive, is estimated as follows : Tons. Calendar year 1856 301, 680 1857 316,940 1858 314,880 " 1859 ' 326,300 1860 351,570 1861, 339,100 " 1862. 283,810 1863 310,070 " 1864 272,390 Annual average product 313,000 tons, or 701,120,000 pounds, (2,240 pounds to the ton, the custom-house standard.) The average annual production of the various coffee-producing countries during the period above mentioned was as follows : Tons. Brazil 151, 730 Java and Sumatra 61, 370 Ceylon 29, 860 St. Domingo 23, 210 70 EEVENUE SYSTEM OF THE UNITED STATES. Venezuela : Maracaibo .' Laguayra J" 15, 870 Porto Cabello Cuba 5, 670 Porto Eico 5, 780 Jamaica 2, 010 Dutch and French West India islands 1, 000 New Grenada and Guatemala 900 Costa Eica 4, 900 Africa and Arabia 2, 360 Bombay, Madras, and the Malabar coast 5, 000 Singapore and Macassar 1, 970 Manilla 1,370 giving, as above stated, an average yield of the principal producing countries of 313,000 tons for the years 1856-'64, mclusive. * The amount of coffee available for export from all' coffee-producing conntria for the crop-year ending Juoe 30, 1866, is estimated by Mr. H. E. Moring, of New York, -the best recognized authority on this subject in the United States, at 294, 000 tons, distributed as follows : Producing countries. Tons. Per cent. Average lastSyeaig. Brazil 1,900,000 bags atl601bs.. Java and Sumatra 800,000 piculs at 130 Ibfs 135,700 46, 500 37,500 23, 300 22, 000 16, 000 13, 000 46 16 13 8 74 5 44 124,360 56,127 33,687 23,210 22,943 15,553 12,880 Ceylon 750,000 cvfts. atll21bs St. Domingo 400,000 bags atlSOlbs.. Venezuela, New Grenada, and Costa Eica 450.000 bacs at 110 lbs Cuba, Porto Eico, Jamaica, and West India islands . , Manilla, Singapore, ■ Malabar coast, Bombay, Madras, Africa, and 'Ajrabia .... i Total 294, 000 100 288,760 The demand for consumption of coffee in all non-producing countries for the year ending June 30, 1866, is also estimated by the same authority at three hundred thousand tons, distributed as follows : Tons. Percent, German Zoll Verein 66, 000 22 United States* (includ ng the Pacific coast) 60, 000 20 Holland and Belgium , 43, f 00 14J' France 32,000 lo| Austria 24,000 8 Switzerland, Italy, Turkey and Southern Europe 22, 000 7J Prussia, Sweden, and Demark 22, 000 ll Great Britain jg^ 000 5| Australia, Cape of Good Hope, South America, Canada, &c. is] 000 5 Totals 300, 000 100 *The estimated sources of supply to the United States for the fiscal year ending June 30, 1866, are as follows : From Brazil 716,800 bags, a 160 lbs., or 51,200 tons. From Java, Venezuela, St. Domingo, &c., 160,000 bags, a 125 lbs.. 8,900 " Total...; 60,100 " REVENUE SYSTEM OP THE UNITED STATES. 71 Assuming the above estimates to be con-ect, it follows that the total demand for coffee for the present year is likely to exceed the total supply by about six thousand tons. "Few articles," says McOuUoch,, "exhibit such variations, not only of consumption, but also of growth and price, as coffee. These are occa- sioned partially by changes of commercial regulations and duties, and partially also by the circumstance that the coffee-plant requires four or five years before it comes into bearing ; so that the supply is neither suddenly increased when the demand increases, nor diminished when the demand falls off." The cultivation of the coffee-plant is necessarily confined to a narrow tropical belt, beyond which its culture cannot be profitably pursued. Its production in the climates suitable for its growth spems to have been already stimulated to nearly if not its utmost extent. In Java and the East Indies generally the quantity gathered increases very slowly, if at all ; indeed, in some parts of the east, we understand that the cultivation of the plant has in many instances been abandoned for that of the sugar-cane ; the latter being considered as much ' the surest and most profitable crop. At present the only countries which are increasing their annual exports of coffee to any considerable extent are Vene- zuela and the island of Ceylon ; the exports from the latter showing an annual increase of about three thousand tons. In Brazil, the largest by far of all the coffee-producing countries, the amount exported has largely decreased since 1861, and the present prospect of an increase of the crop is not flattering. We submit, in this connexion, the following extract of a recent letter on this subject, submitted to the commission, from one of the leading factors in Rio de Janeiro : '• The manner in which the economy of the coffee plantations of Brazil is con- ducted is as follows : the virgin forest, of which a good deal still belongs to each plantation, is burned down, and the young plantations made upon the rich soil thus gained begin to give a fair yield in the fourth year, and last about twenty years. At the expiration of that period the coffee-trees are too old to yield a crop, and are abandoned. Thus the heaviest work of a Brazilian coffee plantation consists in clearing the forest and in making new plantations to take the place of the old ones which have become exhausted. " In 1848 theres were plenty of laborers in Brazil for all purposes, and the Coffee plantations were in the most prosperous and productive condition. Since then the importation of negroes (slaves) into Brazil has entirely ceased, and the cost of slaves is three or four times as great as it formerly was. The conse- quence is, that the price of labor has also greatly increased, while the mortality of the slaves — who were mostly newly imported and not accustomed to the cli- mate and hard labor — is always excessive. " As, furthermore, it had always been found more advantageous to import male rather than female slaves, the deaths among the black population since 1848 have uniformly been largely in excess of the births. The laboring classes of Brazil, which are mainly slaves, are, therefore, rapidly diminishing in number ; and the lack of a supply of labor began to be sensibly felt by the planters as far back as 1854 and 1855. "The labor at present available is probably sufficient to keep the existing plantations in order, and to gather the crops, but it is beyond a doubt insuffi- cient to perform the work necessary to the formation of the new plantations which are requisite to maintain the present average annual production of coffee. In 1848 a very large number of new plantations were formed, which since then have gradually yielded an abundant crop, while the old ones, also, only grad- ually ceased to be productive, so that the crop really continued to augment until about 1860. Since that period the amount of coffee produced has gradually diminished. This decrease was at first attributed to temporary causes, but is now acknowledged to be due to a lack of a supply of labor. We are, therefore, convinced that the Brazilian crop will not reach for many years so high a figure 72 ■ REVENUE SYSTEM OF THE UNITED STATES. as formerly, and that two millions of bags, equal to 143,000 tons, would'be the outside which could be produced in this province (Eio de Janeiro) in a very abundant crop. The crop of the present year, 1865, will probably not reach this figure, and we are of the opinion that not more than sixteen or seventeen hundred thousand bags will be exported from this port during the next crop- year, 1st July, 1865, to 30lh June, 1866." From the above statements and the accompanying letter, it seems evident that, irrespective of any contingencies pertaining to the present year, the coffee trade has reached a point where the demand for consumption is largely (and for a considerable time is likely to be) in excess of the supply ; and if it be also considered, in this connexion, that the consumption of coffee in Europe has been increasing for the last fifteen years at an average annual rate of over three per cent., and that the average annual rate of increase of consumption in the United States for the ten years prior to 1859 was about two per cent., the conclusion is irresistible that the price of coffee will continue to advance until it has reached a point sufficient to check consumption, and thus equalize the supply and demand for this commodity. By some authorities the opinion is entertained that this check to consumption will not be given until the price of coffee assimi- lates closely to that of tea. How far such an anticipated increase in the price of coffee may effect its consumption in the United States, and consequently the revenue to be derived from its importation, time and experience alone can de- termine. Respectfully submitted for the commission. DAVID A. WELLS, Chairman. Hon. Hugh McOulloch, Secretary of the Treasury. SPECIAL EEPOET No. 3. Report of the United States revenue commission on cotton as a source of na- tional revenue. Treasury Department, Office of the United States Revenue Commission, January, 1866. Str : The consideration of cotton as a source of national revenue, merely, in- volves a discussion on the part of the commission of the following points : 1st. Can a tax be imposed upon the cotton product of the United States, thereby enhancing its cost to the consumer, without detriment to the national interests, present and prospective ; and if so, what rates of taxation are expe- dient ? 2d. Admitting the expediency of imposing a tax on American cotton, in what manner can such tax be best levied and collected ? 3d. Assuming the imposition of the tax, shall a drawback on the export of American manufactured cotton be allowed ; and if so, to what extent, and under what conditions ? 1st. Can a tax be imposed upon the cotton product of the United States, thereby enhancing its cost to the consumer, without detriment to the national interests, present and prospective ; and if so, what rates of taxation are expe- dient ? "^ A discussion of the foregoing proposition would seem to require, on the part of the commission, a statement and review of the cotton production of the United REVENUE SYSTEM OF THE UNITED STATES, 73 States, and its relation to the manufacturing industry of this country and Europe prior to the commencement of the rebellion, in 1861 ; a review of the cotton pro- duct of the world, and the state of the cotton manufacturing industry since that period ; and, finally, an estimate from the above and other data respecting the future. This we propose to give in the order as above stated. Notwithstanding the increase in the successive crops of cotton from 1845 to 1859 and 1860, there was, with some fluctuations, a gradual increase in the price until, and including, the sales of the year 1861 ; and although the crop of 1860 probably amounted to a surplus for the time being, the short crop of 1861 would havg again, in the ordinary coiirse of trade, restored the price to the average level of the preceding five or six years. The following table exhibits the comparative crop of cotton produced in the United States for various years, from 1825 to 1861.* Years. , Bales. Years. Bales. 1825-26 720, 027 957,281 1,038,848 1,360,725 2, 177, 835 1,634,945 2,378,875 2, 394, 503 1,778,651 2,355,257 1851-52 3, 015, 029 1826-'27 1852-'53 3, 262, 882 1830-31 1853-'54 2, 930, 027 1 835-' 36 1854-'55 2, 847, 339 1839-40 1855-56 3, 527, 845 1840-'41 ]856-'57 2,939,519 1842-'43 1857-'58 3, 113, 962 1844-'45 1858-59 3,851,481 1846-'47 1859-60 4, 675, 770 J 850 '51. 1860-61 3, 656, 086 1 The total production for thirty -six years amounted to 71,619,716, and the av- erage yearly crop during that period 1,989,436 bales. The demand for cotton for manufacturing purposes in the United States in 1860 was estimated at about 400,000,000 of pounds. The demand for the manufacturing industry of England for the same year was 2,523,200 bales, of an average weight of about four hundred and thirty pounds each, or 1,083,600,000 pounds. For the continent of Europe the same year the demand for consumption was 713,813,000 pounds, making the total consumption of the United States and Europe, for the year 1860,2,197,400,000 pounds, or about 5,110,000 American bales, of four hundred' and thirty pounds each. The product of American cotton for that same year was 4,675,770 hales. The proportion of American cotton consumed by the manufacturing industry of the world during 1860 was as follows : In England eighty-seven and a half per cent. ; upon the continent of Europe about seventy five per cent. ; and in the United States one hundred per cent. In the same year American cotton com- prised a little less than seven-eighths of the consumption of Europe and the Uni- ted States. Of the remaining eighth, about three-fifths were supplied from the East Indies, and the balance from South America (Brazil) and Egypt. * These crops are given at the actual number of bales, and their commercial weight; not at the estimated census weight of exactly four hundred pounds each. t Average yearly production in the five years from 1825-26 to 1829-30, 850,432 bales; in the ten years from 1830-'31 to 1839-'40, 1,368,000 bales; in the ten years from 1840-'41 to 1849-'50, 2,117,443 bales; in the ten years from 1850-'51, 3,251,312 bales; and in the year 1860-'61 the crop was 3,656,086 bales. 74 REVENUE SYSTEM OF THE UNITED STATES. Tlie following table exMhiU the amount of cotton consumed in the United States from 1847 to 1861, inclusive. Years. Consumed iu the United States. Foreign export and stock on band. Total crop. 1847-'48 Bales. 616, 044 • 642, 485 613,498 485,614 699, 603 803, 725 737,236 706, 412 770. 739 819, 936 595, 562 927, 651 972, 043 843. 740 Bales. 1,731,590 2,086,111 1,483,208 1,869,643 2, 315, 426 2, 459, 157 2,192,791 2, 140, 927 2,757,106 2,119,583 2,518,400 2, 923, 830 3, 69,7, 727 2, 812, 346 Bales. 2,347,634 1848 '49 2,728f596 1849-'50 2,096,706 1850-'51 2,355,257 1851-52 3, 015, 029 1852-'53 3,262,S82 1853-'54 •- 2,930,027 1854-'55 2, 847, 339 1855-56 3,527,845 2,939,519 1856-'57 1857-'58 3,113,962 1858-'59 3,851,481 1859-60 4,669,770 1860-'61 3, 656, 086 Tlie following table exhibits the average price in England of United States upland, Brazil and Pernamhuco, and East India Surat cotton, from 1800 to 1865. Years. 1800 1810 1811 1812 1813 1814 1815 1820 1824 1825 1826 1830 1835 1840 1845 1847 CO d per lb. 26rf. 18i 14 18 25i 30 IH 8* llf 64 6i lOi "2 pqS per lb. 32id, 26 23 29 31* 31 15i Uf 15i lOi 8i 14i 9i 61 7| per lb. Ud. 15i Hi 14 17* 2H 17i 8i 54 5 3 44 Years. 1848 1849 1850 1851 1855 1856 1857 1858 1859 1860 1861 1862 1863 1864 1865 per lb. Aid- 54 7i 5f 54 6 7i 6i 6i 54 74 18 24 27 194 T3 O per lb. 6d. 54 n 74 7 74 84 8i 8| Si 94 17i 24i 28 194 w g - 3 per lb. 3i(2. 54 4 4i,, 4f 44 5*. 12 19 19i 15 The following are the prices of "middling" cotton in New York, in cents: At the close of 1861, 37 to 38J; 1862, 67 to 67A; 1863, 81 to 82 ; 1864, 117 to 120 ; 1865, 51 to 53. The average crop of American cotton for twenty years, to 1860 inclusive, was as follows : From 1841 to 1850, 2,117,443 bales per annum ; from 1851 to 1860, 3,251,312 bales per annum. This large increase, however, was not sufficient to meet the demand, as will be proved by the following comparison of prices in Liverpool. Thus, the average price in Liverpool, from 1841 to 1845, inclusive, was b^^-g pence; from 1846 to 1855, 5iVo pence; from 1856 to 1860, 6f^ REVENUE SYSTEM OP THE UNITED STATES. 75 pence; or, in other words, the excess of the price of cotton in Liverpool, in 1860, over that of 1845, was $9 67^ per bale, equal to over $45,000,000 per annum. This same result also appears from the following tabular statement : • The average price of American cotton in Liverpool, in 1843, '44 and '45, was ^tTO cents; The amount of cotton imported from the United States into Eng- land from 1846 to 1860, inclusive, was as follows : Years. Pounds. Price. Excess of price. Excess of cost. 1846 to 1849... 1850 to 1855... 1856 to 1860... 2, 001, 301, 222 3; 889, 546, 040 4, 336, 100, 534 10 31 cts. 11 62 " 12 60 " 1 06 2 37 a 35 V $21, 213, 792 92, 182, 241 145, 259, 367 Total 10, ,226, 947, 796 258, 655, 400 1 In 1850, according to parliamentary returns, there were in Great Britain 20,858,062 spindles employed upon cotton. In 1860, early in the year, there were 32,460,026 spindles, (increased to over 33,000,000 before the end of the year,) showing an increase in ten years of 11,601,964 spindles, or an average rate of increase of 20,718 spindles per week. In 1850 the average weekly consumption of cotton in Great Britain was as follows : * Bales. American ^ 20, 767 Brazilian 3, 310 Egyptian 1, 542 East Indian 3, 385 AU others 121 Total 29,125 In 1860 the average weekly consumption of cotton in Great Britain was as follows : Bales. American 41,094 Brazilian 2, 164 Egyptian 1, 80 4 East Indian 3, 340 All others •. -■ 121 Total-. 48, 523 On the other hand, in the absence of a supply of American cotton in 1864, Great Britain has been able to obtain from other countries, for her own use, a quantity but little more than the annual increase in her consumption of Ameri- can cotton between 1857 and 1860, when there was a full supply of American cotton. Pounds. In 1860 Great Britain consumed of other sorts than American. . 126, 706, 000 In 1864, under the stimulus of four prices, she only consumed of other sorts than American 491, 147, 470 Difference 364, 441, 470 76 REVENUE SYSTEM OF THE UNITED STATES. From 1857 to 1860, her annual increase in the consumption of American cotton was as follows : Pounds. in 1858 over 1857, about 97, 000, 000 In 1859 over 1858, " 115,000,000 In 1860 over 1859, " 100, 000, 000 In 1860 over 1857, •' 312,000,000 It is thus clear that the entire increase in the consumption of cotton by the new spindles added in England in the ten years from 1850 to 1860, was of American production. The consumption of the United States increased, from 1850 to 1860, about sixty per cent. There was an accumulation of cotton fabrics — due to the excessive supply of cotton— in 1860, in the markets of the world, the effect of which would have appeared in 1861 and 1863, rather than in I860; which might have entailed large losses upon manufacturers but for the war. Since this period the stock of goods in the hands of manufacturers and traders throughout the world has been entirely exhausted. There are no data available to the commission for estimating the supply of American cotton for 1861 and 1862. The mills north of the Potomac were mainly operated, during those two years, upon cotton laid in from the crop of 1860 and 1861. Manufacturers were induced to take this course by the knowl- edge — obtained early in September, 1860 — that the crop known as the crop of 1861 would be a short one ; and many manufacturers purchased enough to last their mills, at full speed, for one year. When the war broke out, by decreasing their consumption, and making lighter fabrics, this heavy supply was made to last for nfearly two years. In 1863, the supply of cotton for the mills of the United States north of the Potomac was about 4,000 bales per week — 3,500 Ameri- can, and 500 Surats ; and in 1864, probably about the same, being only 25 per cent, of the full capacity of the mills. It was then demonstrated that a supply of 4,000 bales per week was the absolute and imperative need of the loyal States ; and when that amount of cotton could not otherwise be obtained, it was imported from Liverpool, and taken from the supply furnished to England by blockade-runners, and East India and other imports. The consumption of cotton in Europe in 1860 was 1,797,400,000 pounds, at an average price of a little over eleven cents a pound, amounting to $205,167,744 ; and of this supply, as has been stated, nearly 87J per cent, was American. The consumption of cotton in Europe in 1864 was 928,896,810 pounds, at an average price of about 44 cents per pound, equal to $412,304,688; and of this less than 8 per cent, was American. These statistics show that the supply of 1864 was about one-half in weight that of 1860, and at about twice the cost. The sources from which the deficiency of American cotton was supplied can be best shown by a comparisoB of the consumption of England for 1860 and 1864: ^ EEVENUE SYSTEM OP THE UNITED STATES. 77 1864. American Brazilian Egyptian West Indian, &c East Indian China and Japan Turkey and Asia Minor Pounds. 956, 894, 000 20, 380, 500 38, 885, 500 1,260,000 66,180,000 Pounds. 70, 049, 340 28, 044, 000 115, 705, 000 9, 276, 000 269,018,820 49, 284, 000 19,819,650 1, 083, 600, 000 561,196,810 It would thus appear to be demonstrated by the above statistics — and the demonstration is confirmed by all the collateral evidence that can be obtained — that while cotton may be grown in various parts of the world, the United States enjoy a practical monopoly of the best cotton lands, coupled with a suffi- cient supply of labor to make a full crop, and while, to produce the large crop of 1860, the United States had under cultivation less than two per cent, of the area of the cotton States, yet, under the stimulus oi four prices, the other parts of the world have, during the war, been unable to fill the gap caused by the cessation of the cultivation of that small part of our territory. The American crop of 1860 was sufficient for the 50,000,000 spindles exist- ing in Europe and America. All other cotton made that year could have been dispensed with. These spindles, with their looms, bleacheries, and print-works, represent, at ten dollars per spindle, a fixed investment of $500,000,000. Upon these spindles the crop of 1860, which, at ten cents a pound, represented a value of about $200,000,000, was raised by the labor of a little less than a mil- lion of operatives, to a value of not less than $500,000,000. The crop of 1860, estimated at six bales to the hand, was raised by the labor of about 800,000 laborers, each of whom represented, in that year, a cash value of $1,200; or, in the aggregate, $960,000,000; about double the capital repre- sented by the mills and machinery employed to spin the product of their labor. With the labor of such of these former chattels, now freemen, as shall remain upon the cotton-fields, supplemented by emigration from the north and from Europe, it is evident that it is within the limits of possibility for the United States soon to regain the control of the cotton market of the world which it en- joyed prior to 1860 ; provided we do not, by excessive taxation, discourage the revival of this industry at the south, and render permanent the rival production which has been partially developed in other countries by the events of the last four years. We come next to the consideration of the question, what tax can be imposed upon American cotton without detriment to the national interests, present and prospective 1 In view of the statements above made, and the. evidence taken, (a copy of which is herewith appended to this report, and to which special attention is re- quested, particularly to the answers to the questions relative to the expediency and the rate of taxation,) the commission would recommend, that from and after July 1, 1866, a tax of five cents per pound be levied and collected upon all cotton raised in the United States. 78 REVENUE SYSTEM OP THE UNITED STATES, If this rate of excise is less than what it has been expected the commission would agree upon, and less than what the present circumstances^ might seem to some persons to warrant, it must be remembered that the cultivation of the crop for the next one or two years will be undertaken at great disadvantages. The fields, overgrown with weeds, have to be cleared ; fences rebuilt ; the_ entire equipment of cotton-gins and farm implements renewed; and a_ revolution ac- complished in the system of labor by which cotton is to be raised _ hereafter. Very large numbers of inexperienced men will undertake its cultivation during the coming season ; many of them must fail to succeed in any event ; and the cost to the cultivators must be far above the natural cost of cotton ; and if, in addition to all the obstacles which are to be overcome, a tax of more than five cents per pound were levied, (which is probably not less than sixty-five per CMit. of what will prove to be the natural cost of cotton in future years ; or, in other words, the cost at which cotton can be raised with results to the cultiva- tor equal to those secured on almost any other product of agriculture,) a rapid increase in the crop, such as is desired and such as is essential to the prosperity of the country, might be impeded, and a stimulus given to the product of other countries which, in the end, would be prejudicial to American interests. On the other hand, it is believed that a tax of five cents a pound may be levied for the present, without seriously itnipeding cultivation in this country, and without giving any appreciable stimulus to cultivation elsewhere. On a crop of three or four million bales of cotton, which we may hope to realize within a few years provided we leave to the cultivators, in the years 1866 and 1867, all the profit we can afiford to spare them as a stimulus for their future exertions, the govern- ment would derive a revenue (at $22 per bale) of about $22,000,000 on every million of bales sold, or of $66,000,000 on a crop of three millions of bales, and $88,000,000 on a crop of four millions of bales, which would be less than the crop of 1859-60. Of this sum, if the consumption of the United States shall reach, in either of these years, the consumption of 1860, the inhabitants of the United States would pay about $21,000,000; and it is believed that there arp few taxes which can be levied which would be so slight a burden to the consumer. The consumption of cotton per head in the United States at the highest point ever attained to, has not exceeded twelve pounds. A tax of five cents per pound would therefore be an average of but sixty cents to each individual per annum. With a crop exceeding three millions of bales per annum, it will probably be found expedient, in view of a possible excess of .production throughout the world over the demand for consumption, (which high prices must limit,) to re- duce a five cent yer pound excise to a lower rate. But in any event, the com- mission believe they have demonstrated the practicability of drawing from cot- ton, without detriment to any American interest, a sufficient annual revenue to allow of the removal of taxation from many other forms and products of in- dustry less able to bear it, and the burden of which falls wholly upon our own people, and at the same time permit of a great reduction in the expense and machinery of our revenue collection. 2d. Admitting now the expediency of imposing a tax on cotton produced within the territory of the United States, the next point for consideration which presents itself is. In what manner can the tax, as above recommended, be best levied and collected ? The commission are of the opinion that it would be in- expedient and difficult to attempt to collect this tax from the producers on the plantations or farms. The majority of the producers would rarely, if ever, have funds on hand at the time of gathering the crop from which to pay the tax ; and, moreover, a tax upon the raw material, collected directly of. the pro- ducer, is more of a burden in its effect upon production than one collected at some more remote point nearer to the consumer. Furthermore, a tax upon cot- ton at the point of its production would, in the opinion of the commission- EE VENUE SYSTEM OF THE UNITED STATES 79 necessitate a large increase of the revenue force in the States where cotton is grown — a measure to be avoided, if possible. It would also, as it seems to the commission, be impossible to protect the government against very considerable evasions of the tax if the attempt were made to collect it of the producers. Again : it is manifestly desirable that the transit or movement of cotton through- out the territory of the United States should be left as free and unimpeded as possible; and the levying of a tax at the point of production, or at the time of its first sale, and making the excise from that time forward a lien upon the cot- ton, would have a tendency to- check this freedom of transit and impede both trade and production. The commission have, therefore, after considerable de- liberation concluded to recommend that the tax upon the cotton consumed, in the United States he levied and collected from the manufacturers, and upon the amount exported to foreign countries from the merchants at the port of export, and that no collector qf customs he allowed to grant a clearance to any vessel with cotton on hoard, hound to a foreign port, until the owner or agent thereof has produced a certificate from, the collector of internal revenue of the district in which the port is situated, that such cotton has heen inspected and weighed, and that the excise tax on the same has heen duly paid. As there are but few ports in the country from which cotton would be exported, and as the 'entire number of establishments working cotton in 1860 was but 915,* of which one- third, probably, consume seven-eighths of the amount used in the country, the commission believe that by this, method the cJDllection of the tax upon cotton will be simplified to the greatest possible extent, the cost of its collection re- duced to the minimum, and the movement of cotton left entirely free and un- trammelled. ' They therefore, in accordance with the law providing for their or- ganization as a commission, report herewith the form of a bill in conformity with the above recommendations. If the levying and the collecting of an export duty on cotton are within the jurisdiction and control of Congress, the commission would not hesitate to recommend the enactment of this measure ; and in any event it seems to them desirable that Congress should not be deprived of so important a privilege in relation to the regulation of our commerce. The precedents in favor of the levying and collecting of export duties, as afforded by the example of other nations, are numerous and worthy of attention. Thus, from British India the following duties on exports are levied : On saltpetre, one rupee (worth 44J cents in gold) per hazar mound, (whicTi the commission understood to be about eighty- two and one-eighth pounds, which is equivalent to a duty of from fifteen to twenty-five- per cent.) On rice, two annas per hazar mound; on linseed, three per cent, on the market value ; on gunny cloth, (used largely for the baling of American cotton,) three per cent.; on gunny bags, three per cent.; on jute, three per cent. ; on cotton, three per cent. ; on shellac, four per cent. ; on castor oil, three per cent. ; and the same rate of duty on cutch, dry ginger, turmeric, twine, stick-lac, and India-rubber. Opium is a complete monopoly of the gov- ernment of British India, and a heavy duty is indirectly exacted on it from all consumers. Holland has also adopted the principle of levying export duties on many of the productions of her colonies. Thus in Java the export duty on coffee shipped to the Netherlands is six per cent., but on coffee shipped to other countries the export, duty is nine per cent. Sugar, the production of the Dutch colonies, pays no export duty when shipped to the Netherlands, but pays three per cent, when sent to other countries. From the production of coffee and sugar in Jas^a, the commission understand that the Dutch government at present real- izes a profit almost sufficient to pay the interest on their national debt — a debt of between four and five hundred million dollars. This large sum is not, how- ■ * 473 in New England ; 281 in tlie middle States ; 19 in the western States ; and 143 in the southern States. 80 REVENUE SYSTEM OF THE UNITED STATES. ever, wholly derived from export duties, but arises, in part, from the system of cultivation of coffee and sugar followed in Java, by which a considerable part of the profits of these crops inures to the benefit of the government. France, at the present time, levies an export duty upon rags so large as practically to prohibit their shipment from that country. China also levies an export duty upon her teas ; Portugal upon her wines ; while Peru pays no small part of her expenses from the export of her guano. If a constitutional amendment is necessary in order to allow Congress to ex- ercise the privilege of laying export duties whenever it may deem the same expedient, the commission, in view of the practice of foreign nations, and the profitable results flowing therefrom, have no hesitation in recommending that such an amendment be passed as soon as practicable. 3d. In regard to the third point of the discussion, namely, the allowance of drawbacks on the export of American manufactured cottons, assuming that an excise duty be levied upon the raw material, the commission would report, that a drawhach on cotton fabrics is absolutely essential, and to the full amount of the tax upon cotton, if we would maintain any exports of cotton fabrics. Our export of cotton cloth formerly amounted to from $7,000,000 to $10,000,000 iji value 'per annum. It consisted mainly of heavy goods, made from No. 14 yams. These goods can now be made in England, in mills which have been built or altered since the war began, for the purpose of spinning India cotton ; and ia such mills heavy goods can be made, with scarcely any disadvantage in produc- tion or cost of labor, from short-staple cottons. Now, if England can make these goods from untaxed cotton, and send them to India and China, they will, of course, drive out American fabrics made from cotton on which either a tax or a duty has been paid. It is the opinion of gentlemen most conversant with this business, who have been consulted by the commission, that the drawback allowance on exported American cotton fabrics should be as many cents per pound on the pound of cloth exported as are assessed in the form of a tax upon the raw cotton enter- ing into the manufacture of such cloth. The loss in manufacturing will be nearly or wholly made up by the sizing of the goods ; and as the practice has exten- sively prevailed of late in Great Britain, and might be rapidly introduced into this country, of '' stuffing" cotton cloth, as it is termed, with various materials, such as starch, silicate of soda, clay, &c., to make it weigh more than the cotton entering into its composition, (a practice which has been carried to such an ex- tent in England as to cause buyers of cotton goods in Manchester, in some cases, to claim a chemical analysis before they accept a given lot of goods,) it is evi- dent that some special provision of the customs must be determined upon, in order to guard against fraud, previous to an allowance of the drawback. It would seem that an oath should be required of the exporter, in all cases, that the cloth upon which a full drawback is claimed does not weigh more than the cotton from which it is made ; and it would also seem advisable that an examination should be made of each parcel of goods exported, with provisions for forfeiture and fine in case of attempted fraud or evasion of the law. As, however, it is necessary, in order to compete with goods of foreign production, that a practice of " stuffing," similar to that adopted abroad, should also be possible here, with regard so certain descriptions of goods, a further provision should be made, allowing goods so man^factured to be exported, with a proportional drawback. The commission have not, however, had time to fully mature a system of regu- lations adapted to meet these various contingencies ; but in case of the adoption of their suggestions, such regulations can be promptly framed by experienced custom-house officials. In addition to this drawback, which is provided as an offset for the tax upon raw cotton, all cotton goods exported from this country should be exempted REVENUE SYSTEM OP THE UNITED STATES, 81 from the payment of all other excise taxes; otherwise, no exjiorta claiming the ur cotton is worth about fifty per cent, more than Surat, of the same grade, and it would bear a moderate tax, say of two or three cents a pound, without interfering with its production, so far as that is affected by the production of other countries. We are nearer to the foreign consumers than other cotton-producing countries, and have the advantage of a cheaper transpor- tation on that account. But if you go beyond that, (I don't undertake to say that you could not go one or two cents more,) you are in danger of discourag- ing the raising of cotton at home ; and my idea would be, that it would be better to have an excise that would not interfere with it as an article of commerce to go abroad. There are some advantages to the manufacturer in having the excise kept at a moderate price; but that is not the only idea I have in mj mind — I should be in favor of a moderate excise tax as best for the country, in all its branches of industry. 75. In case of the imposition of an excise tax on cotton, would you recom- mend a drawback on the export of American manufactured cottons; and if so, to what extent? — By all means; to the full extent of the excise tax, as well as of any other duties that are put upon consumption. The reason is, that other- wise we could not compete with other countries in the manufacture of this pro- duct. 76. What effect would such a drawback have, in your opinion, on American manufacturing industry and commerce 1 — Whenever the price of the raw material is such that it will go abroad, it will be a great stimulus to the exports of the country, and enable us to pay for our importations in articles of our own production, instead of coin. At the present time, the price of cotton is not low enough to induce shipments of any amount to foreign countries. 77. You are of opinion, that in case an excise duty was levied upon the raw material, the excise tax should be remitted on the manufactured goods ex- ported.? — Yes, sir, that is my idea; and with an addition to cover the waste. 78. If such an arrangement was made, do you think we could supplant the 96 REVENUE SYSTEM OF THE UNITED STATES, ■ Englisli manufacturers in foreign markets to any extent?— Yes, sir; I beliero there would be a struggle and competition, but I believe we could do it. . 79. What effect would it have on the industry of the sputh ? — It would havj the effect to stimulate the production of the raw material. It might aid the manufacture there ; if go, that would bo a gain to them. We might go, then, into the finer branches. 80. In case of the imposition of an excise tax or an export duty on cotton, what duty, in your opinion, should be levied on imported manufactured cotton?— I think there should be a sufficient duty, in addition to the ordinary duties, t« cover the taxes we are subject to at home, because that is a special tax. Then are two considerations that come in here. If you levy this tax of ten cents, you wish to give a like protection to the home manufacturer, as a matter of justice, against the foreigner wlio is sending goods here. Another consideratioi is, that you want to stimulate the manufacture, so as to have a large amounl upon which you can assess your tax. 81. Do you think the present tax of six per cent, is too high? — I don't think it is, as the cotton interests stand to-day. I should not venture to speak about other interests. I have been in favor of this tax on cotton manufacture all through, under the idea that it was very simple, that it could be easily imposed— the corporations being all visible, and making their sworn returns — that tlier« was less danger of fraud, and that it could be collected with economy ; and I am inclined to think that the impost derived, from domestic manufactures hai been more economically collected than that obtained from any other source. 82. How would it be in the west, where there are no large corporations as ii Massachusetts, and where they have had little experience in starting them? — It would undoubtedly tend to delay their going into operation. I should not venture to express an opinion except upon my own observation. At the samt time, if there is a demand for the manufacture, with the industryof the countrj as it is likely to be for the next five years, I don't think a moderate tax wonli materially interfere with such enterprises. 83. Would not the tax on sales, affecting cverj'thing sold for exportation, injure you in regard to competing with manufacturers abroad ? — Certainly it would. * 84. Is not the present state of the market one of very unusual profit to tht manufacturer ? — Yes, .sir, very unusual, and not one to be depended upon for any length of time. 85. Have you not sometimes run your mills when the profit did not reacli more than five or six per cent.? — Oh, yes, sir. 86. Suppose a tax of five cents a pound is levied on the raw material, what alteration would you suggest in regard to the excise tax upon the manufactured goods? — Going upon the idea, which is very prevalent, and I believe it to b« correct, that the tax to-day is as heavy as the manufacturer can well bear, (I do not speak of the profit of to-day, but of the average profit,) and looking not only to his interest, but to the interest of the country in the employment of labor, and in making the product which is to be the subject of taxation, I shonU say you should 'reduce the tax upon the manufactured article' just as much as you increase it upon the raw material. For illustration: The internal excisn upon cotton is now two cents, which amounts, on account of the waste, to 2J cents. The tax on sales is six per cent.; equal, if the goods sell for $1 20, to 7 2-lOOths. If you add to that the 2 50-lOOths on the cotton, you make tht whole tax on every pound of cloth made 9 70-lOOth cents. Therefore, if yo« increase the excise tax on cotton to five cents — adding 20 per cent, to that for waste, as before, making it equal to six cents— you should reduce the other tax to 3 70-lOOth cents, to place it upon the same footing. 87. That would be a reduction of the excise on sales of more than fifty p" cent.? — Yes, sir. My own belief is, that 60 cents a pound is as much as rnann- EEYENUE SYSTEM OF THE UNITED STATES. 97 factared goods will sell for, on an average, for the next three years. Taking an average of 70 cents, six per cent, on that would be 4'20-lOOths ; adding the tax upon cotton, 2 50-lOOths, makes 6 70-lOOths. Now, if you put the five per cent, and the two per cent, on the cotton, you have very little left for your manufactured article. Ypu must substantially remove those' taxes ; so that, practically, I think it will come to this, if you are going to lay a heavy tax upon cotton, you will have to take it off of the manufactured article. 88. How far have the United States reason to fear the rivalry of other coun- tries, in case the price of cotton should not fall below twenty-five cents per pound in the seaports of the United States for several years to come? — I should say, generally, that we should have no difficulty, so far as that rivalry is concerned, provided too high a tax be ilot imposed. With cotton at a high price, five cents would be of little consequence, because that high price arises from a short supply of the raw material. ^^ 89. With the price of cotton ranging from twenty-five to forty cents per pound, what amount, in your opinion, will be required to meet the present annual de- mand for consumption in the United States? — I think 600,000 bales, at that range of prices. 90. What was the former consumption? — 750,000 bales, I think, was the largest amount ever actually consumed in twelve months north of the Potomac. 91. Would you not recommend in the tariff a specific duty on the pound of cotton cloth imported, equal to the excise tax, with the waste added, and that that specific duty should be a schedule by itself, clearly understood, and never to be changed except with the tax on cotton? — I think that would be an excel- lent plan. Testimony of Samuel Frothingham, jr. 92. What is your name, residence, and occupation, and what opportunities have you had to acquaint yourself with the subject of cotton? Are you inter- ested in the manufacture of cotton ; and if so, in what capacity ? — My name is Samuel Frothingham, jr. I reside in Boston. I am engaged in the domestic commission business. I have been connected with the cotton manufacture for twenty-five years, as agent ; I have not been directly interested in the cotton manufacture. 93. What is the present condition of the cotton manufacture in this country, (October 5, 1SC5?) — The results are certainly very profitable to the manufac- turer ; have been so for the last three months. 94. How has the business been as regards profit for the last twelve months ? — The result of the business for the six months previous — say from the first of January to the first of July — was disastrous, extremely disastrous, to the cotton manufacturer, many of the large companies making up with a loss of from 50 to $300,0,00 for the six months. 95. Can you give any specific instances of losses sustained by cotton 'corpo- rations during the last twelve months ? — Yes, I can give an instance ot a corpo- ration having 18,000 spindles only, that made up with a loss of $96,000, say from the first of December to the first of June. 96. How much tax did they pay during that time? — I should say $12,000. Another mill, of about the same size, lost $120,000 for the six months. 97. What tax did they pay ?— They must have paid $18,000 tax. Their product was about the same. 98. Are you in favor of an excise tax or an export duty on cotton ? — I am decidedly in favor of an export duty. 99. In default of that, are you in favor of an excise tax ? — Yes ; but the export duty would supersede the necessity for an excise. 7 R c 98 REVENUE SYSTEM OF THE UNITED STATES. 100. To wliat extent, in your opinion, will the manufacturers of Europe be dependent on this country for their supplies of cotton ? — Well, we have never con- sumed over 900,000 bales per annum. Europe will take the excess of our cotton, no matter what it is; because the attempt to grow cotton in India and elsewhere has resulted in failure. Those cottons cannot take the place of our cotton, the staple is so much inferior, and an increased production will reduce the price to such an extent as will enable them to consume everything which we can grow, even if the production should go up to six million bales. 101. To what extent must the price of cotton be reduced to increase the con- sumption to such a point as to enable Europe to take all our excess? — It is difficult to answer that directly. The price of all commodities is regulated by the supply and demand. If there should be an excessive supply of cotton, the price would be reduced to such an extent that the consumption of cloth would be wonderfully encouraged and increased, and it would find its level. 102. At 25 cents n pound, do you think that Europe would take all the surplus in this country, provided it did not exceed four million bales ? — I think it a little doubtful. My impression is, that the consumption in China, Africa, and other large markets, will be reduced, under the excessive price of the manufec- tured article, which must result from the high price of the raw material, as to render it an unprofitable business. 103. In case of the imposition of an excise tax on cotton, would you recom- mend a drawback on the export of American manufactured cottons ? and if so, to what extent ? — I think a measure of that sort, if it was commensurate with the necessities of the case, would do very much to encourage our commerce and re- store the export demand for cloth. 104. Do you think it would increase it beyond any point yet attained?— I don't think it would with the present price of cotton ; prospectively it would. We have been able to hold our own upon the heavy sheetings and drills, which have been the main articles of export, in China and South America, but we have not got up to the finer numbers. In those articles we have been entirely unableto compete with England. 105. To what do you attribute that fact? — The difierence in labor comes in there. In fourteen yarn goods the cost of the raw material preponderates; in the finer numbers the labor is the greater, and we cannot produce them, with our labor, low enough to compete successfully with England. 106. Are the heavy goods manufactured here better than the English ?— Very much — indeed all our cotton goods. It is well known that our goods, which have heretofore been exported, obtain a marked preference over the English article in the markets of China and India. The English, in fact, trouble us greatly there with imitations of our American prints. In Calcutta, the natives have a habit of dashing the clothes upoa the rocks, when washing them, and our goods are found to be the only ones that will stand this rough usage. 107. Will you state to what extent we are succeeding as regards the taste with which our goods are got up ? — I think that in all matters of design and taste, as applied to our manufactures, we have made very rapid advances, and are quite up with the English ; in many respects, up with the French. I think that, in regard to fancy woollens, we are not behind either the English or French. In fact, there is nothing that we cannot make. 108. Are any American fabrics sold under foreign designations? — A great many. At almost all our fashionable tailoring establishments a great manj American woollen goods are sold As French or English. Testimony of Edward S. PJiilbricTc. 109. What is your name, residence, and occupation, and what opportunity ave you had to acijuaint yourself with the subject of cotton ? Are you inter EEVENUE SYSTEM OF THE UNITED STATES. 99 ested in the manitfacture of cotton, and if so, in wliat capacity ? — My name is Edward S. Philbrick; my residence, Brookline, Massachusetts; for the last four years I have been engaged in the cultivation of cotton on the sea-islands, S. G. I went there in 1861, and took charge of three plantations, under the direction of Ed. L. Pierce, special agent of the Treasury Department. These plantations were located on St. Helena island. I took charge of them that year, and got a crop for the government. 110. Will you state what has been your experience in regard to raising cot- ton on those islands ? — In the following spring, the spring of 1862, most of the plantations on those islands were sold by the tax commissioners appointed for that State, and being satisfied that I could produce a much better reswft 'bj' private enterprise than as the agent of the government, I bid in thirteen of tho^ plantations and have cultivated them ever since. 1] 1. Are you cultivating them now ? — Yes ; T sold part of them last winter, but I am cultivating on my own account four of them. ' 112. What labor do you employ? — Nothing but negroes; there is nothing else there. The white population had entirely vacated the island when I went there, and have never been there since, except now and then a straggler. 113. Will you state the crops you have raised ? — The first year, when I was at work as the agent of th^ government, I went on the ground so late in the season, it being the month of March, and nothing having been done previously in preparing for a crop, we were obliged to operate under great disadvantages, and we put in scarcely any cotton. The first thing was to provide food for the negroes ; and, to prevent them from becoming paupers, we urged them to plant sufficient provisions for their own sustenance that year, and as much cotton as they could. We got iu scarcely any cotton ; I think less than one-fourth the area usually planted in former years. The second year I was able to work more energetically, and, beginning in better season, I got in about double the area I did the first year, and I have increased that area since ; but I have not been able, from various reasons, to plant over two-thirds of what used to be planted in cotton, and have been unable to reach the standard of production which I found was usual on those islands in former years. I found in various statistical reports, principally from " De Bow's Eeview," that the sea-islands used to furnish about 130 pounds to the acre, but I have been unable to get more than 100 pounds to the acre in the most favorable season. But I see very good reasons why I have not. I have got full as much as I expected. In the first place, we have lacked experience. I never saw a cotton plant till 1861. When I went there the old white overseers were gone, and we had to rely en- tirely upon what the negroes knew as to the detail of the culture until we could acquire such expeiience as we have been able to during the last two or three years. Then the able-bodied laborers were absent. The most intelligent had been talien kway by their masters when they left the island. Then there were three successive conscriptions during the two or three years, all of them under General Hunter's orders, I believe, whereby most of the able-bodied negroes were euralled and went into the ranks of the United States army. They did not succeed in getting them all, but those whom they did not get into the ranks we were forbidden to employ ; they were outlawed, and obliged to live in the woods, and we were unable to get their assistance. So the labor has been done by the women and children, and such part of the population as were not fit for military service. Then, although the women and children were able to culti- vate and harvest and prepare the cotton for market, we labored under a dis- advantage in being short of manures. The manures could not be gathered and distributed without able-bodied men and live stock. We found the plantations almost destitute of live stock, and what the former owners had left was destroyed by our army in the course of a month ; and being crippled in that way, we could not manure the land as it had been manured before. We found that much more 100 REVENUE SYSTEM OF THE UNITED STATES. attention had been paid there to manures than it is generally supposed is paid to that matter at the south. Their crop was a monopoly, and the area limM, so that it became an object to pay considerable attention to scientific culture. We have never applied more than half the manure which was formerly apphedj and to that fact, and the fact of our inexperience, the short crops are due. We used the salt mud from the creeks for manures. There is a very waxy, fatty mud there, an alluvial deposit, which is just what the light soil ot the island needs. There is no other manure needed, I am satisfied, for the peculiar staple of the island. I have tried stable manures and other animal manures without success. The plant grew to an extraordinary height, as high as the upland cot- ton, and in July and August promised well, but we got no fruit at all. 114. With the ordinary supply of labor and tools and animals, would you have been able to get an average crop per acre ? — I think there is another rea- son, which I could not control, which would have prevented it, and that is, the want of confidence on the part of the negroes in their employers. 115. Have you overcome that ? — ^Not entirely. I don't think we shall during this generation. The negro, when he is first freed, is inclined to run about and see the world, as he has never been able to before. It is human nature; we cannot prevent it. He is less inclined to persistent industry than men who have been brought up to take hold of industry from ^ihoice. The only industry the negro has known anything about has been compulsory, and his first inclination is to spend his time in any other way rather than work in the cotton field. During the first year we had continually to combat that feeling. It waa con- stantly said, " Cotton is no good f jr nigger. Corn good for nigger ; groundnuts good for nigger ; cotton good for massa ; if massa want cotton he may ma^eit himself; cotton do nigger no good; cotton make nigger perish." Now, hy prompt and regular payments for labor done in the cotton field, I am enabled to get considerable work done, but I am unable to apply my own brains, because they persist in following the old shiftless habits of industry. I cannot introduce any new methods at present, where I think I could vastly improve the economy of culture by them. 116. Is there any other labor available there? — I have sent to the Ionian islands to get fifteen Greeks, at an expense of $2,000, and I hope they are pn their way now. I propose to distribute these among fifty times their numher of blacks, to set them an example of industry. 117. What is the largest amount of cotton you have raised in any one year?— The first yeai" of my operations there, 1863, on an area of 814 acres, I raised 200 bales— 72,000 pounds. In 1864, on 906 acres, I got 57,000 pounds. The caterpillar destroyed half my crop, I have planted this year, on my own ac- coant, 410 acres, and they are just beginning to pick it. The caterpillars again ran over all my fields, and destroyed all of the foliage ; there is not a leaf left. 118. Is the crop destroyed? — No; because someof it was fully grown beforethe caterpillar made its appearance. I don't expect this year more than half a crop. 119. What has been the average cost of the cotton you have raised there?— I cannot include the cost of superintendence, because I have shared the profit' with the superintendents. My theory was, at the start, that the men who ex- iled themselves from New England and lived there were entitled to share the profits. But, exclusive of superintendence, it cost me about 40 cents a pound the first year, which was the most favorable year, because wages were low then. Last year it cost me an average of $1 05. I paid about double wages, and did not get a full crop. I think it will cost me about as much this year. The priM now is about a dollar and a quarter a pound. I have to insure it, bale it, and pay the tax there. ' 120. Have you formed any estimate of the probable crop at the south the pres- ent year ? — I have no means of forming any estimate except of the sea-island. for 1 have never stepped on the main land. I have estimated the crop there a' REVENUE SYSTEM OF THE UNITED STATES. 101 2,000 bales ; but since I have heard of the arrival of the caterpillar, I have esti- mated it at 1,500 bales. 121. What was the former crop ? — 8,000 bales. 122. What proportion is cultivated ? — Not over a quarter ; and a great deal is devoted to provisiops ; and then the area that we have in cotton is not so thoroughly cultivated, for lack of manures, as I formerly stated, and for lack of . experienced superintendents. 123. Do you anticipate any immediate increase in the amount of sea-island cot- ton raised? — No ; it must be gradual. The disorganization of labor is very great, and the utter destruction of a great many of the buildings, with the destitution of many of the islands, will prevent the laborers engaging in the culture rapidly. 124. Do you think that under a new system of labor you can raise cotton at less than a dollar a pound t — I can, if the price of provisions is reduced. Sup- posing the caterpillar does not destroy the crop, I think we can approximate the old prices within a year or two if we get back to a specie basis of prices. 125. Are you able to feed the negroes on the old food 1 — They feed them- selves. I do not pay the slightest attention to their food, but make them responsible for feeding themselves entirely, 126. What wages do you pay the negroes ?— I pay them by the job. The job prices are such that a smart, intelligent hand earns from $1 50 to $2 a day, without working over seven or eight hours a day, besides having rent free, fuel from my woods, and rent of land enough to raise provisions for himself and family, and a horse ; they are all buying horses. 127. What portion of the year could white labor be used there 1 — I should think about eight months. I think that white labor can be acclimated if we bring it from similar latitudes in the Old World. It will not need much accli- mating if you bring it from the Mediterranean. Irishmen would not thrive there ; they would get bilious fever and fever and ague immediately. Taking the present disposition of the negroes into consideration, I think they cannot be profitably employed except by the job ;. but when job labor is the method adopted we cannot control their means, cannot introduce new methods, and, in fact, can hardly reach the old standard of efficiency. 128. According to the ideas you have advanced, it would seem that you think that in order to obtain a fuU crop there must be some system of compul- sory labor ? — No ; I think that would be worse yet. I think the negro would not work under a system of compulsory labor. But I think it is not possible to get a crop equal to the former crop duj-ing the next ten years, and I don't know that you can in the next twenty years. Testimony of George C: Richardson. 129. What is your name, residence, and occupation, and what opportunities have you had to acquaint yourself with the subject of cotton ? Are you inter- ested in the manufacture of cotton ; and if so, in what capacity ? — George 0. Richardson ; Boston ; my occupation is that of a commission merchant, cotton and wool, principally cotton. 130. Are you in favor of an excise tax or export duty on cotton for the pur- pose of raising revenue 1 — If it is absolutely necessary to raise a revenue, I should be in favor of it ; otherwise not. On general principles, I should be opposed to it. I think that, as a cotton-growing country, it would be against our interest to have an export duty. 131. Is not the demand for cotton so far in excess of the supply, and likely to be for some years to come, that we could without detriment to American in- dustry impose an export duty ?— We could, without any immediate injury, but it would stimulate the production in other countries. 102 REVENUE SYSTEM OF THE UNITED STATES, 132. How far have the United States reason to fear the rivalry of other eountries, in case the price of cotton should not fall below twenty-five cents per pound in the seaports of the United States for several years to come ? — The result would, in my opinion, be a very large increase in all foreign countries over the present production, if cotton should-not fall below twenty-five cents. 133. What effect would an excise tax on cotton have on wool ? — Cotton being so large an element in the producing interests of the country, an advance on that would be largely diffused over all'the other producing interests, and enhance the price. I must say that I am giving these answers merely on my general every-day experience in business. 134. If a moderate tax or export duty should be imposed on cotton, on whom would it fall — the producer or the consumer ? — It would generally fall upon the consumer. There are peculiar conditions of the market when it would not. If there was a large surplus upon the market, and no regard paid to the cost of the goods, then it would fall upon the manufacturer. 135. Do you think two or three cents a pound would be injurious? — I don't think two or three cents a pound .excise duty on cotton would change the ordi- nary course of trade, but the general results would be as I have stated. If you should put ten cents a pound upon cotton it would interfere materially. 136. What do you say to five cents ? — Five cents would change the course of business somewhat. If cotton should go down to ten cents, the old price, a tax of two or three cents would be very material indeed. October 5, 1865. Testimony of Edward Atkinson. 137. What is your name, residence, and occupation, and what opportunitiea have you had to acquaint yourself with the subject of cotton 1 Are you inter- ested in the manufacture of cotton ; and if so, in what capacity 1 — My name is Edward Atkinson ; I reside in Boston ; have had several years' experience in the management of cotton mills, as treasurer of the corporations ownmg them, and am now interested as treasurer and as a stockholder. 138. What amount of cotton was required in 1860 to meet the demands of the manufacturing industry of the United States and Europe 1 What propop tion of this demand was supplied by the product of the United States]— I should give the consumption of England in 1860 at 2,623,200 balesl of an average of about 430 pounds each, equal to 1,083,600,000 pounds ; of the con- tinent of Europe, 713,800,000 pounds; and the consumption of the United States about 400,000,000 pounds — the amount consumed by the mills in the southern States being about one-eleventh of the consumption of the United States. Of this cotton the proportion of American cotton used in England was 87j per cent., upon the continent about 75 per cent., as nearly as I can ascer- tain—but on this point I am not exact— and of the United States. 100 per cent; American cotton comprised about seven-eighths of the whole consumption of the world in 1860. \ 139. What were the average prices of American and foreign cotton for 1860 at New York and Liverpool ?— I will submit the average price for seven years, from the "Liverpool Journal of Commerce," in pence: 1855 : American, 5|; burat, 3^. 1856: American, 6 ; Surat, 4|. 1857: American, 7i; Surat, 5|. 1858: Amencan, 6^; Surat, 4|. ]859: American, 6i; Surat, 43- 1860: American, 5J; Surat, 4J. 1861 : American, 7|; Surat, 5^. . -^^"^Vt •^^* o ^^ ^^^ average percentage increase of the consumption of cotton m the United States and Europe for the ten years prior to 1860 ? and what for the three years intervening from 1857 to I860?— It is better to give, instead of the percentage, the consumption of England from 1850 to 1864, inclusive, in millions of pounds : 1850, 588; 1861, 658; 1852, 739; 1863, 760; 1854,776; REVENUE SYSTEM OF THE UNITED STATES. 103 1855, 839; 1856, 891; 1851,826; 1858,905; 1859,976; 1860,1,083; 1861, 1,007; 1862, 454; 1863, 573; 1864, 559. The consumption of the United States increased from 1850 to 1860 about sixty per cent. I desire to call atten- tion to the weekly consumption of cotton in England at four different periods : 1850. 1855. 3B60. 1864. American Brazilian Egyptian East Indian West Indies, &o.. China and Japan . 20,767 3,310 1,542 3,385 121 30, 278 2,198 2,359 5,383 185 41,094 2,164 1,804 3,340 121 3,050 3, 000 5,510 14,220 890 4,220 Total . 29, 125 40, 103 48,523 30, 890 By comparing the consumption of each variety in 1850 and 1860, it appears that the increase was practically all upon Amerifcan cotton, and that, after three years of high prices, England only succeeded in obtaining in 1864.a less supply than she had in 1850. The number of bales is greater, but they were smaller bales. The increase in the consumption of cotton, comparing 1860 with 1857, in England, was 257,000,000 pounds, almost all American. The increased supply obtained from other countries than the United States in 1864, compared with 1860, was about 400,000,000 pounds, available for her own use; so that it appears that, with her supply of American cotton reduced from 41,000 bales to 3,000 bales per week, Great Britain has been able to obtain from all the world a supply but little more in quantity than she might have needed to keep up with her increased demand, had she received her full supply of American. 141. Was there any accumulation of cotton cloth in 1860 1 Have the stocks of cotton goods in the hands of traders and consumers in all parts of the world been diminished d^uring the war 1 and if there be any deficiency, what demand for goods may be expected for some years to come ? — There was undoubtedly an accumulation of cotton fabrics made from the excessive supply of cotton in 1860; the effect would have appeared in 1861 and 1862, rather than in 1860. The stocks of goods in the hands of traders throughout the world have been entirely exhausted, I should say. The following figures, showing the actual weight of cloth and yarn exported from Great Britain during the past eight years, will show how bare the world must be of cotton manufactures : 1857, 547,806,000 pounds; 1858, 620,741,000 pounds; 1859, 643,811,000 pounds; 1860, 758,722,000 pounds; 1861, 694,880,000 pounds; 1862, 420,000,000 pounds; 1863, 410,000,000 pounds; 1864, 430,000,000 pounds. In answer to the question, if there is any deficiency, and what demand for goods may be expected for some years to come, I should not be bold enough to make any specific statement. I think there will be a demand in this country for all the goods that can be made by three-quarters of the spindles, if the price of cotton does not advance beyond fifty cents a pound ; and I am inclined to think that there would be a demand for all the goods that could be made by the spindles of this country, at or about fifty cents a pound for cotton, for the reason that we have not since 1860 increased the number of cotton spindles, but have probably decreased them, by fire and by the change of small concerns from cotton to wool. There was no excess of spindles in 1860, with cotton at its old price, and we have increased from three to five millions in population since that time. If you had asked me six months ago whether the present product of cloth could possibly be consumed, from week to week, at present prices, I should have thought it utterly absurd to have conceived such a thing; I should have thought it impossible. 1 42. Upon what do you found your change of opinion 1 — I found my change 104 REVENUE SYSTEM OF THE UNITED STATES. of opinion upon the fact that the production has been increasing as fast as we could get operatives, probably to the extent of three-quarters of the spindles, and that goods are selling upon a basis of a much higher price for cotton than fifty cents. We are undoubtedly filling a gap. Every soldier who comes back from the war wants a supply of shirts ; every one has run bare of cotton cloth- ing. When the extra taxes and the impediments to trade in cotton were re- moved, there seemed to be a conviction go through the country that trade was restored to its normal condition, and that the time had come when every person should buy a little cotton cloth. How far this has created the excessive de- mand, or how long this excessive demand will continue, it is impossible to tell Within a few weeks the number, of spindles in operation has been seriously decreased by the scarcity of water. For the four months up to the first of September I think the consumption of cotton was 10,000 bales a week, on the average, north of the Potomac. This number of bales of cotton was being worked on a larger number of spindles than they used to be, because they were used for finer work, and they gave employment during that period to nearly,, if not quite, three-quarters of the spindles. I would add that the only reason why the production has not increased faster has been the great scarcity of oper- atives, both male and female. I think all the spindles of England could not be employed with cotton at forty to fifty cents a pound in gold, as their markets are very largely among eastern nations, where wages are very low — such as China, India, eastern Europe, and even Germany. I want it clearly under- stood that these opinions are subject to the same doubts that would have existed in my mind four months ago as to the condition of things at the present time. No one can give an opinion that is worth much as regards the future de- mand, or the point at which the price of cotton will diminish the consumption. No person can give an answer that ought to be made the basis of legislation. 143. What effect has the scarcity of cotton had upon the production of linen and woollen goods 1 — The absence of cotton has largely stimulated the manu- facture of linen abroad. I am not very well informed about the woollen busi- ness, but it has seemed to me that the production of woollen goods has not been stimulated to the extent that I should have anticipated. The production of worsted dress goods has been very much stimulated by the absence of cotton.. With regard to flax, I have had advices to this effect, that it was extremely dif&cult to make a contract for flax machinery, on account of the large orders ahead, which had been in the hands of the flax-machinery makeis for a long time. 144. At what rate per pound and per yard are manufactures of cotton- namely, shirting, sheeting, and cloths — now sold in Boston or New York; and at what .rate were they, sold in those cities between 1857 and 1860, prior to tl^e war ? — I think a general answer to this question is better than a detailed answer. I should say, in general terms, that the sales of cotton goods were at four times the average price prevailing from 1857 to 1860. I would like to add that the price of cotton is also four tim^s what it was at that date, and the cost of labor and other supplies for the manufacture of cotton double what it was from 1857 to 1860. I would also say that I consider the present prices excessive, and injurious both to the manufacturer and the consumer, in the long run. 146. Do^ the taxes of six per cent, on sales, the taxes on coal, starch, iron, transportation, and other things connected with the manufacture, increase the cost of the finished product; and if so, to what extent 1 What is the cost of making and delivering from the mill to the consumer a pound of cotton cloth now, and what was it in 1860 ? What has carried the cost of cotton goods to their present height ? Give the items — what wages were paid in 1860 in the cotton manufacture, and what are paid now? — The tax of six per cent, on sales is made a part of the cost of cotton cloth. The price of cotton cloth would not vary to-day, whether the tax were on or off; so that it may be said to be, to-day, so much out of the pocket of the manufacturer. REVENUE SYSTEM OP THE UNITED STATES. 105 146. But that is an exceptional condition of things ? — I consider it an en- tirely exceptional condition of things. 147. Would you put it in the reverse, and say, that if the tax were taken off,. it would he so much additional profit to the manufacturer ? — Yes, sir, for the moment ; but, in the long run, the consumer pays the tax, becaiise it will limit the production of goods. Mills will not be built, and those in opera- tion will be stopped, whenever the tax cannot be included in the cost of goods, except, of course, for a short time. It is better to run a mill for a short time at six per cent, loss than to stop. The tax on coal, starch, iron, transportation, and other things, increases the cost of the finished product to the extent to which the parties who furnish these articles are able to put the tax into the cost of their product. 148. Eft)w much do these taxes increase your six per cent, tax ? — To the full extent of the tax on those articles. It would be to-day about a half a cent per pound on the cost of the cotton cloth. I speak simply of the coal, starch, iron, and transportation entering into the cost of the cloth made on existing machinery, taking No. 30 yarn or medium goods as the standard. If you intended to in- clude in the question the addition to the cost of cloth if made on machinery built to-day, with all the advances on the new machinery, it would be very much more. I understand this question not to include the tax on cotton. During the period of high prices — say for three years out of four of the war — cotton cloth would have paid a loss if made from cotton at the price of the day on which the cloth was sold. The case was a very singular one. The crop of 1860 was excessive. The crop of 1861 was a million bales short. The manu- facturers in New England learned that fact very early, and a very large pro- portion of them took one year's stock of cotton, in the fear of a short supply, not of war. They had it-on hand when the war began! Now, if the mills that T represent had kept the cotton which we had on hand at the beginning of the war up to the average price of the year 1864, and had then sold it, and burned our mills to the ground without insurance, we should have been a great deal richer than we are. It would probably have been to one concern twice and a half the profit, with the mills destroyed, that we did make. The cost of making and delivering to the consumer a pound of cotton cloth now is nearly four times what it was in 1860, with a tendency to a further advance — taking plain cotton cloth, of the average number, as the standard. 149. Will you give the items as to the wages paid now and in 1860 ? — I think that, in giving the advance of wages, the weavers should be separated from the other operatives, because the persons employed in weaving are still, as in 1860, chiefly adult women. In other departments, young persons have been worked in to a larger extent than they were formerly employed, and if you gave the average of the mill, you would not give a fair average of the advance. The wages paid to weavers have more than doubled, with a tendency to still further advance. As to spinners, we work a smaller class of help, and more of them. The same rule — more than double — will apply throughout the mill, if you take a hand of the same age and capacity as in 1860. 150. What amount of cotton was made available for the manufacturing con- sumption of the United States and of Europe in 1863 ? — The supply of cotton for use in the United States in 1863 was at the rate of about 4,000 bales per week, of which I should estimate 3,500 American and 500 Surat. The con- sumption of cotton in Europe in 1863 was 855,900,000 pounds, or an amount equal to about two million bales of American cotton. 151. What amount was made available in 1864?— About 4,000 bales per week in the United States. In Europe, 956,200,000 pounds. 162. From what sources was the cotton thus made available derived ? — The supply of the United States was mainly American cotton. The supply of Eu- rope was mainly from India, Egypt, Turkey, Brazil, China, and Japan. 106 REVENUE SYSTEM OF THE UNITED STATES. 1,53. What has been the respective increase in the supply of foreign cottonj under the stimulus of high prices, from 1860 to 1865, inclusive ?— The consump- tion of cotton in Great Britain, and the prices, have been as follows : In 1860 : Pounds. Price. American, 5£cZ 956,894,000 .£22,925,585 Brazil, 73(^ 20,380,500 ' 668,120- Egyptian, 7M 38,885,500 1,255,677 West Indian, 7i 1,260,000 36,750 East Indian, 4J(Z 66,180,000 1,137,468 Total, 5^d 1, 083, 600, 000 26, 013, 600 On the continent — About 75 per cent. Ameri- can and 25 per cent. East Indian, 5^d . . 713, 800, 000 16, 729, 680 1,797,400,000 42,743,280 In bales of 400 lbs., and £ at .f 4 80 . . . In 1864 : American, 27^d Brazil, 28d Egyptian, 27^d Turkey, &c., 20|(^ West Indian, &c., 27d East Indian, IQ^d China and Japan, IT^d Total, 22 7-16d , On the continent, 21 5-16d In bales of 400 lbs. each, and ^6 at $4 80 . . 2, 322, 242 $412, 304, 688 It will be observed that the supply of 1864 was about one-half that of 1860, and at about twice the cost. 154. What advantages, if any, do the United States enjoy over other coun- tries for the production of cotton, in respect to soil, climate, seasons, or position, as compared with India, Egypt, China, Japan, Algiers, and other cotton-grow- ing countries ? — I should say the advantages of the United States are in the climate produced by the Alleghany mountains and the Gulf Stream — the sea breeze bringing in the moisture of the Gjilf Stream, which condensing upon the mountains falls in frequent showers, with seldom heavy storms — and incur fer- tile soil. Also, the prevalence of frost at the right season, killing off many of the bugs which would otherwise infest the cotton, and clearing the ground, It is a common mistake to suppose that a perennial cotton would be an advantage. As far as I know, perennial cotton in tropical countries deteriorates from year to year. The annual plant is the best plant for production, and yields the best staple. Our cotton .plant is annual in our country, but perennial in a tropical country. The disadvantage of India is in a climate and soil not adapted to the best staple. India may change the quality of the cotton by taking better care in picking and in cleaning : I don't think that India can compete by raising a staple equal to the American. 155. Is the plant in India perennial ? — It may be perennial ; it is not so culti- vated. Egypt produces a better cotton than this country, and could produce a 4, 493, 500 $205, 167, 744 Pounds. Price. 70, 049, 340 £8, 026, 486 28, 044, 000 3, 271, 800 115, 705, 000 13, 257, 864 19,819,650 , 1, 692, 928 9, 276, 000 1, 043, 550 269, 018, 820 21, 577, 551 49, 284, 000 3, 592, 625 561,196,810 52, 462, 804 367, 700, 000 32, 652, 526 928, 896, 810 85,896,810, REVENUE SYSTEM OF THE UNITED STATES. 107 large quantity on the land existing ; but the fact that, in carrying the production of cotton up to 300,000 bales, they have been obliged to become importers of food, shows the scarcity of labor, and the present limit of Egypt. 156. Does not the importation of food into Egypt this year arise from the fact of a short crop? — There is a short crop of food this year, from the murrain among cattle ; but the very fact that a simple murrain among cattle has decreased the food supplies of this country to such an extent as to render its importation necessary, shows how great is the scarcity of labor. Egypt was formerly a great exporter of breadstuffs. China and Japan cotton will not be used to any extent in the face of a moderate crop of American. In South America, coffee and sugar are better crops than cotton at twelve pence a pound. The only climate and soil that would compete with us, as far as I can find out, are upon the Paraguay and Parana rivers, and any attempts at large cultivation there are hopeless for years to come. 157. Has cotton of any amount come from there ? — It does not come from there. 158. How far have the United States reason to fear the rivalry of those couu- tries, in case the price of cotton should not fall below twenty-five cents per pound in the seaports of the United States for several years to come ? — I think, with cotton at twenty-five cents a pound, there would be no increase from other countries that would not be required by the natural consumption of cotton cloth in those countries. It would be chiefly from India; and India, with cotton at that price, would consume a great deal more than she ever has done. 159. At present prices, what proportion of this demand can be supplied by other than American cotton ? — At present prices, the demand will exist for American cotton. The price to-day is fifty cents a pound for middling, in New York. At that price there would be a large increase in production all over the world. It would displace many other products that could not compete at twenty-five cents a pound. If the supply of American cotton were two million bales next year, I think it would be taken at thirty to fifty cents a pound, and all the cotton that could be raised elsewhere in the next year would also be taken. Given two million bales of American cotton from crop of 1865, I think it would be taken at or near forty cents a pound — three-fifths by foreign countries, two- fifths by this country ; and that in the year 1866 other countries would give a million and a half of bales, of 400 pounds each, equal to six hundred million pounds. But that question is very difficult to answer intelligently. I should say that any answer is so problematical that it should not be made a basis of legislation. 160. How do foreign cottons compare with American, as regards quality and economy in manufacture ? — The Egyptian and Brazilian cotton is better than New Orleans or Texas. It requires some slight alteration of the machinery to use it. The quantity has not been large enough to cause those alterations to be extensively made; consequently, the price of those cottons falls below that of' New Orleans and Texas. That is the case now. But with a permanent supply equal to the present supply, mills would be altered, and would t^ke that cotton at from one to two pence per pound — possibly three pence — above the price of New Orleans and Texas cotton. The Turkish and Smyrna cottons are rough and coarse, good only for coarse work, at a serious disadvantage with American in economy and quality. Japan and China cotton, as I have said before, will disappear from the European market in the face of a moderate supply of Ameri- can cotton, as they are new doing. I come now to the India cotton, which, next to the American, is the largest supply. One-half or two-thirds of the East India cotton can be made into yarns and cloths, ranging from No. 14 to No. 20, and man- ufactured into the heavy goods which formerly composed our exports, in mills such as have been built, to a large extent, in England for the purpose of using them, at very little, if any, disadvantage in point of labor, and at very little disadvantage 108 REVENUE SYSTEM OP THE UNITED STATES. in point of product ; and if England should be allowed to produce Nos. 14 to 20 yarns from untaxed India, cotton, and we were allowed no drawback on a simi- lar class of goods made in this country, the export of those cotton goods \yould entirely cease from this country. The English goods would be, if not quite as good in quality, sufSciently near for all practical purposes, and the product of the mill would be very nearly the same. When you get up to from Nos. 20 to 3Q yarns, (the average product of this country being 24,) India cottons are at a dis- advantage, in the fact thft they require much more labor on the part of tha ope- ratives ; and, given a scarcity of labor, operatives will quit a mill working the Surats or Indias and go to a mill working the Americans. The product of a given mill, working on Surats, would be 20 per cent, less in quantity than the product of a mill working on Americans, on 20 to 30 yarn. They would still be worked to a large extent, both in England and this country, given a full supply of ope- ratives. I now come to the point. India cottons, imported into England, have been exported to the continent, up to 1860, to th.e extent of nearly one-half, and sometimes more than one-half of the whole importation into England. They have gone to Germany, where there is a very large supply of cheap labor, and where the product of the mills is a coarse product ; and I want to draw attention to the fact that the exports of Eugland, consisting mainly of these short staple cottons, have kept up in 1861, '62, '63, and '64, to double the average of the years 1850 , to 1854, and that the supply which has been exported from England must have given to continental spindles much nearer full work than the spindles of Eng- land were enjoying. If you go beyond No. 30 yarns — and I believe the majority of English spinning is nearer No. 40 — India cottons are not available, except at a very great disadvantage. Again : if England had a market for heavy goods to the extent of the production of her spindles, the requirement in pounds of cotton to meet that demand, on those same spindles adapted to coarse work, would be three and possibly four times the requirement for No. 40's. Conse- quently, the supply of India cotton is a full supply for a small part of the spin- dles of England, half a supply for the spindlps of Europe, and, up to this time, a very small percentage for this country, during the war. I dwell on this, be- cause India is the chief source, outside of this country. 161. At this point, will you state what you mean when you speak of "yarns?"— No. 40 yam is 40 skeins of 840 yards each to the pound; No. 20 yarn is 20 skeins of 840 yards each to the pound. 162. If middling cottons should average from twenty-two to twenty-eight cents in New York, from September, 1866, to September, 1868, ^nd be in fair supply, what increase of importation, if any, should you anticipate from Japan, China, Egypt, and Brazil, into Europe, as compared with the importations from those countries in 1864? — With middling cottons at from twenty-two to twenty-eight cents in New York, I should anticipate a falling off, amounting almost to a stop- page of the Japan and China cotton ; very little increase, if any, from Egypt and Brazil; a moderate increase from India. I think Bombay cotton willip- crease at above five pence a pound in Liverpool, but increase slowly. 163. ^0 that, with the price at from twenty-two to twenty-eight cents per pound, the world would look to the United States for its principal source of supply? — Yea. , 164. What were prices of upland cotton, of middling quality, at Liverpool, in July, 1860, 1863, 1864, in May, 1865, and July, 1865? If there was any de- cline in May last, to what was it due?— July ,.1860, Id; 1SG3, 2l^d; 1864, 31|(ii May, 1865, U^d; July, 1865, 19^^?. The principal decline dated earlier that May. I should attribute it to the end of the rebellion, with the prevailing erro- neous impression throughout the north, and in England, as to the stock of old cotton to come out from the south, in which I, if not as much mistaken as any- body else, was very much mistaken. 166. Are you in favor of an export duty on cotton, supposing all constitutional restrictions to be removed? — I am opposed to all export duties, as such, as justly REVENUE SYSTEM OF THE UNITED STATES. 109 leading, iu the long run, to sectional jealousy. I consider tlie reasons for which export duties were prohibited in the Constitution to have been well founded. 166. In default of an export duty, are you in favor of an excise tax on cot- ton 1 — I am in favor of an excise tax upon cotton, provided it be coupled with a draw.back on cotton manufactures, and also provided it be a part of a system by which the industry of the country shall be relieved from the tax on the finished product; but, in my opinion, such tax should not exceed three cents per pound. 167. What discrimination would you make in the excise as regards cotton of different qualities ? — I would make no discrimination. Cotton should be defined as "green-seed" and "black-seed," the black-seed cotton being the sea-island variety. As there are different qualities of the green-seed, or upland cotton, you want to encourage the production of the best quality, and therefore should make no discrimination against that. The production of the black-seed cotton is so small, the revenue derived from an extra tax upon it would be so trifling, and its culti- vation is attended with so much risk, in consequence of the unhealthiness of the climate of the sea-islands, that it would not be worth while to make a dis- crimination against that. Again, there were in 1860 certain, varieties of the black-seed cotton from Mexico, introduced upon the uplands, which produced a cotton about equal to Egyptian or Brazilian ; and they are still in existence, for I have simples of that description in my office, which have been sent here for valuation. It is a little better than the best New Orleans or Texas, and fills a gap in the production of this country which we need to have filled. Now, if you discriminate by a higher tax upon sea-island co^tton, it will be necessary to define what sea-island cotton is. If it is simply the cotton raised on the sea- islands, then that variety will be raised on the coast of Texas, and driven out of the sea-islands. If it is defined as the black-seed cotton, you check the intro- duction of this new variety, which is but little better than the New Orleans or Texas, and yet enough better to make it very desirable that it should be intro- duced. I should, therefore, make the excise tax imiform. 168. Why should you put the tax upon the raw material, rather than upon the manufactured article? — I think it would teiid less to retard the development of the industry of the country. The tax of five or six per cent, upon the finished product is a very heavy burden, which will prevent the expansion of the cotton manufacture. At the present time it is equal to between eight and ten cents per pound on cloth. A tax of three to five cents per pound collected on the raw material both of this country and of foreign countries, I think would not operate as a check to the extension of the cotton-manufacturiug industry. 169. If a moderate tax or export duty should be imposed on cotton, on whom would it fall — the producer or the consumer? — Eventually upon the consumer. But inasmuch as the average consumption of cotton per head of population during the year of the largest manufacture was not over twelve pounds, a tax of a few cents per pound upon that cotton is no burden whatever upon the people. I think it will come out of the consumer, but it is so trifling per head that it amounts to nothing as a burden. The same rule applies here as to other dry goods. While the supply of cotton is short, whether the tax be on or off will make no difference in the market value. A short supply will cause cotton to go to the highest point the market for goods will allow. At such times, a tax will be so much out of the profits of the producer ; but while that state of things continues, the profits of the producer will be so great that he will have no valid reason to object to a small .tax. , 170. If we tax the raw' material, and allow a drawback on the manufactured goods when exported, and the tax on the raw material is not so great but that we can compete in the production of cotton with other nations, is not the tax upon the raw material exported a levy upon the labor and capital of other countries, while the tax upon the manufactured article at home operates merely as a means of raising revenue ; and there being a tariff which corresponds in 110 REVENUE SYSTEM OF THE UNITED STATES. amount to the excise duty upon the manufactured goods, is it not wise to maintain a system of taxation, at the proper rate, upon both the raw material and the manufactures? — I speak not as a manufacturer in answer to that; I suppose for the present we could bear both ; but I think if you tax both the raw mate- rial and the finished manufacture, you put a serious check upon the further development of manufacturing industry. That would be an injury to the country. It must be borne, if it is not to be avoided. I hoped that^the system oi ad valorem taxes on finished manufactures might possiblybe given up, in favor of what is known as the English or concrete system, making cotton a part of that English or concrete system. I think that is much less of a burden upon the industry of the country. 171. Have you any suggestions to make in regard to the manner of collect- ing an excise duty on cotton? — I have, sir. I think it should be collected at the ports of export upon all foreign shipments, and of the factories upon thehome supply, as a simple and easy method of collecting it. I think it will be impos- sible for the planters or cultivators to pay the tax. The system of cultivation is probably to change from large plantations to small freeholds. The small freeholders will not have money in hand to pay the tax when the crop is ready for market. There w;ere in this country in 1860, all told, 915 establishments for the manufacture of cotton fabrics, of which 472 were in the New England States, 281 in the middle States, 19 in the western States, and 143 in the southern States. The factories in the southern States have diminished since that time, and the number of concerns in the north has decreased, by the change of many small concerns to woollen factories. I should say that of those 915 factories 300 probably use seven-eighths of all the cotton manufactured. It would, therefore, seem to me the most simple method to collect the tax of the merchants on cotton exported, and of the manufacturers on home consumption. 172. By this means homespun would escape taxation ? — I would put in such clauses as would make it a little dangerous to manufacture at home without paying a tax, but I should not expect to collect much from it. In other words, I would not have any extra assessors for the purpose of collecting it, but I would allow the several assessors of the southern districts to collect it if they could. 173. In case of an imposition of an excise tax on cotton, would you recom- mend a drawback on the export of American manufactured cottons ; and if so, to what extent 1 — I think it is essential, and for the reason given. The exports of this couiatry, when they existed to the extent of about ten millions annually, I believe, were mainly of No. 14 sheetings and drills — coarse goods, generally; and those goods can be made in England of Surat cotton, without disadvantage as to amount of product or cost of labor. If there is no drawback upon American manufactured cotton, the export of coarse goods will cease utterly, and English goods, made from India cotton, will take their place. I want a drawback, be- cause it is probable that we shall import India cotton to manufacture into coarse goods for exportation. A drawback on cotton fabrics is absolutely essential, and to the full amount of the tax on cotton, if we would maintain any export of cotton fabrics. Our export of cotton cloth formerly amounted to from $7,000,000 to $10,000,000 per annum. It consisted mainly of heavy goods made from No. 14 yarn. These goods can now be made in EnglaifS, in mills which have been built or altered since the war for the purpose of spinning India cotton, and in such mills heavy goods can be made with scarcely any disadvantage in production or cost of labor from short-stapled cotton. Now, if England can make these goods from untaxed cotton, and send them to India and China, they can of course drive out our goods made from cotton on which either a tax or a duty has been paid. The drawback should be as many cents per pound, on the pound of cotton cloth exported, as are assessed as the tax upon raw cotton. The loss in manufacture from waste will be partly or wholly made up in the REVENUE SYSTEM OF THE UNITED STATES. Ill sizing ; and, as it is possible so to stuff cotton cloth with starch, clay, &c., as to make the cloth weigh more than the cotton, as the English do on nearly all their goods exported, an oath must be required from the exporter that the cloth pro- posed to be exported does not weigh more than the cotton from which it was made. A custom-house examination will also be required, and the penalty 'for attempting to evade this provision should be a forfeiture of the goods. Provision should, how- ever, be made to allow those who wish to export goods which are stuffed with foreign substances, to claim the drawback on the actual weight of the cotton in the goods. 174. What effect would such a drawback have, in yout, opinion, on Amer- ican maniifacturing industry and commerce ? — It would undoubtedly have a beneficial effect on American industry. 175. Would it enable us to supplant English goods in foreign markets 1 — As I have said, it would enable us to supplant English heavy goods, as we have done before, to a large extent, in China and in India. We shall not supplant English fine goods until we have learned to put in a great deal of material other than cotton. 176. Would drawback upon manufactured goods tend to stimulate the production of yarns in the southern States ? — It would. ' 177. In the manufacture of cotton, what proportion of the manual labor is expended on weaving, and what proportion on the yarns 1 — There is much less labor on carding and spinning, and much less intelligent labor, than is required for weaving and finishing. 178. And that would all be in favor of the manufacturer of coarse yarns at the south, and would, to a certain extent, compensate for the want of a dense popu- lation ? — Yes, sir. 179. Should you think that one-third of what is considered the ordinary la- bor devoted to cotton manufacture fell on the yarns ?; — I should think just about a third of the number of hands were employed in carding and spinning, and those the inferior hands, and two-thirds on the dressing and weaving. It requires skilled labor to produce yarns, but skilled labor of a very low grade. 180. In case of the imposition of an excise tax or an export duty on cotton, what duty, in your opinion, should be levied on imported maniriactured cotton 1 — I should levy an import duty on the pound of cotton cloth, in a separate schedule from all other duties, of SJ cents, if the tax on cotton is two cents ; or 3|, if the tax is three cents, (or 3^, if it is worth while to split the fractions ;) if five cents, it should be not less than 6^ cents. I would have that in a separate schedule, levied^ pn the pound of cotton cloth or yarn imported, and have it clearly and distinctly understood that the one is not to be changed except the other is changed, and that it is a necessity to put the American manufacturer on an equality with the foreign manufacturer. T^e addition or fraction is to compensate for the waste ; and by putting on the addition you make it incumbent on the foreign manufacturer to send cotton goods and not " starch " goods to this country. He will not pay the duty on the poor stuff; he will on the good. This should be in addition to any other duty. What the other duty should be, I leave to the general policy adopted in framing a tariff. . 181. Should there be any duty on foreign cotton?. — The duty on foreign cot- ton should be the same as the tax on American cotton. 1 cannot see any doubt about that. ' 182. Will an excise tax tend to sustain the prices of cotton, and what effect will it have on the price of wool ? What was the product of the United States in 1860 in bales, and in millions of pounds, and at what rate could it then be raised ? Were there any fertilizers or improved mechanism used in its produc- tion, and can they be used to advantage ? — At present an excise tax would not have much effect on the price of wool. The high price of cotton has not yet had such an effect on the price of wool as I should have supposed it would. On 112 REVENUE SYSTEM OF THE UNITED STATES. the other hand, the increase of the production of wool will hy-and-bj afford so large a supply as to affect the price of cotton. If cotton should remain at 50 cents a pound, it would then probably seriously interfere with its consumption. Fertilizers were very much used for a few years previous to 1860, and in 1860 upon the worn-out lands of North Carolina, South Carolina, and Georgia ; that is to say, guano. It brought the worn-out lands up to the standard of the full product of fresh lands. It produced, perhaps^ a coarser, but a very strong, good staple cotton, so that the North Carolina guano-grown cotton came to be known in our market as a specific article, useful for its strength and good fibre. 183. It produced' an effect upon the cotton, then? — Undoubtedly. I don't know how much. I can't say, as Mr. Derby did, that a pound of guano pro- duced a pound of cotton, but I think very probably. There were undoubtedly very many improved tools used in connexion with the cultivation of cotton during the last ten years. _ The crop per hand/increased faster than the culti- vators, as shown by the census. But improved methods in the cultivation of cotton cannot carry the product beyond the capacity of those who pick it. Ton can cultivate much more cotton per hand than that hand, with his family, can pick — probably three times as much. I suppose ten acres each is the limit of the picking capacity of a man and his wife, counted as two laborers, with the average number of children to aid them. That is to say, a family of the ordinary- size, consisting of a man and his wife and three or four children, who can go into the field at the picking season, can get off the crop of twenty acres, perhaps more, on strong bottom land. 184. Suppose the crop had been only a hundred pounds on the worn-out lands, and, by the use of fertilizers, was increased to two hundred or three hundred; could the same force pick the increased crop ? — I think they could pick it, because they would get more cotton from each boll and each manipulation and do no more travelling. Then an improvement in mechanism, which was a very important one, was made in the cotton-gin, by which they were enabled to pick boll and all, when the crop was in danger from heavy frosts, and put it through the gin, producing ordinary and inferior cotton, but yet saving so much more than formerly that it compensated for the depreciation of quality. I think thatim-, provement increased materially the picking capacity of each hand during the latter end of the season. 185. How long before the war was that improvement introduced ? — I don't know exactly — a few years. It was getting into general use in the southwest. When you have succeeded in inventing a picking machine, you can then in- crease the product very largely. 186. Have you or your associates taken any measures to ascertain the amount of cotton in the United States on the 1st of September, 1864, remaining from the crops of previous years, and the amount of the crop of 1865 ? State these amounts respectively. At what amount do you esti&ate the crops of cotton of 1866, 1867, and 186^, respectively, in the United States? — I have taken no measures to ascertain the amount of cotton on hand the 1st of September, 1864, I have taken measures to ascertain the quantity of cotton on hand at the date of the collapse of the rebellion; and one measure has been for an association of factories to send out an agent to travel through the south, going to the interior as well as to the great depots. From all the information I can gain, I douhtif there is more than 1,250,000 bales old cotton delivered after the date of the end of the rebellion. As to the crop of 1865, much more was planted than will be picked. It is impossible to tell what will be picked. I don't believe it will exceed 350,000 bales, and it is much more likely to be 250,000. As regards the crop of 1866, I would say that, under the stimulus of high prices, and the probability that the great profit will induce southern whites to make a crop npoB small, farms mainly by their own labor, I think a crop of 2,500,000 bales is pos- sible, if there is seed enough in the country to plant it. REVENUE SYSTEM OF THE UNITED STATES. 113 The power of King Cotton was in the control of the soil from which the cotton was produced. How vast the power, and how easily controlled by the few planters who owned the soil, maybe realized from the followin gstatement: America produced, in 18C0, 5,000,000 bales of cotton, enough to supply all the spindles of Europe and America ; in that year all other cotton could have been spared. These 5,000,000 bales of cotton gave employment to 33,000,000 spindles in England, 12,000,000 on the continent, and 5,000,000 in America. These spindles, with their looms, bleacheries, and print works, represented a fixed capital of $500,000,000. Upon these spindles the cotton, which, at ten cents per pound, represented a value of $200,000,000, was raised by the labor of a little less than 1,000,000 operatives to a value of not less than $500,000,000, These 5,000,000 bales of cotton represented, at a little over six bales to the hand, the labor of 800,000 human chattels, each of whom represented a cash value of $1,200, or, in the aggregate, $960,000,000, double the capital repre- sented by the mills and machinery. And on what basis rested this immense structure of labor, capital, and machinery 1 On a little patch of southern cotton land, which, if aggregated, would be only as large as Massachusetts and Rhode Island combined, only 1§ per cent, of the area of the cotton States; and which, if washed out by the Mississippi river into the Gulf, would hardly be missed after nine days' wonder. And this is the power which the war has transferred from slavery to freedom ! Testimony/ of Samuel R. Pay son, selling agent of the Manchester Print Worlcs 187. On whom do you think a tax on cotton would fall, the producer or consumer? — The consumer, eventually. 1 88. Do you confirm Mr. Atkinson's views, that at the present the tax is so much out of the manufacturers' pockets, to all intents and purposes? — Yes, I should say so. I should say that it made no difi'erence in the price to-day whether it was taxed or not ; the demand is in excess of the supply. 189. Do you confirm Mr. Atkinson's statement that the cotton manufacturers would not have stimulated the price of cotton goods, to the present point if they could have avoided it ? — I should not, as a manufacturer. I think it is a mistake. It is an injury to the manufacturing interests that cotton goods have been so high the last few months. 190. Will you explain how? — I think it creates a prejudice among the people against the manufacturing interests, particularly at the west. They say we are making all the money here at the east, and making more than belongs to us. As an illustration of the extreme variation in prices, I will say that we had some goods in the month of April that we sold at New York for about fifteen cents a yard, which have since been sold at forty-five cents a yard. The goods we are selling to-day at thirty cents a yard we were glad once, before the war, to sell for six and a quarter cents. If cotton for the last sixty days had been only fifteen cents a pound, I imagine goods would have brought about the same price. Testimony of Samuel Batchelder. 191. What is your name, residence, and occupation, and what opportunities have you had to acquaint yourself with the subject of cotton ? Are you inter- ested in the manufacture of cotton ; and if so, in what capacity ? — My name is Samuel Batchelder; I am over eighty years of age, and 1 have been engaged in the cotton manufacture fifty-seven years. I have been for many years connected 8 R o 114 KEVENUE SYSTEM OF THE UNITED STATES. with the York mills at Saco, Maine, and the Everett mills at Lawrence, Mas- sachusetts, as the treasurer of those companies. 192. If a moderate tax or export duty should he imposed on cotton, on whom would it fall, the producer or consumer? On the consamer principally, if not entirely ; as, with a moderate duty, no other country could furnish the material in competition with this. 193. What amount of cotton was required, in 1860, to meet the demands of the manufacturing industry of the United States and Europe ? What propor- tion of this demand was supplied by the product of the United States ?— Ths latest reliable account I find is for 1859, from "Mann's Cotton Trade of Great Britain," who states the total imports of that year at 1,225,989,072 pounds, and the consumption at 976,600,000 pounds. It is estimated that four-fiftha of the consumption was American cotton. 194 What was the average percentage increase of the consumption of cotton in the United States and Europe for the ten years prior to 1860; and what for the three years intervening from 1857 to 1860 ? — In relation to this countiy, to judge from the increase in the number of spindles, the increase of consump- tion must have been about 40 per cent., and in Europe more than 50 per cent. In Great Britain alone, according to thek reports, the increase from 1850 to 1859 was more than 70 per cent. 195. What was the average percentage increase in the supply of cotton, dur- ing the same period ? — So far as the increase in the supply of cotton may be inferred from the total imports into Great Britain, the increase would be 83 per cent. The quantity remaining on hand at the end of that time would show that there was a considerable increase of the production beyond the consumption. 196. Was there any accumulation of cotton cloth in 1860 ? Have the stocks of cotton goods in the bauds of traders and of consumers in all parts of the world been diminished during the war ? and if there be any deficiency, what demand for goods may be expected for some years to come? — There was a great accumulation of cotton goods in 1860, which has been much diminished, and the deficiency cannot be supplied until there is a great increase in the production of cotton. 197. What amount of cotton was made available for the manufacturing con- sumption of the United States and of Europe in 1863 ? — In 1863, the import of cotton into Great Britain is stated as follows : American 132, 028 Brazil 137, 142 East India '. -1, 390, 791 Egypt and other countries 272, 201 1, 932, 162 If we call the average weight 400 pounds perbale, this wotildmake 772, 864,80() baleous. Of this was exported 660,950 bales, leaving for consumption 1,377,162 pads — including what was on hand at the beginning of 1863 — equal to 558,864,800 pounds. The stock on hand was thus reduced to 327,550 bales, instead of 699,300 bales in 1861, and the price of middling cotton advanced io October to 29J pence. 198. What has been the respective increase in the supply of foreign cotton, under the stimulus of high prices, from 1860 to 1865, inclusive ? — In 1862, there had been an increase in importation to Great Britain from — ■ • Cwts. Greece and the Turkish Dominions of 43, 077 Egypt 626, 897 Africa and India 448, 792 REVENUE SYSTEM OF THE UNITED STATES. 115 New Grenafla 10, 342 Brazil 208, 384 China 14, 695 1,252,187 I have no data as to the further increase. 199. What advantages, if any, do the United States enjoy over other coun- tries for the production of cotton, in respect to soil, climate, seasons, or position, as compared with India, Egypt, China, Japan, Algiers, and other cotton-grow- ing countries ? — Such are the advantages of the United States, in soil, climate, and seasons, that, with cotton at twenty-five cents per pound, there is no reason to fear any competition from other countries. 200. With the price of cotton ranging from twenty-five to forty cents per pound, what amount, in your opinion, will be required to meet the present annual demand for consumption in Europe and in the United States 1 — From two to three millions of bales. 201. At present prices, what proportion of this demand can be supplied by other than American production ? — Probably one-third. 202. How do foreign cottons compare with American, as regards quality and economy in cotton t — Very unfavorably. 203. If middling cottons should average from twenty-two to twenty-eight cents, in New York, from September, 1866, to September, 1868, and be in fair supply, what increase of importation, if any, should you anticipate from Japan, China, Egypt, and Brazil, into Europe, as compared with the importations from those countries in 1864? — From Japan and China there would be no increase, as China usually receives a considerable part of her supply from Bombay ; and there would be very little increase from Egypt or Brazil. 204. With cotton remaining at twenty-five cents per pound, what, in your opinion, is likely to be the increase in the demand for consumption in the nest five years ? — There would be required, in my opinion, five years hence, five millions of bales. 205. Has the termination of the rebellion given any check to the importation •of cotton from China, Japan, and India, respectively, and is that importation at present diminishing 1 — Yes, from China and Japan, and probably also from India. ' 206. What is the relative value of a pound of middling American cotton, as compared with a pound of middling Surat? — At least fifty per cent, more, for almost all purposes. 1, 207. In default of an export duty, are you in favor of an excise tax on ;cotton 1—1 am in favor of an excise tax equal to the present duty on imported ^cotton, which I take to be five cents. 208. In case of the imposition of an excise tax on cotton, would you recom- jjnend a drawback on the export of American manufactured cotton; and, if so, to .what extent ? — Yes, a drawback on the weight of exported goods equal to the excise or to the duty on imported cotton. '' 209. What effect would such a drawback have, in your opinion, on American ^manufacturing industry and commerce 1 — It would only have the effect of pro- 'tecting us from foreign competition. *■ 210. Would it not do more than that? Don't you think it would enable us ,;o compete with foreign markets ? — I think it would to a considerable extent. ■^^I don't think we shall have cotton, for some years to come, at so low a price that 'we shall do much in the export of cotton goods. We may, perhaps. Mr. Atkin- son seems to think we may, even to the extent of importing East India cotton or the purpose of export, but I think that is very problematical. ■ , 21 1. To what extent, in your opinion, will the cotton crop of the United States, ■ n 1866, afi'ect the aggregate value of the entire product of the year? Which, in 116 REVENUE SYSTEM OF THE UNITED STATES, your opinion, would produce to the planting interest the most money for 1866 and 1867 — a crop of one, two, three, or four millions of bales 1 — The larger crop will produce the most money, until the demand is fully supplied. When you overstock the market, you then reach a point where your large crop will not produce so much as a small crop. 212. If the war had not intervened, what would have been the effect of the over-production at that time 1 — I think there would have been a breakdown in the cotton business, and a breakdown in the price. 213. Would that have been very disastrous to the south? — Yes, I think so, The south have had an erroneous view in regard to the effect of the manufacture of cotton on their interests, as was very fully explained by Mr. Nathan Appleton, when he ■» as in Congress. He took the ground, which has since been completely justified, that it was for their interest to encourage manufactures at the north, where we were making principally coarse goods, and were supplying foreign markets that had ordinarily been supplied by the manufacturers of England, from other ^cotton than that of the south ; and that, so far as we were manufactur- ing coarse goods, we were increasing the demand for their cotton. I have pre- pared a schedule of the prices of cotton for each month in the years 1861, '62, '63, '64, and '65, which may be considered the price at Boston or New York: Month. 1861. 1862. 1863. 1864. 1865. January - . February . March April May June July August . - - September October . . November December. 32ic. m 13 ]3 15 15f 17 20 23 23J 31i 34ic. 23i m m 304 41 48| 544 58 C,3i 79 c 89 72 64 61 524 63 664 73 73 81 79 79ic. 811 78 74 80 83' 163 173 165 124 1214 125 c, 79 68| 74i 58 42 48 44 43 These prices are the average between the highest and lowest for the month, ' and, where they are not the result of my own purchases, are stated upon reliable authority. Diuing the highest rate, the average price has not exceeded 90 cents on making up our accounts for any six months ending in March or September. So that the cost of our goods has been made up upon an average cost of cotton not exceeding 90 cents, even when we had at times gone as high as $1 73. 214. Is there not, at present, great discouragement to the extension of the business, in consequence of the great increase in the cost of building ?— Yes, sir, of course. 215. How much more would it cost to start a new mill now than before the war? — So far as relates to the machinery, I think it would cost very nearly double what it would in 1860. The price of a great deal of the machinery ha« more than doubled. I have made contracts for machinery, within the last yeai or two, at more than double what it would have cost in 1859 and I860.* ' According to a statement of Alderman Baynes, in a lecture delivered at Blackburn, d quoted and confirmed by Daniel Chadwick, in a paper read before the London Statistical Si- ciety, December, 1859, the cost of a spinning mill, with the requisite preparing machineiyi is 24 shillings per spindle, say $5 76, calculating the shilling equal to 24 cents. The cost" a weaving mill is estimated at £20 per loom. Estimating forty spindles to the loom, t«'] would be, per spindle, |2 88, which as our mills are usually organized both for weaving s™ spinning, would be, per spindle. %» 64. There are few of our mills inthis country thai M'« cost less than $17 to .^18 per spindle. REVENUE SYSTEM OF THE UNITED STATES. 117 216. To what do you ascribe this great increase in the cost of machinery — to the currency, or taxes, or both ? — To a certain extent, it is owing to the currency, but it is principally owing to the very extravagant rate of labor and all the ma- terials that are used. 217. Do you not think it desirable that the greatest production of goods should be stimulated, by a repeal of the tax on manufactures, in order to increase the exports ?^0f course it would be desirable. ai8. Is there not some increase going on, notwithstanding these high prices ? — I believe there are some instances where manufacturers are building, to extend particular branches of business that have been found to be profitable ; but I should doubt whether that would be carried on to any considerable extent. I don't think there has been any increase. Perhaps there has been sufficient building to make up for the diminution by fire. A great many mills have been reorgan- ized, and made so as to produce more ; very many have been destroyed, and a great many converted to other purposes. 219. Do you think the cotton manufacture has held its own ? — Yes, sir, about. 220. Are any mills being built for the manufacture of delaines'? — That busi- ness is increasing. The market is not fully supplied with delaines, and there will probably be some further increase. Testimony of Albert H. Kelsey. 221. What is your name, residence, and occupation, and what opportunities have you had to acquaint yourself with the subject of cotton? Are you inter- ested in the manufacture of cotton ; and if so, in what capacity? — My name is Albert H. Kelsey; I reside in Belmont, Massachusetts; occupation, builder. In 1863 and 1864 I was in the southwest for the purpose of buying cotton, and the season of 1864 and 1866 I was there for the purpose of raising cotton. 222. Are you in favor of an excise tax upon cotton? — I am not. 223. For what reasons 1 — For various reasons. In the first place, I look upon the condition of the south at the present time — and that condition, I think, will continue for several years to come — as such that every encouragement should be held out to produce from the soil. No restriction should be put on that will hinder production from the soil. I believe that all regulations imposed upon the production of cotton, in the way of an excise tax, would be a serious obstruction to the growth of the south. These opinions are formed from personal observa- tion. 224. From your experience on the plantations, would you say this much — that, after the ensuing winter, you would leave both black and white free to ' make contracts, without the supervision of any branch of the government ? — ■ I will say this, that at the present time, if I could control the whole afFair, I ■ would leave it all to the people to do the business precisely the same as we do it here at the north to-day. Give any man the privilege to go south and pur- ■ chase his land, or rent it, and hire such help as he can hire to the best advantage; ' and leave those in the south to work to the best advantage they can. Leave it '' open to the people to act. I should not wish to include the present winter in ' that plan. t 225. Do you think there would be danger that the negro laborer, after the / ensuing winter, would become a vagrant or pauper, or do you think that he 4 would become a tolerably good laborer? — There would be a pretty good system ■ of labor. There would be vagrants, paupers, thieves, and cut-throats — they will * last some time; but yet there is sufficient intelligence there, in a great portion of * them, to do what is best, if the people of the south are met fairly. They have J an interest, and they learn it very quickly. Any restriction that has been put i upon them, in any way, so far as my experience goes, has proved detrimental j 118 REVENUE SYSTEM OP THE UNITED STATES. thej are afraid of it ; they don't know what to depend upon. BestrictiouB can be changed ; they are changed ; and uncertainty exists. I have seen myself that this has operated very badly, both for the south and the north ; and the poorer class of people, I think, suffer most by it. 226. You allude to the restrictions that have fettered trade there? — Tes, sir; and to all restrictions. I am in favor of free trade as to home productions. 227. If an excise tax upon cotton were levied at the place of export, or at the mills where the cotton is consumed, and not on the plantations, would the tax be in any way detrimental to the producer] — No, sir. If it was levied at the mill, or at the port of shipment, the buyer would go into the country, purchase the article, and ship it at Ohaileston, Savannah, or New Orleans, and the planter would not be affected materially by that ; but any restriction or tax that comes down to the people themselves, the masses, in my opinion, is bad. 228. Do you think that the effect of a tax on cotton of three cents a pound, collected of the producer, would prevent, to any extent, the emigration of northern men for the purpose of cultivating cotton ? — I think it would to a certain extent. It would, I am confident, with those who have positive knowledge of the ope- ration. Those who have not would think three cents a very small amount, and they would go, and go into the experiment. 229. Do you think that the tax could be levied at the place of export and at the mills ? — 1 think the place of export is the only proper place to levy it and collect it, and it is the only place where you can collect it. Testimony of William Dwight. 230. What is your name, residence, and occupation, and what opportunities have you had to acquaint yourself with the subject of cotton? Are you inter- ested in the manufacture of cotton ; and if so, in what capacity 1 — My name is William Dwight. I reside in Brookline, Massachusetts ; and have been for the past fifteen years treasurer of manufacturing establishments running 120,000 spindles. 231. Are youin favor of an export duty or an excise tax upon the raw cottonl — I am in favor of a tax upon cotton, and I am in favor of a drawback to the American manufacturer, whenever he shall send his goods abroad. 232. To what extent ? — Well, sir, I would give him the benefit of a drawback to the extent of half the tax. 233. Wouldn't you go above that? — I should like to go above it, if I could do so without exciting jealousy. Being a manufactmer, I don't wish the man- ufacturer.i favored, but I should like to go even above that. My view, in one word, on this subject is this : Last year you laid a tax upon us, on the amount of our sales, of five per cent. If the commission will look at ati accurate calcu- lation of that tax, they will see that it was a tax of six cents a pound on the cotton we used, and it would amount now to 7^ cents a pound. In addition to that, our tax is two cents a pound on cotton — making what is equivalent to a tax of 91 cents a pound on cotton. We might just as well pay it in the form of a tax on cotton as to pay it in the form of a tax on sales, so far forth as it affects US ; and we had much rather do it, with a view to putting ourselves on an equality with the foreign manufacturer, because, if he paid the same tax we do, we could compete with him in foreign markets which we cannot do now. 234. Can you give any estimate of the additional tax that falls upon the cotton manufacturer by reason of the tax on transportation, coal, starch, iron, &c.?- Thiit is a very complicated matter to explain. The general statement would be this : Taking a mill organized as mine are, running from No. 14 to 25, on an average, the cost of production now will be just about double what the cost of production was in 1860 ; that is to say, it cost then about 7J cents per pound REVENUE SYSTEM OF THE UNITED STATES. 119 to produce those numbers at the mills, and now it costs about 15 cents per pound. Now, it is impossible for me to say how much of that increase is due to the increase of the tax on coal, how much to the increase on iron, and how much to one thing and how much to another. Of course we are very largely affected by all that kind of taxation, whatever it may be, but no more so than the rest of the community. 235. How do you overcome that difficulty in your competition with the English manufacturer? — We don't pretend to compete with England now. 236. You send out some goods to China, and various foreign ports, do you not ] — Very little, sir. We had quite a brisk race with them six or eight years ago. 237. What effect do you think a drawback on manufactured goods would have on American industry and commerce 1 — I think it would enable us to com- pete with the foreigner. We shall gradually grow to it. I anticipate that the south, under the new condition of things that is coming, will be the competitor with the foreigner on the coarser fabrics. That is the destiny of the south, under the free-labor system to which she is coming. We are to go to the finer fabrics, as we naturally ought, or else our industry will rust. The south, as we leave the coarser fabrics, ought to enter into competition abroad with the foreign producer, and on the coarser fabrics she could do so. Well, then, you must give her some advantage in that respect. You must give her all the aid that a drawback would give. Let us pay a tax ; let everybody pay an equal taxation ; but when we are sent forth to compete with England in fjreign markets, let us stand on an equality with her — with a little advantage, if you please. 238. Do you not think that the English manufacturer can make the coarse fabrics — that is, of the No. 14 yarn — out of untaxed Surat cotton with very little disadvantage in point of labor or product ? — Very little indeed, sir. 239. Does not that point to the necessity of a drawback on oui export ot No. 14 yarn to the full extent of the tax? — Perhaps that is true. My own idea is, that you have, for many years to come, a free field of taxation upon cot- ton, without its affecting the price of the commodity. Up to seven cents, it would not affect, in my judgment, the price of the commodity. My own opinion is, that with two million bales of cotton raised in the United States, with industry as it is now, and as it will be, active throughout the world, the price will not rule less than 50 cents a pound until you increase the production of the United States beyond that amount ; and when you bring it up to three million, the cost of American cotton, in my judgment, will not fall below 30 cents. You have, therefore, a free field for taxation. Take the case to-day. According to the theory of some, there are two million bales of cotton in the south to be thrown upon the markets of the world ; according to others, perhaps a million and a half; but just as the idea of a million and a half prevails, up goes cotton on its way to 60 and 70 cents. 240. Do you recommend a tax of seven cents on the raw material as a substi- tute for the tax on the finished product? — I do, sir. I think the latter is the worst form in which a tax can be put on us, unless we are willing to confine our theatre, in all coming time, to the American trade. I hope we can keep that ; but we ought to diversify ; and we of the older parts of the country go to the finer fabrics and nicer manufactures, while the newer parts of the country take the coarser, where we have had our success. Although but very few, I suppose, would go with me in advocating this heavy taxation, my own convictions are very strong about it. The only evil that I can see as likely to come from it is, that it might at first discourage the southerner from undertaking to raise a crop, under the idea that he was to be heavily taxed. But I think the burden is not to fall upon him at all, any more than the burden falls on me to-day of this sis per cei»t. on sales. 241. Have you any suggestions to make in regard to the manner of collecting 120 EEVENUE SYSTEM OP THE UNITED STATES. an excise duty on cotton ? — I approve the plan suggested, of collecting the tax of the manufacturer and the exporter. 242. Do you not think that, for one or two years to come, cotton would bear a duty of even eight cents per pound ? — Well, sir, we are paying what is equiva- lent to a duty of 9| cents to day. 243. What does your cloth bring by the pound at present 1 — It brings from $1 40 to Si 50, speaking of the coarser fabrics. 244. Suppose you had a drawback of the whole amount of the tax; would it not give a great stimulus to the manufacturing interests of the country? — Un- doubtedly it would. 245. In that case, do you think we could supplant the English manufacturer in foreign markets, on coarse goods'? — Oh, without any difficulty, sir. I was willing, before these days, on all cotton fabrics up to No. 25, to fight the Englishman in an even contest. 246. What duty would you put on imported foreign cottons, in case of an excise tax of seven cents a pound ? — Just what will give the government the most money. That is what we want. 1 think a very severe competition is the best tljing for a man. He will be all the hea;lthier for it I will say, that I hare examined the answers Mr. Nourse has prepared to the interrogatories of the commission, and I agree with him, except in regard to this matter of taxation. October 6, 1865. Testimony of B. F. Nourse. 247. What is your name, residence, and occupation, and what opportunities have you had to acquaint yourself with the subject of cotton ? Are you interested in the manufacture of cotton ; and if so, in what capacity ? — My name is B. F. Nourse. I reside in Boston. I am a commission merchant. I bought cotton in the south from 1840 to 1857, and from 1857 to the present time I have been a buying agent tor manufacturers. I am interested in the manufacture of cotton as buying agent, and as a stockholder in mills. 248. If a moderate tax or export duty should be imposed on cotton, on whom would It fall — the producer or consumer? — Depending upon the relation of sup- ply and demand so completely, that it is impossible to fix any considerable period of time in which we could be certain that the tax would fall exclusively on either 249. What amount of cotton was required in 1860 to meet the demands of the manufacturing industry of the United States and Europe ? What proportion of tijis demand was supplied by the product of the United States ? — In answer to this question I submit the following table : Bales. Pounds. United States, north 750,000 ' 360,000,000 United States,^south 90, 000 38, 000, GOO 840,000 398,000,000 Europe 3,303,000 1,519,000,000 American total 4,143,000 1,917,000,000 Foreign, Europe 800, 000 220, 000, 000 Total consumption, 1860 4, 943, 000 2, 137, 000, 000 The American product being about 88J per cent, of all. , 260. What were the average prices of American, and foreign cotton for 1860 REVENUE SYSTEM OF THE UNITED STATES. 121 at New York and Liverjpool 1 — Middling American, in New York, 10 to IS cents. No importation of foreign cotton in the United States worth quotation. In Liverpool— Middling American, 7 to l^d.; middling Brazil, 8J to 9d. ; middling Egyptian, 8 to Sid.; middling Surats, 5 to 5^d. 251. What was the average percentage increase of the consumption of cotton in the United States and Europe for the ten years prior to 1860; and what for the three years intervening from 18-57 to 1860 ?— In Great Britain, for the ten years, an average of six per cent.; for the three years, 1857 to 1860, 8|, 9J, and lOj per cent., respectively. I have not the data for the continent, but think it was a little higher for the ten years ; about the same for the last three years. In the United States, for ten years, an average of six per cent. ; for three years, 2 7-10 ths per cent. The fluctuations were remarkable. Thus: 1850-5], de- cline 10.75; 1851-'52, increase 41.28; 1852-'53, decline 6.5; 1853-'54, decline 11.5; 1854-'55, increase 31.57; 1855-'56, decline 7.5; 1856-'67, increase 15.3; 1857-'58, decline 13.5 ; 1858-'59, increase 13.T ; 1859-'60, increase 8 0. 252. What was the average percentage increase in the supply of cotton during the same period? — American crop, 1851, 2,355,257 bales; 1860, 4,675,770, an increase of 99 per cent., or about 10 per cent, per annum. The actual weight for 1860 was 460 pounds per bale. But the crop of 1860 was extraordinary ; one million bales more than the next succeeding crop ; a fair rate, therefore, is about ei^ht per cent, per annum. The imports of foreign cottons to Europe was increased irregularly, from 520,000 bales in 1851 to 815,000 bales in 1860; average about six per cent, per annum. * The import of 1857 was very large, under high prices, reaching 950,000 bales ; falling off in 1858 to 600,000 bales. However, the import of India and China cotton to Europe is no measure of the production of those regions; yet it is the commercial product. 253. Was there any accumulation of cotton cloth in 1860 1 Have the stocks of cotton goods in the hands of traders and of consumers in all parts of the world been diminished during the war ? and if there be any deficiency, what demand for goods may be expected for some years to come 1 — Yes, very large ; since reduced to exhaustion. Excessive demand from scarcity, even more of goods than of raw material, makes high prices; Production is now stimulated to the utmost, and is, perhaps, gaining upon the demand. When it shall gain so far as to cheapen prices, consumption will also extend. The pi-oducing power (labor and machinery) is limited. Unless this be enlarged, it seems probable that goods will be scarce, and inadequate to the want, until renewed and extended production of cotton shall supply the raw material abundantly years hence. 254. Do the taxes of six per cent, on sales, the taxes on coal, starch, iron, transportation, and other things connected with the manufacture, increas ethe cost of the finished product; and if so, to what extent? What is the cost of making and delivering from the mill to the consumer a pound of cotton cloth now, and what was it in 1860 ? — These taxes have, at the present moment, no effect on the prices of cotton goods. Such are the scarcity and the demand that prices would be the same were those taxes abolished. It follows, therefore, that the producer now pays the tax on his product in so much reducing his profiits. The question of who pays the duty or tax always depends on the relation of supply and demand, more or less. When excess of supply reduces prices to the minimum cost of production, plus taxes, the consumer must pay the tax, or pro- duction ceases. Scarcity of cotton and labor, and an expanded currency, have carried the cost of cotton goods to its present height. 255. What amount of American cotton was made available for the manufac- turing consumption of the United States and of Europe in 1863 ? — Enough to supply a consumption of 4,000 bales per week in the northern States, and for some exportation. There was considerable import of foreign cottons for use here. I think I have set it high at 4,000 bales. 122 REVENUE SYSTEM OF THE UxMITED STATES. 256. What amount available in 1864 ?— Same as in 1863, nearly. Greater demand and less supply, in the summer of 1864, threatening an exhaustion of supply for the time, and carrying the price of middling cotton in New York up to $1 85 per pound. 257. From what sources was the cotton thus made available derived 1 — Mainly from southern States, with importation of bales of foreign cotton. 258. What have been the average prices of American and foreign cotton at Liverpool since July 1, 1865 ? — Middling New Orleans, about 18|rf. to Id^d.; middlmg Surats, about ll^d. to 12id.; middling Egyptian, about 14(i. to 16d.; middling South American, about i7d. to I8d.; middling China, about lOJd. to lid. ; middling Bengal, about 7d. to 7^d. 259. What advantages, if any, do the United States enjoy over those coun- tries for the production of cotton in respect to soil, climate, seasons, or position, as compared with India, Egypt, China, Japan, Algiers, and other cotton-grow- ing countries 1 — Every conceivable advantage, except cost of labor, and that outweighed also by superiority of product in quantity and quality. 260. How far have the United States reason to fear the rivalry of other conn- tries, in case the price of cotton should not fall below twenty-five cents per pound in the seaports of the United States for several years to come 1 — Not at all, 261. With the price of cotton ranging from 25 to 40 cents per pound, what amount, in your opinion, will be required to meet the present annual demand for consumption in Europe and in thq United States 1 — At 40 cents per pound, probably 2,000,000 bales of American ; at 25 cents per pound, probably 3,000,000 bales of American. 262. At present prices, what proportion of this demand can be supplied by other than American cotton? — About one-half the entire demand in Europe; perhaps 60 per cent. There would be a large diminution down to the mimmum as our prices fell here. 263. How do foreign cottons compare with American as regards quality and economy in manufacture ? — Except for special uses of some long staple varieties, as Egyptian, Pernambuco, &c., all foreign cotton is greatly inferior to American. 264. If middling cottons should average from twenty-two to twenty-eight cents in New York from September, 1866, to September, 1868, and be in fair supply, what increase of exportation, if any, should you anticipate from Japan, China, Egypt, and Brazil into Europe, as compared with the importations from those countries in 1864? — Not any. Those prices and "fair supply" would exclude from European markets most of the cotton from Japan, China, Bengal, &c., and check the import of the better sorts of foreign. 265. With cotton remaining at twenty-five cents per pound, what, in your opinion, is likely to be the annual increase in the demand for consumption in the next five years ? — Equal to the full capacity of labor and machinery. But cotton is not at twenty-five cents, and will not "remain" so until our produc- tion is greatly changed. 266. What were the prices of upland cotton, of middling quality, at Liver- pool in July, 1860, 1863, 1864, in May, 1865, and July, 1865 ? If there was any decline in May last, to what was it due ?— July, 1860, Id.; 1863, alji; 1864, 31f(Z.; May, 1865, U^d. ; July, 1865, 19J(^. There was a great de- cline, from 19 pence to 13| pence, in March and April, 1865, due to excessive prices. These killed trade, decline began, panic ensued, one extreme producing the other, as usual. 267. What is the minimum price you allow for cotton for the next three years ? — You might just as well ask a newsboy in the street. There are so many elements that no human being can tell. In the first place, you have got to tell what that very erratic body, the Congress of the United States, will do. EEVENUE SYSTEM OF THE UNITED STATES. 123 Then you have got to tell how the southern planters will take to tlie new sys- tem of labor. 268. Well, under the most favorable circumstances 1 — Under the most favora- ble circumstances, I should look for a production the third year that would carry cotton down to 20 cents. Under the most favorable circumstances to be imagined, I shouldn't suppose it would go below 20 cents. But the probabili- ties are, you will not get it much under 50 cents. 269. Has the termination of the rebellion given any, and what, check to the im- portation of cotton from China, Japan, and India, respectively ] and is that im- portation at present increasing or diminishing? — As promising an immediate large addition of the old stock of American cotton, the end of the rebellion checked the imports of cotton from the east and stopped that from China and Japan. From India it is less than in 1864 ; but there wUl be large movements of the next India crop on the present range of prices, very likely equal to that of 1865. 270. What is the relative value of a pound of middling American cotton, as compared with a pound of middling Surat 1 — As 45 to 30, about. 271. Are you in favor of an export duty on cotton, supposing all constitutional restrictions to be removed ? — Yes ; a light duty, if it were free from constitutional objections, and could be regarded as exceptional, and not as an abandonment of the old policy. 272. What ainount of export duty can, in your opinion, be imposed upon cotton, without detriment to the interests of the country 1 — Not any, directly. 273. In default of an export duty, are you in favor of an excise tax on cotton? Yes. 274. What amount of excise would you recommend per pound; and what discrimination would you make in the excise as regards cotton of different qual- ities ? — Two and a half cents per pound ; which I regard as the highest that can be levied without serious detriment to some of the most important interests of the country, in the present exigency, and enough for a large revenue. Although the fact may be that we are now paying, indirectly, a very much higher tax, it shows to the planter only a two-cent tax. Two and a half cents he will not object to. At present prices, he would not regard it at all; and, therefore, under the present price of cotton, a powerful stimulus is applied for improvement in the south for every planter to go to work, to reward labor fairly, to give to the negroes a portion of the crop and identity of interest in the success of the culti- vation, and to pay wages regularly. These certainties being established, labor organizing itself at the south without difficulty, cotton-planting extends rapidly, and the country becomes prosperous. If you put upon it a duty even of five cents, you discourage one-half the planters from going into the enterprise; be- cause they don't attempt to measure what other people will do. They say, "We shall have to pay this tax" — which is not the fact; the markets of the world will pay it until the demand is supplied. You put on a tax of ten cents, and I doubt if you get a product of a million of bales in two or three years. The old prejudice in regard to the tariff is such that you cannot make them be- lieve they don't pay the tax. I have lived there twenty years, and speak from experience. You cannot beat the idea out of them. Take the article of gunny cloth, for instance. Even when they were buying it at little more than the duty, and the importers were losing enormously, they imagined they were pay- ing the duty, and not the importer. 275. What tax do you think would check northern emigration to the south ? — It would depend upon the extent of their intelligence, and the probability that could be presented to their minds of the prevalence of high prices, that would put this tax upon the consumer and not upon the producer. 276. If the tax were levied upon the buyer, and not upon the producer, would 124 EEVENUE SYSTEM OF THE UNITED STATES. that have any effect? — No; they would reason in this way, that the buyer paid' them so much leas for th* cotton, on account of having to pay the tax. 277. Have you any suggestions to make in regard to the manner of collecting an excise duty on cotton ?— I think the plan suggested by Mr. Atkinson would be a good one. I presume it would afford less opportunity for fraud than any other. 278. In case of the imposition of an excise tax of three cents on cotton, would you recommend a drawback on the export of American manufactured cottons; and if so, to what extent ? — Yes, to the extent of two cents per pound of cloth, which would relieve him of about two-thirds the tax he had paid on the raw cotton. 279. What effect would such a drawback have, in your opinion, on American manufacturing industrj and commerce ? — None at all. in the present relation of supply and demand ; but with such an increase of supply in relation to home demand as would materially reduce prices, it would have an encouraging effect on trade and industry. 280. Do you think it would enable us to supply foreign markets? — It would simply put us upon a level with the foreign manufacturer. We should have this advantage of position : we should have our own cotton, as he gets his own cot- ton, nearly duty free. It would put American cotton and American industry on a par, in neutral countries, (if I may use the term,) with England, on her India cotton. My opinion is, that you are going to see the price of cotton so high that we shall not compete in foreign markets, tax as you may. We are just now in a very anomalous condition of things, and he is a wise man who can say what our relations with other countries are to be. 281. In case of the Imposition of an excise tax or an export duty on cotton, what duty, in your opinion, should be levied on imported manufactured cot- ton ? — Whatever duty will produce most revenue, the main object of all tariffs aiad taxes, and not less than 25 per cent, above the tax on domestic manufacture. 282. Will an excise tax tend to sustain the prices of cotton, and what effect will it have on the price of wool 1 What was the product of the United States in 1860 in bales and in millions of pounds, and at what rate could it then he raised 1 Were there any fertilizers or improved mechanism used in its produc- tion, and can they be used to advantage 1 — No perceptible effect at present, if moderate — say 2J cents per pound ; nor would it now influence the price of cotton, other elements having controlling influence. The cotton crop of the United States, 18.59-'60, was 4,675,770 bales — about 2,150,000,000 pounds. The crop of 1860-'61 was 3,656,086 bales, or about 1,082,000,000 pounds. ' Under slave labor, well managed, it was a profitable crop to produce and sell at eight cents. Good planters could make money on good lands at six cents ; but when cotton was at that price land and negroes were very low in price, and the cost of labor in proportion. At ten cents, or higher, it encouraged rapid extension of planting, high prices for good field hands, employment of free labor in the hill country, and on all the old lands, as in the Oarolinas and Virginia, a liberal use of fertilizers, such as guano, super-phosphates, &c., which greatly enlarged the product per acre, and improved its quality. There had been a rapid improvement in the manner of culture, use of more and better implements, and substitution of mule and plough for the hand-hoe in cultivating the fields, materially enlarging the product "to the hand" employed 283. Have you or your associates taken any measures to ascertain the amount of cotton in the United States on the 1st of September, 1864, remaining from the crops of previous years, and the amount of the crop of 1865 ? State these amounts respectively. At what amount do you estimate the crops of cotton of 1866, 1867, and 1868, respectively, in the United States?— Yes; or rather, at the close of the war, which could not be very different from Septem- ber, 1,864, as to the quantity of old cotton on hand. I estimated, as the result REVENUE SYSTEM OP THE UNITED STATES. 125 of inquiry, the amount of old cotton in the south in May, 1865, at 1,600,000 bales of merchantable stock; crop of 1865, 350,000 biales. No one can make an estimate worth having of the cotton crop before it is planted in ordinary times, much less in the disturbed and uncertain condition of affairs in the south now. 284. To what extent, in your opinion, will the cotton crop of the United States ill 1866 affect the aggregate value of the entire product of the year ? Which, in your opinion, would produce to the planting interest the most money for 1866 and 1867 — a crop of one, two, three, or four millions of bales? — To the iirst part of the question I have no answer. To the second part I answer, that the largest quantity attainable will produce the most money to the planters and the most prosperity to the whole country. 285. In case an excise on cotton is imposed, what taxes on the manufacture of cotton should, in your opinion, be remitted 1 — If the tariff on foreign cotton goods be so high as, in effect, to be prohibitory of imports, the manufacturer here can bear heavy taxes. I am too ignorant of the details to give an opinion upon them. Testimony of Erastus B. Bigelow. 286. Are you in favor of an export duty or of an excise tax on cotton 1 — I am in favor of a duty on cotton, preferring the form of the excise. 287. To what extent do you think a duty could be imposed on cotton without detriment to our industry and production 1 — The amount of duty would, of course, necessarily depend somewhat upon the form in which it was applied, and the amount of the drawback on goods exported. As a general principle, high taxes are inexpedient, especially where there is a possibility of evasion in the collection ; and I think there are reasons of public policy at the present time which would be opposed to a high tax on cotton. I have no doubt that we have a monopoly of the growth of cotton sufficient to justify a tax which would operate as an export duty ; but it does not seem to me expedient, in view of the state of public affairs, to impose a duty to the extent to which it would be possible to maintain it, in view of the competition in the production of cotton abroad. My mind has been rather tending to three cents, possibly five — cer- tainly not higher. 288. Have you had occasion to examine into the export duty levied by other countries on their products 1 — I have given some attention to the subject, and, as a general fact, the countries largely commercial have, to a considerable de- gree, abolished the system — England altogether, and Trance, I believe. There may be some exceptional case. But the sentiment of the commercial world is tending decidedly against the policy of export duties ; and they are never resorted to now in the more enlightened commercial nations other than in excep- tional cases, where they have a monopoly of any article. They have, for instance, in Rome an export duty on articles of virtu. There is an important illustration of the tendency of commercial nations in the instance of coal in Great Britain. They formerly had an export duty upon that article ; and notwithstanding there are some apprehensions expressed in Great Britain of the early exhaustion of the coal-fields, still they have removed that duty, and allow coal to be exported. That probably affords as close a comparison with cotton in this country as any instance that could be cited. 289. What effect would an excise tax on cotton have on the price of wool? — Of course that would depend somewhat upon the rate of the tax, but I hardly think it would have any perceptible effect upon the price of wool, and probably not on the price of cotton until the supply is more abundant. A very high price for cotton would stimulate the production of wool. 126 REVENUE SYSTEM OF THE tJNITED STATES. 290. Have any attempts to provide substitutea for cotton been, or do they promise to be, successful'? — None of the fibres made from flax or other vegetable substances, which have come under my notice, are likely to become, in any con- siderable degree, a substitute for cotton, when cotton is at its ordinary price. Many of the fibres which have been produced from various vegetable plants may be mixed to some extent with cotton and with wool, but to a comparatively limited degree. As to whether those prepared fibres are likely to compete to any controlling extent with cotton, my opinion is, that there is no reasonable proba- bility of it. a91. Has any measure of success attended the attempt to introduce flax cotton into this country ? — I am not aware that any decided success has attended the spining of flax cotton alone. It has been used to alimited extent. The success has been greater by mixing it with other fabrics. 292. It has been used to some extent for that purpose since the war? — Yes, sir. 293. And is now? — ^Yes, sir. 294. Does it improve or deteriorate the quality of the goods with which it is mixed ? — It is claimed, in some instances, that it is no detriment to other fibres, where it is mixed with them ; I am not aware that such mixture improves any fabrics. I wish it understood that I do not appear here as an expert at all ; what I have said is based on general impressions and views. Testimony of William Amory. 295. What is your name, residence, and occupation, and what opportunities have you had to acquaint yourself with the subject of cotton ? Are you inte- rested in the manufacture of cotton ; and if so, in what capacity 1 — My name is William Amoiy. I reside in Boston. I am treasurer, and am operating mills to the extent of nearly 150,000 spindles, at Manchester, N. H. 296. Was there any accumulation of cotton cloth in 1860 ? Have the stocks of cotton goods in the hands of traders and of consumers in all parts of the world been diminished during the war ? and if there be any deficiency, what demand for goods may be expected for some years to come ? — I am under the impression that there was an accumulation of cotton cloth in 1860, that the stock was very much diminished during the war, and that it will create a very considerable de- mand for goods for some years to come; by that I mean two or three years. 297. Do the taxes of six per cent, on sales, the taxes on coal, starch, iron, transportation, and other things connected with the manufacture, increase the cost of the finished product ; and if so, to what extent ?— They do, I should think, to the extent of the amount of the tax. 298. How far have the United States reason to fear the rivalry of other countries, in case the price of cotton should not fall below twenty -five cents per pound in the seaports of the United States, for several years to come ?— If it should not fall within ten years, I should think there would be a great amount of cotton raised in other countries, which would interfere more or less with our cotton. If the high prices are maintained for only two or three years, I don't think there is any danger of any further rivalry than now exists. 299. In default of an export duty, are you in favor of an excise tax on cotton? — One of the two, certainly; I don't think it very material which. 300. What amount of excise would you recommend per pound ; and what discrimination would you make in the excise as regards cotton of different qual- ities ? — As small as was consistent with raising a good revenue ; because I believe, it is quite desirable to avoid irritating the south, and they would look upon an excise tax upon cotton as an attack on them. Say from three to five cents. 301. Would you recommend a tax as high as five cents 1 — That would "equire REVENUE SYSTEM OF THE UNITED STATES. 127 a great deal of deliberation. You would have to put a tax on which would raise a very large revenue; and if you found there were five million hales — which I think very likely to occur much sooner than my friends generally — I should think you could reduce it much lower than five cents. But you must raise a large sum of money — that is the first object ; and therefore you have got to regulate the tax to the wants of the government. 302. In case of the imposition of an excise tax on cotton, would you recom- mend a drawback on the export of American manufactured cottons ; and if so, to what extent ? — I should want to allow such a drawback as should, on inves- tigation, be found necessary, in order to give the American manufacturer a little advantage in the sale of his goods abroad. 303. Do you think the effect of such a drawback would be to extend the American manufacture ? — Yes, sir, in the nurth and the south, too. I think it very likely it would aid the south in that respect, inasmuch as the south in time will undoubtedly be able to manufacture the coarse goods, while we manufac- ture the finer. When that time comes, they will be benefited by this drawback. 304. If the drawback be to the whole extent of the tax, would it not give a very considerable stimulus to our exports ? — Very great indeed, I should think. 305. What are you getting now for your goods t — We are realizing about a dollar a pound on the coarse goods, and on the finer from $1 30 to $2 a pound. 306. Then the present tax of 6 per cent, would range from six to twelve cents a pound ] — Yes, sir. The average price would be about $1 25 a pound. Testimony of Francis B. Crowninsiield. 307. What is your name, residence, and occupation, and what opportunities have you had to acquaint yourself with the subject of cotton i Are you interested in the manufacture of cotton; and if so, in what capacity ? — My name is Francis B. Crowninshield ; residence, Boston. I am treasurer and manager of the Merrimack Company. We make our own cloth and print it ; we make some- thing over twenty million yards of cloth a year, in ordinary times, and print it. 308. Are you in favor of an export duty or an excise tax upon cotton ? — I think there is no objection to levying tax upon cotton. I take it, an export duty, as the law now stands, cannot be levied directly. I think a very large revenue may be collected by an excise tax upon cotton. 309. What amount would you recommend? — I have not considered the sub- ject with any great care. I know some believe that a tax of ten cents a pound can be levied. My own impression would be that that would be a pretty high tax. I have thought that something like seven cents a pouiid might he levied and collected without any great damage to anybody, and yield a very large reve- nue. I don't mean to be very definite when I say seven cents, but somewhere about that. Of course, the rate of taxation would depend upon the price that cotton is to bear. 310. You would scale the tax according to the price? — I don't mean to say I would exactly do that; but suppose, for instance, that cotton is not to fall below twenty-five cents in the next three, four, or five years, I should say it would bear a tax of somewhere about seven cents. If it should go down to fif- teen, I should think that tax too high. 311. In case of the imposition of an excise tax or an export duty on cotton, what duty, in your opinion, should be levied on imported manufactured cotton ? — I think that care should be taken that this tax did not' operate to discriminate against our own manufactures in any way. I think there should be a duty in addition, depending upon what the general policy of the country may be in regard to import duties. . 128 EEVENUE SYSTEM OF THE UNITED STATES, 312. Don't you think it would be advisable, as long as there is a scarcity of cotton, to admit the cheap India cottons at a comparatively low rate of duty?-. I don't know but it might be ; but I don't think there will be any great amount of India cotton used here, if we can get American. Of course, it will depend upon the price ; but we are so accustomed to working American cotton that, unless the price should go to a very high pitch, there would not be a great amount of Surat imported. 313. What effect would a drawback on the export of manufactured cottons have on American industry and commerce ? — Of course, if there should be a drawback on exports nearly or quite to the full amount of the tax, the tendency would undoubtedly be to greatly increase the export of American manufactured cottons, and especially of coarse goods. They have always had the preference abroad, wherever they could go, and whatever would enable us to export them cheaper than other manufacturers would be of great advantage. We have here- tofore always excelled in coarse goods. ' 314. Don't you think that, if there is not a full drawback, the English-made heavy goods, from Surat cotton, will supplant our goods in the foreign markets ? — Well, as to that, I think that our goods, made out of American cotton, would bear a considerably higher price than English would, made out of Surat cotton. But still, unless about the whole amount of the tax should be remitted, I think very likely they would compete very seriously with us ; I think, however, that the natives of India and China, who consume the goods, would very soon find out, indeed, have already found out, that the American coarse goods are very much superior to the English. I have no doubt that, if we should put a high tax on cotton, all the foreign governments, and especially the British, would do every- thing they could to countervail us, and put obstacles and restrictions upon us in their colonies. I ought to have stated that we export chiefly coarse goods, of which the cotton forms their chief value. Now, whatever tax upon cotton is levied here that does not operate to raise the value of cotton to the foreign manu- facturer, is a detriment, unless it is counteracted in some way to those mills that make goods for exportation. If they are subject to a special tax on cotton at home, unless they can have some drawback, or some equivalent allowed them when they export, it must be very injurious to them. I think the tax of six per cent, on sales is an oppressive tax. 315. To what extent, in your opinion, will the cotton crop of 'the United States in 18G6 affect the aggregate value of the entire product of the year ? Which, in your opinion, would produce to the planting interest the most money for 1866 and 1867 — a crop of one, two, three, or four millions of bales ? — Of com-se, that would depend upon the product of other countries ; but, supposing things to re- main about as they are, I rather think we should get as much for a crop of two millions of bales as for one of four, and very likely more. In fact, the figures show that the planters get more money, somewhat iu proportion to the smallness of the crop. 1 mean, of course, to confine it to the planter himself. I don't mean at all to maintain that that would be for the interest of the country or the world at large. Testimony of John A. Lowell. 316. Are you in favor of an export duty or excise tax on cotton ? — I see no objection to it at all. 317. In case an excise duty were levied, what amount would you recom- mend?— I have thought of the matter a good deal, and I have thought about five cents a pound would probably be a tax that would affect nobody. I happen to have some incidental evidence that it would not be objected to abroad. The Trench consul here asked me why the American government did not put an REVENUE SYSTEM OF THE UNITED STATES. 129 excise duty oij cotton. He skid it would not be objected to abroad at all, as it was a natural thing to do, and would be the means of raising a great deal of revenue. I supposed (although he did not say so) that the fact that the French are cultivating cotton in Algeria had something to do with the suggestion. 318. Have you any suggestions to make in regard to the manner of collecting an excise duty on cotton ? — I should think the plan suggested by Mr. Atkinson a good one. 319. In case of the imposition of an excise tax on cotton, would you recom- mend a drawback on the export of American manufactured cottons ; and if so, to what extent ? — Yes, sir ; decidedly. The English policy has always been to allow a drawback on exports equivalent to any excise tax ; and we ought, in order to meet that competition, to allow a drawback to the full amount of the tax. 320. Do you know whether any regulations have been adopted at any time, in India, by the Indian or the British government, with a view to discourage the importation into that country of American cottons ? — There was, some years ago, a duty of six per cent, levied upon American drills in India, tod I think that was found not sufficient, and it was raised afterwards to ten per cent. I have the fact very fresh in my memory, from the circumstance that, dining one day with a party of gentlemen in London, something was said about the illibe- rality of our protective policy; and I remember answering that, so far from their pursuing their own principles strictly in respect to free trade, I knew the fact (having been all my life a manufacturer of drills) that in India they charged a special duty on American drills for the sole purpose of enabling the Epglish to compete with the American goods. 321. When were these duties levied ? — I made this statement in 1850, anti it was previO|US to that time. 322. Have you any reason to believe tho?e duties are still operative ? — I think they are still in existence. 323. Is it not a fact that the English manufacturers, not content with this, adopt your own trade marks ? — We have accused them of that sometimes, and I believe with truth. 324. Was the demand for your drills for India increasing up to the time of the war ? — No, sir ; diminishing. 325. For what reason 1 — I always supposed it was owing to these differential duties. They were exported to a great extent to India, and there was an ex- portation to Mexico. The export to Mexico has not fallen off, but that to India has almost entirely ceased ; I suppose because of these differential duties. Testimony/ of E. R. Mudge. 326. What is your name, residence, and occupation, and what opportunities have you had to acquaint yourself with the subject of cotton ? Are you inter- ested in the manufacture of cotton ; and if so, in what capacity 1 — My name is E. R. Mudge ; residence, Boston. I have been working cotton for about eighteen years ; that is, I have been principal proprietor and treasurer of a mill for that lengtt of time, and more recently I have had charge of several others. 327. Are you in favor of an export duty or excise tax on cotton ? — I should not object. 328. To what extent ? — I should say that from five to six cents might be im- posed without detriment to the producing industry of the south for two or three years. 329. Do the taxes of six per cent, on sales, the taxes on coal, starch, iron, transportation, and other things connected with the manufacture, increase the cost of the finished product ; and if .so, to what extent ? — It is stated that the 9 R c 130 REVENUE SYSTEM OP THE UNITED STATES. present cost of producing a pound of cloth, in which are included the labor and air the materials other than cotton, and the incidental expenses to which the mills are subjected in the manufacture, quite equals the selling price of the goods before the war. 330. At what rate are you selling woollen manufactures by the ounce 1 — From 13 to 25 cents. The lowest price pays no profit. Those at 25 cent have a mixture of silk. Flannels go at 13' cents ; fancy cassimeres at 18 cents ; silk- mixed goods and fine indigo blue, 22 and 25 cents. The flannels sold at 13 cents per ounce pay to the government at the rate of 12 J cents per pound, under the duty of six per cent, tax on sales ; cassimeres pay at the rate of 17 cents per pound ; and fancy goods pay at the rate of 24 cents a pound. The production of flannels being large they pay no profit ; consequently the producer is now paying the tax, and the product will be immediately reduced, and the business thereby checked. We have stopped making flannels at one of our mills for this reason, 331. What is the shrinkage on the various classes of wools ?-^Mestiza, or South American wool, shrinks an average of 67 to 68 per cent., more frequently the latter, in sorting and scouring it. Cape of Good Hope wool about the same, The American fleece wools from 25 to 48 per cent., according to their fineness, the fine wool shrinking the most. Canada wool about 25 per cent. It is under- stood that there is a breed of sheep in Vermont whose fleeces weigh 28 pounds and yield only four ppunds of wool. APPENDIX. The following series of tables, compiled from various recent commercial reports, illustrate many points of interest in respect to the progress of the cotton trade and industry of the United States and Europe : The following figures indicate the enormous deficit in the consumption of cotton and production of goods throughout the world, which have been occa- sioned by the short supplies. and high prices of the last four years : Total cotton consumed and goods and yarns yrodvA-.ed. Pounds of cotton Pounds of consumed. goods and yam produced. From 1858 to 1861, inclusive— four years ... 3, 973 200, 000 3, 545, 800, 000 From 1862 to 1865, inclusive— four years. . .2, 245, 914, 370 1, 830, 730, 000 Deficiency 1, 737, 285, 630 1, 715, 070, 000 This enormous deficiency — equal to about two years' consumption and pio- auction of Great Britain — is therefore in arrear, and is in reality so much to be added to the ordinary wants of the cotton trade of the world ; for it is clear that merchants and traders, as holders of stocks, and the public at large, as consumers, must be entirely without supplies, further than is necessary for their absolute i-equirements. The actual home consumption of cotton goods in Great Britain is estimated at five and a half pounds in 1856, 1857, and 1858 ; at six pounds per head in 1859, 1860, and 1861; at three and a half pounds per head in 1862, with a reduction on this amount of ten per cent, in 1863, and a recovery of twenty per cent, in 1864. In 1865, the consumption, including the extra stocks held by retailers, was estimated at five pounds per head. The consumption per head in the United States in 1859-'60, the highest point ever attained, was about twelve pounds per head. The following table shows the estimated losses experienced in the cottoa trade and manufacture in Great Britain from 1862 to 1865, inclusive: REVENUE SYSTEM OP THE UNITED STATES. 131 Loss of interest of capital, and profits, to employers ...'. 8185,000,000 to $200,000,000 Loss of wages to operatives, &c 140, 000, 000 to 150, 000,.000 Total loss 325, 000, 000 to 350, 000, 000 About three-fifths of the loss in wages fell upon operatives engaged in spin- ning and weaving. Of the total amount, perhaps about one-fourth was recov- ered in the form of relief, and remuneration received for permanent or occasional employment in other branches of industry. The total sum distributed in charity alone amounted to about $15,000,000. EBLATION OF THE EXCISE TO THE COTTON MANUFACTURE. The following statement has been submitted to the commission by Edward Atkinson, esq., of Boston, showing the burden of taxation upon the cotton manu- facturing interest at this date, March 32, 1866: Treasury Department, March 22, 1866. A cotton mill, of 20,000 spindles, for the manufacture of medium sheetings 36 inches wide, of which 3J yards would weigh one pound, being sheetings of medium quality, would cost at this time $33 per spindle, and woijld require $7 per spindle, working capital, but the existing mills would stand at about $25 per spindle. 20,000 spindles, at $25, $500,000. Such mill would consume in one year 1,650,000 pounds of cotton. The net value of the cloth made would be, at the price of to-day, about $1,000,000, and at the price of to-day there would be a very small profit, if any. Taxes. 1,650,000 pounds, at 2 cents $33, 000 00 Tax on $1,000,000, net sales, at 6 per cent 60, 000 00 Taxes on supplies about 7, 500 00 Local taxes at low rate 7, 500 00 Total 108, 000 00 Being over 20 per cent, on capital. If the cotton tax is raised to 5 cents, and the tax on sales reduced to 5 per cent., the figures would stand : 1,650,000 pounds, at 5 cents $83, 500 00 Tax on sales 50, 000 00 Supplies and local 15, 000 00 Total 147, 500 00 Being nearly 30 per cent, on capital. The tax on the manufacture of wool is equally onerous, for although there is no direct tax on the raw material, the value of the manufacture is so much more in proportion to the capital invested in the mill and machinery as to make the tax even, of five per cent., on sales equal to 20 or 35 per cent, on the capital. It may be added that the kind of cotton goods referred to in the foregoing Statement can be manufactured in England from untaxed India cotton at very little, if any, disadvantage in cost or product as compared with the cost and pro- duct of goods made from American cotton. 132 REVENUE SYSTEM OF THE UNITED STATES. - OO • O GS OO - 03 fO • O O O O I' r-t Tf< • CI C^ C^ CO O O OOO O Ol O O O OOOTfOOOOO hi-Hincootncgccw OOCNOOOOOO oooooooo OOtlOtC rtrH W 0Or-ii-< rH tocNtrjcomoocDOO'ij* I^CT)OO)TPt-"^0Dl> i-< MOT Oi-l r-iCO 3 0000000 3omo-*ooo -OJOCOlO«3r-'>5' J-rHOOOOtOITJCO r>-(f— corHCOicro in -^-s MOCJOOOOOO HlOPTOCOCJt^O si^ocJQocoirsrH as Sn « w ^ fe fs a p 53 Sj 4^ ^ ►Ja >■ S^ ■< •^ to CD to 00 ^ CO P^ CO t- (D O (OOO W £• n^ J? 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A, BQ §^ :^ ~w ■w Cl »• >- », !~ -« ^ S .r 5il R? « ^ K V -s ■-e i<5 s ^ o o o o 3tDCO o o o o ■ oo oo ■ oo oo o o o o St- lo HO r-t o o oo oo o o o o ■oo SCOOT 300 CQ soto IS 00 goo 000 OQOO ■«*< t- 00 000 000 000 i-l 00 o o; o CO CO — o eo in i> 000 000 000 000 000 000 00 "* o ■* 00 l> OOCN t- 000 000 000 cooo ■* i-OO CO t>ao 000 C5 O O 000 to'eo'O*' oca 1-1 woo O) 05 oco I— I O r-l 000 000 000 O OlO) o too 000 000 000 10m o ■* (MO 00 o o 00 00 o o 00 00 o ■* 00 o o 00 00 00 00 00 00 00 5c5 00 o o o o coo 00 00 00 oTto" 100 ot* 00 o o 00 o o "5^ CO 00 03 00 00 00 I'-O 10 ITS OTOO 00 00 00 030 00 en coco o o 00 00 100 O CD CN CO 00 00 o o j>o t> CO lO in 00 o o 00 00 o o 00 in in o ■* OO-'l' 00 00 o o ^J< CO t-iO cd O ftp* as si S S 5 ■" .9 .9 £ 3 O.B.S M M « fa rt p, §1 il gals iS^'S a •Bugs an 1^ ■^ Jil S F^-f^ -H ^^ T! n-o C5 S. fi- ^£> •a ^^ ^ ■^.3 H 136 REVENUE SYSTEM OP THE UNITED STATES, '^' I ^ ^ ■fe^ rg ^ (K to !50 f-CDWr-O)i-t(Dme!WWWOrH00'^ -"MC0CiOir-lQD«eOlf .oojeOMOooTj'OOoeNmi-iOOT'^w .OCT^^eDOlTjteoCQO-^iTti OCOrtt-OO ■HOO)i-ICOnCCC>iOiOOT'3"CIr- r-lH i-H CO .co«5 0■*^oooc^lnoo:!(r^ -^oi m b- . Ol Ol I- Ol O to r H«Qomr-tirtTffotm f :d man ia in to .«HOt-MOOJ039)COCOCOOT fe .£ "^ -5, rj a o -^ f^^ " d C3 O ..■Su'Siaji O 05 MB II bo § jg bo fl E3 CD M O S gnjeadoj^ti iS4 ." .ffi S s>J^ 2 2 u o < waSBpqSs 0000000 ' EEYENUE SYSTEM OP THE UNITED STATES. 137 o CO IN 00 'fc. -hi '^ '13 'T3 I s rO ^ ocorxococo ^ oftxin AGO ^- a> i d o Ti* in o in o 9* r- tooo cn r-l CJCO i-fV"* CO OICO in r-l tH" m- i-i oT eo~ o ■*^ CD m CD l-H jrf t-oooooocftCi CT g£S in CD ~ to 1- O «J C^ -If tj' QO o t^ CD (M S coin>-HCQTji 00 mco n Min 00 ^' '"' (N iH C4 cf tn CO iH \ s «0 ^lOr-l-H r-J O00C31 t-f- ■* CO C51 1— 1 <0 QO Tt< M CDO CN ^ O Ol to s Oi-Vr-IOin (N Se^&i t^-* o «" r-T CT +5 iH in -rp r-l ^ t£) -^ CC ^ r-< t-CN gs in ^ t^Ol'^'T ^Oi ^ 00-* t- Q* OJ CD CO"*i-iC*« rHCOr-l t-^n O O of i-T « ■-I ^ 00 i 1 2 mmcor-o^rtH ^ to CO CO (?iin i^ S CO O CO coin to Sm^'wm^ CO OICO «c* to o i-T I-T I-T -43 CO CO 00 ■ ¥ irf ti" n oi a -rf oi ^ MMrH toco O) s CO w "* M 1 n o5 to t-OTj« ~(01 o m CO ■*i-i (Ni-( ^ COTJ. in.-( t- eo .9 QO CO «w 00 miH t-iH OO en O ? a n C3 o ® d o 'a 'So & ^ s > Cm € O ■g d fi 1 s M O 0, i to se 1 cd a ij.s : w ti ill h il i .11 • 1 a \ ■=3 t3 > < Productic in the Mi ma, via M tt, via Ap .a, via Sa Caroliua, Carolina Total cro fill ss ■s •s Distril ttoG t to F t to ot Total mptio , 1 xpor xpor xpor onsu J^ § Q< «p< <<: ^a I'A ^ i;^ ^[^ c; 2 1 138 REVENUE SYSTEM OF THE UNITED STATES. SPECIAL EEPORT No. 4. Report of the United States revenue commission on sugar and of national revenue. as sources Treasury Department, Office of the United States Revenue Commission, January, 1866. Sir : The following table shows the estimated consumption of foreign and domestic cane-sugar in the United States (excluding the States on the Pacific) for the years ending December 31, from 1852 to 1865, inclusive : Tears. Foreign. Domestic Total. 1852 Tons. 196, 558 200, 610 150, 854 192,604 255, 292 241,765 244, 758 239, 034 296, 950 241,420 241,411 231, 308 192, 660 345, 809t Tons. 118,659 172, 379 234, 444 185, 148 123, 468 39, 000 143, 634 192, 150 118,331 122,399 191,000 53, 000* 28, 000 3,500 Tons. 315,217 372, 989 385, 298 377, 752 378, 760 280, 765 388, 392 431, 184 415, 281 363, 819 432,411 284, 308 220, 660 349, 309 Pounds. 706, 086, 000 1853 835, 495, 360 1854 863, 067, 520 1855 18.56 846, 164, 480 848, 422, 400 628 913,600 1857 18.58 869, 998, 080 1859 965.852.160 I860 930, 229, 440 1861 814, 954, .-ieO 968, 600, 640 636, 849, 920 490, 278, 490 782, 452, 160 1862 1863 1864 1865 . ANNUAL AVERAGES, IN TONS. Five years — 1852-'56 Five years— 1867-'61 Four years — 1862-'65 Ten years— 1852-'61 Foreign. 199, 183 252, 786 252, 797 225, 985 Domestic. 166, 820 123, 103 69, 250 144,961 Total. 366, 003 375, 889 322, 047 370, 946 * The bulk of the crop of Louisiana and Texas in 1862, and a part of 1861, was distributed in 1863. t The great increase in the demand for foreign cane-sugars experienced during the year 1865 cannot be considered as normal and legitimate. The west, and especially the south, were in a great measure destitute of sugars at the close of the war, and the great demand which sprung up since that period has been rather to supply a vacuum than a legitimate increase in consumption. EEVENUE SYtiTEM OF THE UNITED STATES. ANNUAL AVERAGES, IN POUNDS. 139 Five years— 1852-'56 Five years— 1857-'61 Four years— 1862-'65 Tea years— 1852-'61 Foreign. 446, 169, 920 566, 240, 640 566, 265, 280 506,206,400 Domestic. 373, 676, 800 275,750,720 155, 120, 000 324,712,640 Total. 819, 846, 720 841,991,360 721, 385, 280 830, 919>040 From tie above table it appears that the average annual consumption oi for- eign cane-sugars in the Atlantic States, from 1852 to 1856, inclusive, was 446,169,920 pounds, and of domestic cane 373,676,800 pounds, making an ag- gregate of 819,846,720 pounds. During the next series of five years, or from 1857 to 1861, inclusive, the average annual consuinption oi foreign cane-sugars ■was 566,240,640 pounds, showing an increase of twenty-seven per cent. ; while the average annual consumption ol domestic cane-sugars was 275,760,720 pounds, showing a decrease of twenty-six and a quarter per cent. ; making in all, for these five years, an average annual aggregate consumption of 841,991,360 pounds. The effect of the war on the consumption of sugars in the United States first manifested itself in a striking degree in 1863. The crop of domestic cane-sugar in 1862 was unprecedentedly large, and for the State of Louisiana alone yielded 459.410 hogsheads ; or for the. three> States of Texas, Louisiana, and Florida, was estimated at upward of 241,000 tons. The bulk of this crop was mainly distributed for consumption in 1862 ; the receipts at the port of New York from New Orleans alone, in 1862, after the latter port came into the possession of the government, having been, with the exception of 1854, the largest ever known in the trade in any single year. The total consumption of cane-sugar (foreign and domestic) for the year 1862, for the Atlantic States, was estimated at 432.411 tons (or 968,600,640 pounds,) making a larger aggregate consumption than of any previous year in our history. During the year 1863 the consumption ai foreign cane sugars decreased, as compared with 1862, 10,103 tons, or somewhat more than four per cent. (4.2 ;) while the decrease in the consumption of domestic cane-sugars was 138,000 tons, or seventy-two per cent.* ' During the year 1864 this reduction also continued — the decrease in the con- sumption oi foreign cane-sugars, as compared ^\h. 1862, having been 48,751 tons, or exceeding twenty per cent. ; and of domestic cane-sugar 163,000 tons, or eighty-five per cent, less than in 1862. In the year 1865, especially in the months following the close of the war, the Qonsumption of foreign cane-sugar has very rapidly increased ; the aggre- gate increase being upward of 153,149 tons, as compared with the consumption of 1864, or seventy-nine and a half per cent. The production and consumption of domestic cane-sugars, on the contrary, was almost too inconsiderable to be taken into account. No reliable data are available to the commission for accurately estimating the consumption of raw cane-sugar in the Pacific States ; but an annual average of about 10,000 tons is probably approximately correct. A considerable portion of the sugars consumed in the Pacific States are of the refined descriptions re- * The bulk of the crop of Louisiana and Texas in 1862, and apartof 1861, was distributed in 1863. 140 REVENUE SYSTEM OP THE UNITED STATES. ceived from New York and Boston, though the recent establishment of refineries in San Francisco has begun to interfere with such shipments from the Atlantic ports. In addition to the above estimates of the consumption of cane-sugars, allow- ance should be made for a considerable amount of clarified sugar annually en- tering into consumption, which is produced from molasses. This product (which is represented in the aggregate table of consumption of sugars of all kinds given hereafter) was estimated for the year 1863 at 21,250 tons, and for the year 18^4 at 22,321 tons. The manufacture of maple sugar during the past few years, owing to the great increase in the price of cane-sugar, has been prosecuted with unexampled en- ergy ; and although it is extremely diificult to arrive at any satisfactory conclu- sions respecting the present extent of this important crop, owing to the numer-i ous locations, scattered throughout the northern, middle, and western States, where it is gathered in a small way, yet there can be little doubt that the esti- mates that are generally made, of about 28,000 tons (or 62,720,000 pounds) per annum, are rather within than in excess of the actual quantity. The cultivation of the sorghum, under the like influence of high prices for cane-sugar, is rapidly extending throughout the western States, and is also be- coming, to the same extent, a farm product of southern New England and the middle States. As yet, the expectations that have been indulged in, re- specting the value of this plant as a source of sugar, have not been realized ; but that sirup of a valuable quality can be easily and economically made from it has been well established. The high price of the sirups derived from the sorghum, averaging $1 20 per gallon, effectually precludes all idea of an imme- diate production of sugar from this source, even were an economical process for its extraction devised. Continued experiment, however, has satisfied intelligent minds that this plant may become a future source of merchantable sugar. The quantity of sirup thus produced for the years 1862, 1863, 1864, and 1865, is estimated by the commission as follows : Gallons. 1862 5, 000, 000 1863 : 9, 000, 000 1864 16, 000, 000 1865 ' 25, 000, 000 For the future a steady annual increase in this product may be also considered certain. That such a rapid and large addition to the supply of the saccharine material of the country will, to some extent, affect the demand for foreign and domestic cane-sugar, and more especially of cane molasses, (and consequently the reve- nue to be derived from the same,) cannot be doubted; and in the opinion of those most conversant with the trade, such indeed has been the effect already. It should, however, be called to mind in this connexion, that the western States have never been consumers of foreign molasses to any great extent, and that it is the new and cheap supply of saccharine material afforded by the sorghum which has itself, in a measure, created its demand for consumption. REVENUE SYSTEM OF THE UNITED STATES. 141 The following table shows the estimated consumption of sugars of all kinds in the United States, from 1857 to 1865, inclusive, (nine years :) Years. Tons. Pounds. Remarks. 1857 332, 065 431, 152 478, 737 464, 673 411, 650 483, 205 440, 600 280, 500 412, 000 743, 825, 600 965, 780, 480 1, 072, 370, 880 1, 040, 867, 520, 922, 096, 000 1, 082, 379, 200 762, 720, 000 628, 320, 000 92a, 880, 000 1858 30 per cent, increase. 1859 I860 1861 11? 11 II , 1862 17§ " increase. 294 " decrease. 17| " " 1863 1864 ] 865 47 " increase. In 1860 the consumption of sugar in Great Britain was estimated at an av- erage of about thirty-four pounds per capita, or an aggregate of upwards of one thousand millions of pounds. This consumption, however, is not equally distributed in different parts of the kingdom. Thus, in 1856, the consumption in England was thirty -four pounds per capita ; in Scotland, thirty-one pounds ; and in Ireland, only eight and a half pounds. In France the consumption of sugar per capita was estimated, in 1860, at eleven and one-third pounds ; in Belgium, at twenty-one pounds ; in the German states, at seven and .three-fourths pounds ; and in Russia, at two pounds. In Great Britain it is estimated that there are consumed nine pounds of sugar for one pound of tea and coffee. In France the proportion is nine and two- thirds pounds for one pound of coffee. In Belgium, where the cc/ffee is usually taken without sugar, the consumption of sugar is estimated at but little more than two pounds for one of coffee. In all the United States, if we adopt the estimates above given, the average annual consumption of sugar of all kinds per capita, with an assumed popula- tion of 30,000,000, for the years 1858, 1869, and 1 860, was thirty and a half pounds. For the year 1864, when the consumption of sugar, by reason of the war and high prices, was reduced to its minimum, the consumption per capita was only twenty-one pounds. For the year ending December 31, 1865, the consumption may be estimated at thirty-one pounds per capita. The average annual consumption per capita of foreign cane-sugar, for the years 1858, 1859, and 1860, in the Atlantic States, was nineteen and one-third pounds ; and of domestic cane-sugar for the same years, eleven and two-thirds pounds. Assuming the present average annual production of maple-sugar to be 28,000 tons, we have as the average annual consumption of this article, with a popu- lation of 30,000,000 as above, about two pounds (2.1) per capita. The commission estimate the average rate of increase in the consumption of cane-sugars, foreign and domestic, in all the United States, for the ten years prior to and including 1861, to have been about three per cent, (more nearly 2.8) per annum. With the revival of the peculiar industries of the south, the States of Louis- iana, Texas, and Florida will, undoubtedly, during the present year (1866)* * The sugar product of Louisiana for 1865 was estimated to be insufficient for even the local consumption. 142 REVENUE SYSTEM OF THE UNITED STATES. begin to contribute again to a considerable extent to the supply of the cane-sugars required for the consumption of the United States. As will be seen by refer- ence to the tables above given, the amount of ,cane sugar of domestic produc- tion annually supplied for consumption in the United States averaged 166,830 tons (or 373,676,800 pounds) for the five years next preceding 1857; and 123,000 tons (or 275,751,000 pounds) for the five years next preceding 1862. For the next few years, or so long as the labor question at the south remains at all unsettled, and probably so long as cotton continues to command twenty- five cents or more per pound, the manufacture of cane-sugars in the States above mentioned must revive but slowly ; and in the opinion of the commission the aggregate and maximum product of domestic cane-sugars, for the year 1866 and 1867, will not exceed 50,000 tons.* For the fiscal years ending June 30, 1867 and 1868, the commission estimate that the consumption of the country will probably require an annual importa- tion of at least 285,625 tons (or 620,000,000 pounds) of foreign cane-sugars j which estimate presupposes, for these years, an annual consumption of all kinds of sugars considerably less than for the average of the five years imme- diately preceding the war. * It is extremely difficult to form any reliable estimates respecting the immediate future production of sugar in the southern States. History records few examples of so stupendous and rapid a destruction of a great branch of national industry as befel the sugar interest of the United States, by reason of the rebellion. The crop of ]861-'62 was one of the largest ever made. The number of sugar estates returned as in operation for that year was 1,293, and the product 459,410 hogsheads of sugar and 36,752,800 gallons of molasses. For 1864-'65, on the contrary, the number of sugar estates returned as in operation was only 180, which afforded the scanty product of 6,750 hogsheads of sugar (or about thirty-seven hogs- heads per estate) and 405,000 gallons of molasses. Large as was the crop of 1861-62, the crop of 1862-'63 would probably have been much larger'under all ordinary circumstances. The crop in question had nearly reached maturity; the expenses incidental to grinding had already been incun'ed; when military necessity sud- denly and violently vfrested from the planter his working power — representing a capital of over one hundred and seventeen millions of dollars — leaving the canes for the mills and the com for the use of the respective estates to rot in the fields, or to become spoil of the con- ■ tending armies. In view of these facts, it is not improbable that the estimates given in this report of tls immediate future product of domestic cane-sugar is much larger than the facts will warrant. If this should prove to be the case, a larger import of foreign sugars will be required than has been "estimated, to make good in all, or part, of the deficiency of the domestic crop. An opinion is communicated to the commission, by one of the most intelligent sugar pro- ducers and factors of Louisiana, founded on a careful examination and review of the present industrial and financial condition of the sugar-producing States, that if an active capital of $25,000,000 could be obtained, coupled with a "virtual organization of labor, irrespective of color, and equally protective of the employer and employ^," the sugar industry of the State of Louisiana alone might in less than four years be made to yield an annual aggre- gate of at least 500,000,000 pounds. All such supply of capital must, however, bo to- nished from abroad, as the local banks, and the sugar factors, who foimerly co-operated witl^ and made advances to the planter, have, in common with him, been greatly crippled, or en- tirely ruined. REVENUE SYSTEM OF THE UNITED STATES. 143 Molasses. — The following table shows the estimated consumption in the At- lantic States of cane molasses, domestic and foreign, for the years ending De- cember 31, from 1851 to 1864, inclusive : Calendar years. Amount consumed. Amount imported. 1851 Gallons. 43,948,018 48,257,511 66,536,821 56,493,019 47,266,085 39,608,878 28,608,784 45,169,164 54,260,970 47,318,877 40,191,556 62,668,400 37,569,088 32,581,668 Gallons. 33,238,278 29,417,511 28,576,821 24.437 019 1852 1853 1854 1865 i 23,633,423 23.014 878 1856 .. ., 1857 23,266,404 24,795,374 1858 1859 28,293,210 28,724,205 20,383,556 25,650.400 I860 1861 1862 1863 26,569,088 1864 28,763,668 The total consumption of molasses of all kinds, for the year 1862, was esti- mated as follows : Gallons. Cane, foreign and domestic 62,668,000 Sugar-house sirups ; 21,000,000 Sirups form maple and sorghum 14,000,000 97,668,000 For the year 1863 : Cane, foreign and domestic 37,569,000 Sugar-house sirups 25,000,000 Maple sirup 9,000,000 Sorghum 9,000,000 80,669,000 Tor the year 1864 : Cane, foreign and domestic 32,682,000 Sugar-house sirups 20,000,000 Maple sirup 9,000,000 Sorghum 16,000,000 77,582,000 The quantity of cane molasses taken for distilling before the excise law went into effect was very large, but since then the demand for this purpose has fallen off materially. 144 REVENUE SYSTEM OF THE UNITED STATES. In the opinion of the commission an annual importation of at least twenty- five millions of gallons of cane molasses may be relied on for the fiscal years 1866-7 and 1867-8 ; and during the same years an annual domestic product of cane molasses, available for assessment and revenue, of about ten millions of gallons, may be also anticipated. The following are the rates of duty at present imposed on imported sugars : Sugars not above No. 12, Dutch standard, in color, 3 cents per pound; su- gars above No. 12, and not above No. 15, Dutch standard, in color, 3 J cents per pound ; sugars above No. 15, not stove-dried, and not above No. 20, Dutch standard, 4 cents per pound ; sugars, refined, 5 cents per pound ; sugars, store- dried, or other sugars above No. 20, Dutch standard, in color, 5 cents per pound ; sugars, refined, when tinctured or adulterated, 15 cents per pound ; candy, val- ued at 30 cents or less per pound, 10 cents per pound. The rates of duty imposed by several of the leading countries of Europe on the importation of unrefined raw sugars, previous to 1864, were as follows : Great Britain, 2f to 3j cents per pound — average, 3J ; France, 2J to 4 cents per pound — average, 3 J ; Eussia, 8 cents per pound ; Zoll Verein, 5 cents per pound; Austria, 5 cents per pound; Sweden and Norway, 2 cents per pound; Spain, 3J cents per pound. Average rates of imposts in the above eight coun- tries, 4 cents per pound. In 1864 the imposts on foreign sugars in Great Britain were reduced, making the present rates on low grades of sugar 2 cents to 2^ per pound. In Great Britain sugar is the most productive article in the customs revenue, the importation of unrefined sugars for the years ending December 31, 1S62, 1863, and 1864, having yielded, respectively, the following gross amount of duties : 1862 , 666,201,250 $31,006,250 1863 6,329,850 31,649,250 1864 4,773,210 23,866,050 The aggregate of duties paid in Great Britain, for the same years, on sugars of all descriptions, and molasses, is also returned as follows : 1862 .£6,641,236 $33,206,180 1863 6,717,189 33,585,930 1864 5,394,701 26,973,505 REVENUE SYSTEM OP THE UNITED STATES, 145 The following table, prepared from returns furnished to the commission by the Treasury Department, shows the estimated quantities of sugars imported, and the duties received on the same, for the five ports of Boston, New York, Phila- delphia, Baltimore, and San Francisco, * during the fiscal years ending June 30, 1862, 1863, 1864, and 1865 : Year ending- Quantity. Bates of duty. Duties received. June 30, 1862t June 30, 1863 June 30, 1863 June 30, 1863 June 30, 1863 June 30, 1863, sugar candy. Total, 1863 Juno 30, 1864-'. June 30, 1864 June 30, 1864 June 30, 1864, refined June 30, 1864, sugar candy Total, 1864 Pounds. 652,498,301 315,038,166 18,611,342 2, 454, 460 47, 121 2,687 336,153,776 494, 812, 465 31, 699, 069 6, 047, 997 21,910 49, 700 2-1 cents. 3 cents. 3i cents. 4 cents. 6 to 10 cents. 2^ cents. 3 cents. 3^ cents. 4 cents. 6 to 1 cents. $11,511,733 03 7,875,954 15 558, 340 26 85,906 10 1,884 84 252 70 18, 522, 338 05 12, 370, 311 62 950, 972 07 211,679 90 876 40 4,321 52 532, 631, 141 {13,538,161 51 The rates of duty on cane-molasses imported into the United States since 1856 have been as follows: From 1856 to 1858, 30 per cent, ad valorem; from 1858 to 1861, 24 per cent, ad valorem. By the act of March 2, 1801, a duty of two cents per gallon was imposed on all imported molasses ; by the act of August 5, 1861, the duty was advanced to five cents per gallon ; by the act of December 24, 1861, to six cents per gallon; and by the act of June 30, 1864, the duty was still further advanced to eight cents per gallon, since when the rate has remained unchanged. On sirups and melado the present rate of duty is two and a half cents per pound. Gross im- ports. Exports. Consumption. Duties ac- cruing. Sugars not above No. 32, Dutch Pounds. 519,457,697 75, 738, 169 12,741,808 Pounds. Pounds, Sugars above No. 12, and not above No. 15, Dutch standard. Sugars above No. 15, and not above No 20 Dutch standard Total 607, 937, 674 28,555,268 579,782,406 $20, 292, 384 * For San Francisco, the returns are given only to the 30th of April, 1864. + The rates of duty in 1862 varied from three-fourths of a cent to five cents, the average being one and three-fourth cents. X After the above returns were prepared, the commission received from the department the following (doubtful) returns of the imports of sugar of different grades into the United States, and the duties accruing from the same for the fiscal year 1865. 10 B C. 146 REVENUE SYSTEM OF THE UNITED STATES. The following table, prepared from returns furnished to the commission by the Treasury Department, shows the estimated quanrities of molasses, sirups, &c., imported, and the duties received on the same for the five ports, Boston, New York, Philadelphia, Baltimore, and San Francisco,* during the years ending June 30, 1862, 1863, 1864, and 1865 : MOLASSES. Year ending- Quantity — gal- lons. June 30, 1862, June 30, 1862. June 30, 1862 Total, 1862 June 30, 1863 June 30, 1864 June 30, 1865 7,257,716 3, 025, 250 16,351,933 26,634,899 26, 463, 785 22,832,102 34, 958, 091 Eates. Duties received. 2 cents. 5 cents. 6 cents 6 cents 6 cents 8 cents §145,154 32 151,262 50 981, 115 98 1,277,532 80 1,587,827 10 1,369,926 12 2, 796, 647 28 SIRUPS, MELADO, ETC. Year ending- Pounds. Eates. Duties received. June 30, 1862. June 30, 1862. June 30, 1862. Total, 1862 June 30, 1863 June 30, 1864 June 30, 1865 7, 389, 189 988, 952 312,215 8, 690, 356 2,727,192 5,524,102 6, 863, 179 f of a cent 2 cents 2-J- cents - . 2 cents . . - 2 cents . . . 2^ cents . . $55, 418 91 19,779 04 7,805 37 83,003 32 54,543 84 110,482 04 171,579 48 By the amended internal revenue act of March 3, 1865, the following rates of excise were levied on the production or manufacture of domestic cane sugars ; On sugars not above No. 12, Dutch standard, produced from the sugar-cane, and not from sorghum or imphee, other than those produced by the refiner, two On sugars above No. 12, and not above No. 18, Dutch standard, produced and four-tenths cents per pound. directly from the sugar-cane, and not from sorghum or imphee, three cents pet pound. On sugars above No. 18, as above, four and two-tenths cents per pound. On molasses produced from the sugar-cane, and not from sorghum or imphee six cents per gallon. On sirups of molasses, or sugar-cane juice, concentrated molasses, or melado, and cistern-bottoms, one and a half cent per pound. The following table shows the amount of internal revenue received from the excise on domestic cane sugars of the different varieties for the fiscal yeats ending June 30, 1863, 1864, and 1865 : ' For San Francisco the returns are given only to the 30th of April, 1864. REVENUE SYSTEM OF THE UNITED STATES, 147 Revenue received. Currency. lSG2-'63. Total excise tax on domestic cane sugars, lS62-'63. $261, 044 58 1863-'64. Total excise tax on domestic cane sugars, 1863-'64. 1, 267, 616 28 1864-'65. Sugars not above No. 12, Dutch standard 86, 464 76 Sugars above No. 12, but not above No. 18 . 179, 323 86 Sugars above No. 18, Dutch standard 57, 963 76 Total excise tax on domestic cane sugars, 1864-'65. 323, 752 38 For the fiscal year 1864-'65 the revenue obtained from the excise tax on domestic molasses produced from the sugar-cane, sirup of molasses, melado, and cistern-bottoms, was $54,971 78. By the internal revenue act of June 30, 1864, an excise of two and a half per cent, ad valwem was levied on the gross amount of sales on sugar refiners. By the amended act of March 3, 1865, this excise was advanced to three per cent., the refiner being at the same time required to take out a license. The following table shows the revenue received from the excise on the sales of sugar refiners, and the rates of excise for the fiscal years ending June 30, from 1863 to 1865, inclusive : Amount received Currency. Year ending June 30, 1863, rate of excise 1 J per cent $93, 418 09 Year ending June 30, 1864, rate of excise IJ per cent 873, 139 85 Year ending June 30, 1865, I ""^f °^ *^^'=!^^ l^ P'^^' ''^f' " " " I 1. 720, 612 96 ° ■ \ rate of excise 3 per cent ) From the above tables it would appear therefore that the gross revenue re- ceived from the customs duties and excise on sugars of all kinds, and on the gross sales of sugar refiners, for the year ending June 30, 1865, has been as follows : Customs duties on imported sugars, &c (gold) $20, 292, 384 21 Customs duties on imported molasses (gold) 2, 796, 647 28 .Sirups, melado, &c (gold) 171,579 48 Total receipts from customs (doubtful) (gold) 23, 260, 610 97 # — Excise on domestic cane sugars (currency) $323, 752 38 Excise on sales of sugar refiners (currency) 1, 720, 612 96 Total receipts from excise (currency) 2, 044, 365 34 The commission, in this connexion, would direct special attention to the effect of the present excise tax on the gross sales of sugar refiners. Previous to 1850 the raw material employed by the manufacturers of refined sugars in the United States consisted mainly of " Havana box," " clayed.Manilla," and the better class of "Porto Rico" sugars ; all containing a high percentage of cane sugar and a very small proportion of molasses and (other) impurities. The sirups resulting from the treatment of these varieties of the raw material, being all rich in sugar, were "worked back," as it is termed, in the refiaeiies, and by secondary results tended to swell the product of the refined sugar. 148 REVENUE SYSTEM OF THE UNITED STATES. Under these circumstances the average production of refined sugar, resulting from the treatment of the above varieties, -was as follows : Per cent. Eefined in various forms — crushed, pulverized, &c 70.63 A, white, wet 2.28 First product 72.91 B and 0, yellow, wet 12.40 Molasses 11-18 Second product - 23.58 Total yield of merchantable product 96.49 Loss — impurities and moisture 3.51 About 1848 to 1850 the increasing competition of grocers for the grades of sugars heretofore used in refining compelled the refiners to seek their supplies in the lower grades of muscovado sugars, from which, by the application of more perfect chemical processes and mechanical appliances, with rigid economy in expense, waste, and time, they were enabled to produce an article in all respects equal in quality to that previously made, but in largely diminislied proportions of the higher class of refined sugars. Since 1850 the average results of refineries in treating the last-mentioned varieties of raw cane-sugars is reported to the commission as follows : Per cent. Refined in various forms — crushed, pulverized, &c 37.49 A, white, wet 13.12 50.61 B and 0, yellow, wet , 24.60 Molasses, at 12 lbs. per gallon 17.81 42.41 Total yield of merchantable product 93,02 Loss — impurities and moisture 6.98 This last result is obtained by what is known as the " direct process," in which the resulting sirups from the first boiling, being poor in sugar, (from tie low grades of sugar operated upon,) are boiled at once to make B and (yellow) sugars and molasses, instead of being " worked back," as in the first process detailed. The obvious effect of the direct process is a largely reduced yield of refined sugars and a proportionate increase of yellow sugars and molasses ; but in the calculations of the refiner this is compensated for by the largely increased quantity of raw sugars which they are enabled to melt and refine with the same machinery and labor, by the higher quality of the secondary products and by the diminished cost of labor and working. The business of refining sugar constitutes one of the largest branches of manufacturing industry followed in the United States, and as regards capital invested and number of men employed, probably ranks among the first of the special industries of the cities of Boston, New York, Philadelphia, Baltimore, Cincinnati, and St. Louis. Of the whole amount of raw cane-sugars imported REVENUE SYSTEM OF THE UNITED STATES. 149 into or produced in the United States, about two-thirds are estimated to pass through the refineries previous to final consumption.* From the table above submitted it would appear that, by the processes now- followed in American refineries, &!oroof spirits per annum. Instances are also reported of individual hair-dressers using 400 gallons of .alcohol (equal to 750 gallons of proof spirits) yearly in their local business ; and •of others, whose consumption of alcohol, in the preparation of articles having ■merely a local sale, has reached 2,000 gallons per annum. The business of manufacturing fluid or solid extracts, or the concentrated ■medical principle of plants, also suffers greatly by reason of the increased cost ■of alcohol. Most of the active and solid medicinal principles of plants— the alkaloids and vesinoids — which are extracted with alcohol, have advanced in price from 100 to 300 per cent. The increased cost of fluid extracts is also said to counterbalance whatever claims these preparations may possess of conven- ience of administration and effect, and physicians, especially those in the country, are a:bandonyig the use of these articles, and falling back upon the old usages by employing crude drugs, decoctions, sirups, &c. It is also represented to the commission, by members of the American Phar- maceutical Association, that the high tax on alcohol is having the effect of causing oflScinal preparations to be prepared and put up of less than their proper strength, thus inflicting an injury upon the whole community. For the manufacture of " imitation wines," the demand for distilled spirits has also, heretofore, been very large ; four firms in the city of New York having reported to the commission a consumption of 225,000 gallons of pure spirits for this purpose during the year. 1863. Large quantities of neutral, or pure spirit!> have also heretofore been used in the United States for the "fortifying" of cider to prevent or retard acidification, especially for cider intended for export to tropical countries, to the southern States, or to the Pacific coast. One dis- tiller, in western New York, reports to the commission a regular sale during the year 1862, of eight thousand gallons of proof spirits per month for this purpose. No considerable sale of distilled spirits for the manufacture of "im'- REVENUE SYSTEM OF THE UNITED STATES. 165 tation wines," or for the " fortifying " of cider, are reported to the commission since July, 1864. In all branches of the industrial arts, where the continued use of distilled spirits is indispensable, and no che^er substitute can be provided, the utmost economy in its employment is everywhere reported. As an illustration of this fact, it is stated to the commission that in alarge establishment in Now York city manufacturing silk hats of the first quality, the following plan is resorted to : the hat body, after being thoroughly immersed and saturated with the stiffening preparation, (gum dissolved in alcohol,) is immediately placed in a close metallic box, or receptacle, and subjected to a current of steam, which both dries the gum and vaporizes and transports the alcohol (employed as a solvent for the gum) to a condenser ; while from the product of the condensed vapors the alcohol is subsequently recovered by redistillation and again used. A similar economy for the recovery of spirits in the residuum of the manufacture of tinctures, lini- ments, &c., is also reported as adopted by druggists and pharmaceutists, and small stills invented for this special purpose are extensively sold and used. Among the article^ used as substitutes for alcohol in the industrial arts, we may mention benzole, and other derivatives of petroleum or coal oil, wood naphtha, fusil oil, and spirits of turpentine. Again, four years since, nearly every preparation sold for the treatment of the hair contained alcohol as a basis ; now, alcohol has been substituted in such manufactures almost entirely by preparations of oils or fats. Alcohol was also formerly used, to a very consid- erable extent, in many large manufacturing establishments — as cotton mills, foundries, &c., — as a solvent for gums and glues, which were applied for the protection of rollers and patterns against moisture, or for the fastening of belts used in communicating power. Where barrels of alcohol were formerly de- manded for such purposes, gallons are now made to suffice. The commission further note the reception, by them, of memorials or commu- nications from the curators of some of the leading museums of the country — anatomical or natural history — attached to institutions of learning, setting forth, that owing to the high price of alcohol (four dollars and fifty cents per gallon,) they are not able to make good the constant waste of this substance (by evapo- ration and leakage) as employed by them for scientific purposes ; and that, in consequence thereof, many important collections are becoming rapidly impaired in value, while the progress of scientific discovery and research is greatly impeded. Another element contributing largely to a reduction in the production of distilled spirits in the United States in 1865, as compared with that in 1860, has been the diminished demand for spirits for drinking purposes. The extent of reduction from this cause is not easily estimated. The commission have examined a large number of persons, from all sections of the country, on this topic — manufacturers and dealers in liquors. United States revenue officers, and others — and have to report a very wide discrepancy of opinion. A few, and these mainly from the west, estimate the reduction in the consumption of distilled spirits for drinking, since the imposition of the $1 60 and $2 per gallon tax, at as high a proportion as 75 per cent. ; while others, of equally good judgment, state that they are unable t6 recognize much, if any, difference in the amount drank at present, as compared with former years. Much of the discrepancy of opinion is, however, undoubtedly due to the difference in the stand-points ■ occupied by the various observers, inasmuch as it seems clear to the commission that ' by far the largest proportion of the reduction in the consumption of spirits for > drinking has been on the part of the working or poorer classes of our popula- tion, and has been very considerable ; while as respects all those classes with whom, > by reason of abundant means, the enhanced price of liquors is a matter of but ( slight consideration, the consumption of distilled spirits has probably not been I diminished, and in some sections has doubtless increased. 166 REVENUE SYSTEM OP THE UNITED STATES. Previous to the imposition of the tax by the national government, raw whiskey was retailed at almost every point in the country at from seven to fifteen cents per quart, or from twenty-five to forty cents per gallon. With these low prices it was within the ability of every laborer to indulge freely, and this ability was very largely taken advantage of, especially at the close of a week, or at the periodical settlement for wages. It was also a very general custom, in many parts of the country, for agriculturists to buy whiskey by the barrel for the use of their farming help, and to use it freely as a beverage during the season of harvesting, With the advance in the price of whiskey to sixty cents per quart, $2 35 per gallon, and S126 per barrel, its free use was found expensive ; and accordingly the testimony presented to the commission is unanimous to the effect that, with the above-mentioned class of consumers, the reduction in consumption has been very considerable. With those who have been unwilling to give up drinking entirely, beer has been largely substituted for whiskey. No marked diminution in the sales of liquors to the poorer classes of consumers appears to have been noticed by country retailers until the tax was raised to above sixty cents per gallon. ^ On the other hand, the testimony of the leading retail and package dealers in liquors in many of thelarge towns and cities is generally to the effect that their busi- ness, in the aggregate, has not been diminished by reason of the high rates of duty. The demand for the so-called "foreign" or "imported " liquors — brandies, rums, gins, &c. — has largely fallen off, but this loss has been fully supplied by an in- creased sale of American whiskey. In fact, the imposition of the high rates of duty would seem to have nationalized this liquor as a beverage, every variety being sold under the common name of " Bourbon.'' One prominent retail dealer in New York testified before the commission that where, during the past two years, he had lost the sale of four gallons of foreign brandy, he had gained a sale of twelve gallons of whiskey. Furthermore, from the testimony offered to the commission, it seems to be the opinion of those most competent to judge, that during the last four years, either by reason of the excitements of the war, or of the high prices of alcohohe hquors, the consumption of certain drugs, which can be used as substitutes for spirits, has largely increased. Of the opium imported into the country, it is estimated X}i3utfour-Jifths are used under various forms and popular names for purposes closely allied to the uses of spirituous liquors ; leaving only one-fifth for legitimate medical necessi- ties. The extract of Indian hemp {cannabis Indica) is also undoubtedly used extensively in the United States for producing the stimulating effect of spirits; and so great has been the demand for a popular medicine composed mainly of this deleterious substance, that its manufacture at times absorbs nearly all of this drug imported into the country — to such an extent, even, that regular pbanna- ceutists have, at times, found it extremely difficult to obtain a sufficiency of it of proper quality for their legitimate business. It is not probable that many of the persons using the preparations above referred to are fully aware of their highly dangerous character, and it is a question worthy of serious consideration whether the business of preparing and vending such poisons, under attractive and deceptive names, should not be forbidden by law. In regard to another mat- ter bearing upon the s&me point, the commission content themselves by quotingin this place an extract from the testimony of one of the most competent and trust- worthy witnesses that have appeared before them : " Question 640. Do you think that proprietory medicinal preparations com- posed largely of spirits are now, to any effect, used for their stimulating rather than for their real medicinal effects ? "Answer. I do believe they are largely so used. I have heard, on credible authority, that many of the applicants for the benefit of the recently established inebriate asylum in this State (New York) have had their vice traced to the use REVENUE SYSTEM OF THE UNITED STATES. 167 of alcotolic preparations sold as medicines. I mean to be understood hj medi ■ cinal preparations, such as are put up and sold under names that conceal their alcoholic constituents and effects. There is a large and increasing class of pro- prietory medicinal preparations, so called, made, advertised, and sold, embracing the fashionable elixirs, tonics, bittirs, sirups, cordials, &c., which consist mainly of spirits ; and these, in my opinion, are largely contributing to undermine the foundation of our social condition, chiefly by gaining admittance, under the dis- guise of medicines, to the abodes of women and children, who are thus corrupted while yet unsuspicious of exposure to danger. This class of preparations, and the prostitution of the pharmaceutists' ' soda fountain' to but partially-concealed tippling through the use of brandy, whiskey, and spirituous sirups and cordials, are rapidly endangering a portion of society, namely, ladies and children, whom I trust the law-makers will not fail in some way to protect." CONSUMPTION OF DISTILLED SPIRITS IN THE UNITED STATES FOR DRINKING PURPOSES, PER CAPITA. The question naturally next arises, what is the present consumption of distilled spirits in the United States, per capita, for drinking purposes 1 On this point the commission are not aware that any accurate investigations have heretofore been made, or the results of any reliable inquiry have ever been laid before the public ; and consequently, through the absence of all positive data, any conclu- sions which may be arrived at must necessarily be regarded as only approximate. Partial criteria, however, for the formation of an opinion on this subject, can undoubtedly be derived from the accurate statistical returns respecting the con- sumption of distilled spirits in Great Britain, the population of which country closely corresponds to that of the United States, in respect to numbers, charac- ter, and habits. These returns indicate a constantly increasing consumption of spirits by the British people during the sixty years which have elapsed from 1800 to 1860, Thus, in 1801 the average consumption was two-tenths (.2) of a gallon per head; in 1811 it was seventy-two one-hundredths (.72) per head; and in 1821 it had fallen to forty-six one-hundredths, (.40.) In 1831 the con- sumption was reported at nine-tenths (.9) of a gallon per head ; from which limit it receded, in 1841, to seventy-seven one-hundredths (.77) of a gallon per head. In 1851 it, however, rose again to eighty-seven one-hundredths (.87,) and in 1859 it was reported at eight-tenths, (.8.) It should, however, be stated that a part of the apparent increase in tHe per capita consumption of spirits in Great Britain, since 1841, was undoubtedly due to the suppression of illicit dis- tillation, which augmented the amount of spirits subject to official cognizance, without a corresponding actual increase in consumption. In 1858 the excise taxes on distilled spirits in Great Britain (which in 1854 were seven shillings and tenpence ($1 96) per gallon in England, four shillings and eightpence ($1 17)in Scotland,and three shillings and fourpence (83 cents) in Ireland) were equalized, and a uniform rate of eight shillings ($2) per gallon was adopted throughout the entire kingdom, which excise was afterwards ad- vanced, in 1861, to a higher and uniform rate of ten shillings per gallon, the present rate of excise. The effect of the addition of two shillings (50 cents) to the rate of duty prior to 1861 was to cause a reduction in the consumption of spirits, without, however, any considerable reduction of the revenue ; the consumption in 1862, according to Mr. Gladstone, having been reduced as low as two-thirds (.645) of a gallon per capita ; which rate, from the report of the commissioner of inland revenue, appears to have increased somewhat for 1864 ; the number of gallons charged to consumption in this latter year being 20,231125 against 19,760,882 in 1863. The average annual consumption of foreign and colonial spirits by the British people from 1860 to 1864 is further returned at about three-tenths of a gallon 168 REVENUE SYSTEM OF THE UNITED STATES. per head ; so that with this addition we have as the total present annual con- sumption in Great Britain, of spirits of all kinds for drinking purposes, a quantity equivalent to ahout eight-tenths (.79) of a gallon for every inhabitant of the kingdom. The consumption of wine in great Britain for 1864 was estimated by the commissioners of the inland revenue at three-eighths (.38) of a gallon ^er capita. The distribution of the consumption of spirituous and fermented domestic liquors among the British people is in a measure indicated by the amount of excise paid on these articles by the different classes of the population. Thns, in 1859, the revenue derived from excise on spirits and malt was 6fil5,500,000 ($77,500,000.) Of this sum, according to Prof. Leone Levi, the so-called upper classes, numbering about one million individuals, paid about ,€3,100,000 $15,500,000;) the so-called middle classes, numbering about nine millions, paid ^62,200,000 ($56,000,000 ;) and the working classes, numbering about eighteen millions, paid =£7,200,000 ($36,000,000 ; ) or, in other words, the upper classes paid in taxes to the government, on the spirituous and fermented domestic liquors consumed by them, and for the licenses for the sale of the same, $15 50, the middle classes $2 88, and the working classes $2 per head.* The testimony of all the persons competent from observation and experience to form an opinion on this subject, who have appeared before the commission, ia unanimously to the effect that the consumption per capita of distilled spirits in the United States is considerably in excess of that in Great Britain; and one gentleman of large intelligence, who for many years held a place of high responsibility in the British excise department, and who has since, for a period of several years, been conversant with the importation and sale of liquors in the United States, estimates the consumption of spirituous liquors for drink- ing purposes in this country as equal, at least, to a gallon and a half per capita. So marked a difference as this, however, in the consumption of distilled spir- its by the people of the two nations of the United States and Great Britain must, it would seem, have heretofore excited attention and comment ; and we are. therefore, inclined to consider the estimate of a gallon and a half per head for the consumption of the United States as somewhat exaggerated. A comparison of the licenses granted in the two countries for the retailing of distilled spirits gives the following results. The whole number of licenses granted in Great Britain for the year ending March 31, 1865, was 107,933. The whole number granted in the loyal part of the United States for the year ending June 30, 1865, as estimated from the receipts ,was 88,235. Adding 20,000 additional licenses as the theoretical number requu-ed to supply the retail de- mand for spirits in that part of our country not subject, during the fiscal year 1864-'65, to the operation of the national revenue laws, we have 108,235 as the probable number representing the retail business for the sale of liquors in the entire United States.t - The manner in which liquors are retailed in the United States and in Great Britain differs somewhat. In the former, when a "drink" of distilled spirits is called for, the bottle or decanter is passed and the purchaser helps himself ai libitum ; in the latter, on the contrary, every quantity of spirits retailed is * Some calculations have been made of the sum annually spent in the United Kingdom for British and foreign spirits. It is estimated that the consumer pays for every gallon of spirits used three times the amount of duty, and at this calculation the expenditure for riun will amount to £4,000,000, ($20,000,000;) for brandy, £3,400,000, (§17,000,000;) and for S?t'^ nn^PiSn \ "?. '•'^^ ^'^^'^ £28,000,000, (1140,000,000,) making in all £35,000,000, (.lpl7b,uuu,UU0.) It to this amount we add £30,000,000 spent in beer and £5,000,000 ia wine, we have a grand total spent in wines, spirits, and beer, of nigh £70,000,000, ($350,000,- .„„ . - — spirits ..^ .u^ >jiiiu»,u ijiaTOD iv/i ^^— -- was|20 ; for the year 1864-65, $85. This duty on licenses in Great Britain varies from fU" to li>&5 per annum, according to the rental of the premises occupied, REVENUE SYSTEM OF THE UNITED STATES. 169 measured by the seller, and accurately proportioned to the price to be received. This custom prevails equally in Great Britain in the leading hotels and club- houses as in the lowest "dram-shops;" the original signification of the term " dram-shop" — i. e., the place where liquor is sold by the fluid drachm, or other measure — being in fact due to this British trade peculiarity. It may also be remarked, in this connexion, that "fancy" or "mixed" preparations of spirits, which, from their agreeable appeal to the taste, may be regarded as incentives to consumption, such as "cobblers," "smashes," and " cock- tails," &c., are all peculiarly American, and are little known or used in Great Britain. The amount received in the United States from licenses granted to wholesale dealers in liquors (^50, and $1 for every $1,000 of sales above $50,000) for the year ending June 30, 1865, was $400,693. In Great Britain the rate per annum imposed on wholesale dealers in liquors is ^610 10*., ($52 50,) and the amount received from such licenses for the year ending March 31, 1865, was $240,030. In respect to the consumption of distilled spirits in the British North Ameri- can Provinces, the commission, through the courtesy of members of the various provincial governments, are enabled to present some very satisfactory data. In Canada, the annual production of distilled spirits, according to the official reports of the minister of finance, has been, since 1861, as follows : 1862 3, 875, 073 gallons, tax 15 cents per gallon. 1863 3,661,668 " " " 1864 3,518,408 " 1865 2, 973, 130 gallons, tax 30 cents per gallon. Assuming the population of Canada to be 2,506,755, (census of 1861,) this would give an annual per capita production of distilled spirits of 1.55 gaUon for 1862 ; 1.46 gallon for 1863; and 1.40 gallon for 1864. The present population of Canada is estimated at 2,900,000, which, adopting the returns of production of distilled spirits of 1864-'65, would give 1.02 gallon per capita. During the year 1864-'65, 542,118 gallons of distilled spirits were returned as imported into Canada, and 29,297 gallons as exported during the same time. Making an allowance for this additional quantity, and also for what escaped the excise, we have, as the probable consumption of distilled spirits in Canada, for all purposes, an amount in excess of 1^ gallon per capita. In New Brunswick, where, as before stated, there is no domestic production of distilled spirits, the quantity of the same imported for 1860, 1861, and 1862, was as follows : 1860 317, 593 gallons. 1861 320, 380 gallons. 1862 302, 115 gallons. The quantity imported in 1862 was classified as follows : alcohol, 144,015 gallons ; brandy, 30,437 gallons ; gin and whiskey, 98,900 gallons ; rum and other spirits, 28,763 gallons; total, 302,115 gallons. The population of New Brunswick, by the last census, was 252,047, which would give an annual importation of spirits of 1^ gallon per capita. If we could reduce the returns of importation into proof gallons the^cr capita figures as above given would need to be considerably increased. The following table shows the estimated importations of spirits into Nova Scotia (in which province, like New Brunswick, there is no domestic production of distilled liquors) for the following years : 1860 560, 000 gallons. 1861 260, 000 gallons. 1862 470, 000 gallons. 170 REVENUE SYSTEM OF THE UNITED STATES. The population of the province of Nova Scotia being by the last cengua 330,857, we have, as the average annual importation of spirits, 1.30 gallon per head. For Prince Edward's island the production and importation of distilled spirits is estimated at about one gallon per head ; and the same estimate is made for Newfoundland. The bulk of the spirits, however, returned as imported into the provinces of New Brunswick, Nova Scotia, Prince Edward's island, and Newfoundland, is undoubtedly consumed by that part of the population engaged in the fisheries and in the lumber business. With these data before them, the commission are inclined to believe that about 39,000,000 gallons of distilled spirits are required to meet the present annual demand of the present population of the United States for drinking pur- poses, (being nearly l| gallon per head of the whole population,) and they are of the opinion that the quantity so required, under the present tax of two doUars per gallon, is not likely to be for some years in excess of this estimate. The quantity of raw spirits (whiskey) required to meet the demands of New York city and its immediate precincts, prior to 1862, is estimated by distillers and others conversant with the trade to have been from eight hundred to one thousand barrels daily, or from twelve to fifteen millions of gallons per annum. Of this amount one-half is set down as having been consumed in New York for drinking and other purposes ; while the balance, having been converted into alcohol, pure spirits, imitation liquors, medicinal preparations, &c., found a market elsewhere. The number of establishments where liquor is sold at retail in the city of New York, according to the testimony of Mr. Kennedy, superintendent of police, is upward of eight thousand. The amount of liquor sold over the bars of some of the largest hotels, restaurants, and drinking-saloons, is reported as equivalent to a barrel of fifty gallons proof spirits per diem ; while the sales of many establishments considered small are estimated as equivalent to a barrel per week. Previous to the imposition of the tax, the sales of one jobbing-house for drinking purposfes are reported to the commission as averaging one hundred barrels per day. The proprietors of the largest wholesale commission house dealing in whiskey and high wines in the city of New York report to the commission that their average receipts of high wines and whiskeys, shipped from the west direct, were formerly at the rate of one hundred thousand barrels (6,000,000 to 7,000,000 proof gallons) per annum, and of this amount they give it as their opinion that " more than one-half was used directly as a beverage." The present average annual receipts of this house do not exceed fifty thousand barrels. As the estimated excess in the consumption of distilled spirits per capita, in the United States, over the corresponding amount consumed in Great^^Britain, may be questioned by some, the commission would call attention to the follow- ing circumstances : The number of gallons of spirits consumed in the United Kingdom, for drinking purposes, in the year 1864-'65, was 20,369,844 gallons; the number of barrels of beer consumed in Great Britain in the same year was 22,037,902, or seven-tenths of a barrel per head of the population. The quan- tity of malt charged with duty the same year was 48,538,412 bushels. In an average of years, one bushel of malt yields two gallons of proof spirits, so that the malt yearly made into beer in Great Britain would yield the enormous quantity of 97,176,824 gallons. In the fermentation of the wort, or extract of malt, for the manufacture of beer, the whole of the sugar is not transformed into alcohol, but from one-quarter to one-half may remain unchanged in the beer. " The quantity of malt, therefore, which is consumed in Great Britain for the making of beer does not, in reality, indicate the consumption of so large a number of gallons of proof spirits as the distiller would extract from it.'' But REVENUE SYSTEM OF THE UNITED STATES. 171 if we allow one-quarter of the whole for the quantity of sugar remaining un- changed in the beer, the annual quantity of proof spirits actually consumed in Great Britain in the form of beer would be 72,882,618 gallons. Adding this amount to the quantity of distilled spirits returned as " consumed," it would appear that the consumption of ardent spirits in Great Britain fer capita is far in excess of that in the United States, as estimated by the commission, the present annual consumption of beer in the United States being estimated at between five andj six millions of barrels. Exports. — In estimating the annual production of distilled spirits available for assessement and revenue, it is obvious that all exports subject to drawbacks, equivalent to the excise duties imposed upon them, and all spirits exported in bond, must be deducted. The quantity of spirits thus exported from the United States to foreign countries is extremely variable, and depends mainly upon the abundance or scarcity of the crops in Europe. The following table, prepared for the use of the commission by the Treasury Department, shows the registered exports of spirits derived from grain, from the several ports of the United States, from 18/55 to the close of the fiscal year June 30, 1865, inclusive : Years. Domestic distillation. Foreign distillation. 1853 1854 1855 1856 1857 1858 1859 1860 1861 1862 1863 1864, alcohol whiskey, Gallons. 360, 633 780, 056 742, 961 897, 348 2, 167, 924 1, 000, 997 557, 313 784, 135 2,294,181 768, 295 2,633,391 *943, 311 157,313 Dollars. 141,173 280, 648 384, 144 500,945 1, 248, 234 476, 722 273, 576 311,595 867,954 328, 834 1,390,610 675, 448 145, 938 Gallons. 20, 401 38, 635 23, 204 91, 488 21, 456 40, 794 61, 354 52, 551 35, 730 36, 231 41, 062 60, 238 Dollars. 16, 352 25, 429 12, 909 54, 774 15, 359 25, 028 35, 295 31,862 21, 104 19, 353 24,414 62, 092 *Total, 1,949,603 proof gallons. It will thus be seen, that the quantity of distilled spirits exported since 1856 has tiever attained so high a figure as six million gallons, the quantity assumed by the Commissioner of Internal Revenue in his report for 1864. It might naturally be supposed, judging a priori, that by reason of the extra- ordinary low price which grain commands, in fruitful years, in many parts of our country, the American distiller and rectifier might successfully compete for and command the sale of high-wines and alcohol in foreign markets over manufac- turers of all other countries. Such, however, is not the case. Great Britain, which now yearly imports from foreign countries over four bushels of grain per capita, for her consumption exports on an average, annually, nearly double the quantity of distilled spirits that are exported from the United States,* as will be seen by the following table : * In consideration of the increased cost of manufacturing spirits, caused by the enforcement of more recent and stringent excise regulations, the amended act of Parliament, 1860, grants an allowance or bounty of twopence per proof gallon, in addition to all drawbacks or abate- ment of duties, on all plain British spirits shipped as stores, exported to foreign countries, or deposited in customs warehouse for exportation, or for fortifying wines. 172 EEVENUE SYSTEM OF THE UNITED STATES. British spirits (proof gallons) exported 1861, 2, 995,051 " " 1862, 3,926,242 1863, 4, 410,948 " " 1864, 4,381,216 A part of the recent increase in the British exports of spirits is attributed (and probably most correctly) to the disturbance of the American trade in conae- quence of the war. Thus, according to the report of the commissioners of inland revenue of Great Britain for 1863, the exports of British spirits to Turkey in- creased from 3,272 gallons in 1862, to 638,297 in 1863 ; to Sardinia and Tuscany, in the same year, from 1,738 gallons to 524,018; to Naples and Sicily, from 137 gallons to 72,741 ; and to the West Coast of Africa, from 268,128 gallons to 357,458. Another striking illustration of the competition to which American high-wines and alcohol are subjected, is to be found in the fact that, within the last three years, New York manufacturers have found it expedient to import al- cohol from Germany, to be worked up into medicinal preparations and perfumery, in bond (paying for the same in gold, with freight and commissons,) rather than supply themselves in the New York market. With the removal of trade disturbances, consequent upon the wiar, and with the return of grain and labor to ante-wa.v prices, there seems no reason to doubt that, under the present treasury regulations, the American export of spirits will maintain its former proportions and increase ; although it is the opinion of many that, with the reduction in the demand for Trench brandies consequent upon the high customs duties imposed on the same, the exportation of American alcohol to France will be permanently and proportionally diminished. PRODUCTION OF DISTILLED SPIRITS THEORETICALLY AVAILABLE FOR UNITED STATES ASSESSMENT AND RBVBNDB. After a careful review and consideration of the facts as above presented, and after conference with many of the principal dealers and manufacturers from all sections of the country, the commission are of the opinion that, with the maia- tenance of the present tax of two dollars per gallon, the quantity of distilled spirits which may be expected to be produced and rendered subject to assess- ment for the immediate future will be from forty-two to forty-five millions of gallons, capable of yielding a revenue of from eighty-four to ninety millions of dollars. RESULTS OF THE TAXATION OF DISTILLED SPIRITS FROM JULY 1, 1862, TO JUNE 30, 1865. The first tax imposed by Congress, under the present revenue system, on distilled spirits, was twenty cents per gallon. (Act of July 1, 1852.) The revenue derived from the same for the fiscal year ending June 30, 1863, was $3,229,991, which amount corresponds to a production of 16,149,955 proof gallons. The tax of twenty cents per gallon continued in force until March 7, 1864, when the rate was advanced to sixty cents per gallon. (Act of March 1, 1864.) The revenue derived from distilled spirits for the fiscal year ending June 30, 1864, under the two rates as above indicated, was $28,431,798. On the 1st of July, 1864, the tax on distilled spirits was raised to one dollar and fifty cents per proof gallon, (act of June 30, 1864,) which rate was further advanced on the 1st of January, 1865, to two dollars per proof gallon, the present rate of duty. The revenue derived from distilled spirits for the fiscal year ending June SO, 1865, under the two rates of tax as above indicated, was $16,995,701 66. The average taxable production of distilled spirits per year, from September 1, 1862, to June 30, 1865, as retuirned to the department, was 40,537,371 gallons. REVENUE SYSTEM OP THE UNITED STATES. 173 The following table exhibits the amount received from licenses from distillers, rectifiers, and wholesale and retail dealers of liquors, for the fiscal years ending on the 30th of June, 1863, 1864, and 1865 : 1863. Distillers, $50 Distillers, $25.: Distillers of apples and peaches Rectifiers Wholesale dealers Retail dealers Total $12, 116 67 16, 533 77 9,983 87 45, 993 79 384, 160 07 1,477,753 54 1,946,541 71 1864. |13, 923 40 26,516 75 8,581 26 58, 828 28 176,764 76 1,612,736 25 1,897,350 70 1865. $16, 929 52 29,731 70 13,236 35 48,781 52 400, 692 91 9,205,866 38 2,7)5,238 38 The following table exhibits the total gross revenue receive^ for the fiscal years ending June 30, 1863, 18C4, and 1865, from all excise and customs duties on distilled spirits, wines, foreign and domestic brandy, and upon licenses for the manufacture and sale of the same : 1863. 1864. 1865. Excise, domestic spirits Excise, imported* spirits Domestic wines Domestic brandy Licenses for manufacture and sale. . . Customs spirits &om grain Customs spirits from other materials. Customs spirits from wines and cor- dials Customs sjiuits from brandy 3,229,990 79 8,823 64 $28,431,797 83 176,038 57 28, 302 80 1,946,541 71 t t t + 1,897,350 70 t t t t $15,995,701 66 252,690 29 43,216 36 10,546 19 2,715,238 38 47,760 00 140, 006 00 505,452 10 261,535 00 It is obvious, from an inspection of the above returns, that nothing definite can be predicated of the future from the past, in respect to the amount of revenue derivable from distilled spirits, or as to the expediency of adopting any partic- ular rate of duty per gallon. Since the imposition in 1862 of the first tax of twenty cents per gallon, the business of distilling in all parts of the country has been almost altogether speculative, and extremely irregular. The immediate effect of the enactment of the first three and successive rates of duty was to cause an almost entire suspension of the business of distilling which was resumed again with great activity as soon as an advance in the rate of tax in each instance became probable. The stock of whiskey and high-wines accumulated in the country under this course of procedure was without precedent ; and Congress, by its refusal to make the advance in taxation, in any instance, retroactive, virtually legislated for the benefit of distillers and speculators rather than for the treasury and the government. The profits realized by the holders of stocks, thus made in anticipation of the advance in taxation, has probably no parallel in the history of any similar speculation or commercial transactions in this country, and cannot be estimated at less than fifty millions of dollars. If to any this estimate should seem exaggerated, we will simply state that there * Forty cents per gallon. (Act of March 7, 1864.) + dvrmg to a wide discrepancy between two separate returns, furnished by the Treasury Department, of the amount of duties received from the above articles in the years named, the figures are omitted. 174 REVENUE SYSTEM OF THE UNITED STATES. was, in all probability, on tbe 1st of July, 1864, a stock of high-wines and whiskeys, previously made in anticipation of the tax, sufficient to meet all the requirements of the country for a period of from twelve to eighteen months; and on each gallon of this quantity a premium has been realized, owing to the advance of the tax from sixty cents to two dollars, of from ninety cents to one dollar and forty cents per gallon. As an illustration of the profits realized in particular instances, it has been stated to the commission that one firm manu- factured or received under contract for a period of several weeks prior to the one dollar and fifty cent tax, an average quantity of thirty thousand proof gal- lons per day; the major portion of which was held and sold after the advance of the tax in January, 1865, to two dollars per gallon. From the testimony submitted it would also appear that prior to the 1st of April, 1865, very little effective effort was really made by the government to enforce the law; and furthermore, that the law, as it now stands, does not afford to the Secretary of the Treasury, or the Commissioner of Internal Eevenue, power to mak* such an organization and detail of inspection as is necessary, in the opinion of the commission, to secure the revenue on the manufacture of dis- tilled spirits, and prevent fraud. Conclusive evidence of this is, they think, to be found in the fact that prior to the date above specified, there were repeated instances, in all sections of the country, where distillers manufactured and fraud- ulently sold and conveyed to market, without the slightest pretence of conceal- ment, spirits, in quantities ranging from 20,000 to 80,000 gallons and upwards, without a suspicion on the part of the local officers that the business was not conducted in all respects legally and honestly. In some instances, the deter- mination of the strength of the distilled spirits, preparatory to the assessment, has been made by mere physical inspection or taste, and the use of instruments discarded as unnecessary ; in others, the barrels have been inspected and branded for some days in advance of their being filled, and the future regulation of the whole matter left with the manufacturer. Distillers or their workmen have not nnfreqnently been constituted their own inspectors ; and at least one case is known to the commission where the assessor, or inspecting officer, apparently did not possess sufficient intelligence to understand and correctly use an hydrometer. In confirmation of these statements, the commission would invite attention to extracts from testimony taken by them in respect to this subject : " George Parnei.l, United States revenue ?igent : " Question. Under what circumstances were these frauds [of distillers in Uli- noisj generally committed 1 " Answer. They were committed by distillers without any particular attempt at concealment. Whiskey which had not paid a tax was sold or shipped by them in the same manner as whiskey upon which the tax had been paid, without, so far as I could see or judge, any attempt at concealment. " Question. Then the fraud was due to neglect on the part of government officials 1 " Answer. T^here never has been any officer appointed under the revenue act, whose special duty it was to look after distillers. The inspectors are paid in the shape of fees, by the distillers. These fees are generally very shall. In most cases all the inspectors ever thought of doing was, to go and inspect the liquors when the distillers sent for them. Whatever barrels of liquor happened to be ready, they inspected and then went away. I have heard of cases where barrels were inspected and marked in advance ofheing filled. " Question. Then, in your opinion, under a more efficient execution of the law, the frauds could not have been committed ? "Yes, sir. ***♦•*# REVENUE SYSTEM OP THE UNITED STATES. 175 " Question. To what extent have frauds heen committed, in the cases that have come under your investigation ? " Answer. Several distillers have heen found to have sold an equal amount of inspected and uninspected spirits. In one instance, the uninspected spirits amounted to over 80,000, and the inspected to 81,000 gallons. In a case at Decatur, Illinois, I know that 500 barrels were sent from the distillery to Chi- cago without inspection. In another case, I discovered that during one^ year 1,200 barrels were sent from Bloomington, Illinois, without inspection. " Question. Is there any lack of uniformity in the method of inspection 1 "Answer. There is a great lack of uniformity. Different inspectors use dif- ferent instruments. Some use McOulloch's tables and Tralle's instrument, as prescribed by law ; others do not. I knew one inspector in Illinois who pro- fessed to judge of the strength of spirits by experience, and never used any instrument whatever. Again, it is not unfrequently the case that the inspectors are workmen or partners in the distillery inspected. "William Richards, United States revenue agent : " Question. Do you agree with the testimony as given above by Mr. Paruell \ " Answer. I do, entirely. " Question. Have you any knowledge of illicit distillation, in a small way, at the west ? ""Answer. I have heard from undoubted authority that hundreds of small copper stills have been manufactured and distributed over Illinois and Iowa for the purpose of manufacturing spirits. I have been engaged in those States in the investigation of frauds committed by distillers. I have heard of a great many persons in Iowa who have been engaged in distilling without any license or paying any duty. I obtained my information in regard to the manufacture of small stiUs for distilling in Chicago from particular inquiries made by me in that city. "George W. Guysi, United States revenue agent: "Question. State how many cases of fraud committed by distillers upon the revenue laws you have been cognizant of. "Answer. I suppose in the neighborhood of one hundred cases. Many of them have been among the largest distillers. I am satisfied that all the large distillers who have been running their works since last July have been more or less concerned in fraud — scarcely an exception. At all events, I have never examined a concern yet where I have not found fraud in one way or another. " Question. Do you consider the law, as it now stands, sufficient for the pre- vention of frauds 1 "Answer. No, sir. 1 consider it almost a burlesque to try to stop whiskey frauds under the present law. "Question. Is the fault with the law or with the execution of it ? "Answer. I think there is a great deal in both ; but if the law was fully ex- ecuted, I do not think it would reach the end desired. « * ■ * * » ■ * "Question. Have you any knowledge of spirits passing into the market wrongly inspected, through the ignorance or incapacity of the inspector 1 "Answer. Yes, sir; and also purposely passed. "Benjamin McDonald, United States revenue agent: " Question. To what extent was the fraud practiced in cases you have inves- tigated ? " Answer. In one of the cases I discovered a discrepancy between the re- turns made by a distiller and his actual shipments of 2,100 barrels, or upwards of 80,000 gallons. " Question. How was the fraud in this case committed ? 176 REVENUE SYSTEM OF THE UNITED STATES. " Answer. The distillery is situated forty or fifty miles from the depot o'f the collector, on the banks of the Miami canal, in Ohio. The inspector haring only the fees which would accrue from inspecting and gauging, visited the dis- tillery only when he was notified that there was whiskey on hand to he in- spected. The assessor would only make his assessment upon the return of the inspection. The distiller procured duplicates of the inspector's brands, and nsed them in branding the barrels. The canal is leased from the State by individuals, and collusion in shipments existed between the distiller and the captains of boats on the canal ; and I am firmly convinced that a leading ofiicial of the canal was perfectly cognizant of what was going on. This particular fraud had been running on for eighteen months or so. It commenced under the twenty-cents tax, and has continued all the way up. It comprised the whole product of the distillery during all that time. The whiskey, and all the property of the party, have been seized, but the case is not yet settled. "Question. What led you to suspect fraud in the case ? "Answer. A shipment to this market (New York) in the month of May, 1865, of whiskey which was offered at such a price as to lead to the suspicion that the parties had never paid the tax. Another fraud was perpetrated in the distillery of at M , Ohio, twenty-five miles further south, on the same canal, which I discovered while investigating the other case. At Toledo I found that a shipment had been made of 418 barrels, ostensibly inspected in November and December, 1864. Obtaining a statement from the collector of the district in which the distillery was situated of the taxes paid by this man, I was satisfied of the fraud, and seized what then was left of the whiskey, 169 barrels. At Piqua 223 barrels belonging to the same distiller were seized by the collector. (This lives about thirty miles from Toledo.) I in- structed the collector at Toledo to distrain all his real and personal property, which he did. I subsequently visited Cincinnati, and ascertained from his con- signee that he had sold about 3,000 barrels. This was in addition to the whiskey at Toledo. From the evidence obtained at Cincinnati I was con- vinced that there was collusion between the inspector for that district and the distiller. " At Cincinnati I investigated another case — that of & Co., large rectifiers, who have a distillery below Covington, Kentucky. Boats and barges land at the distillery. I obtained from their books the amount of their purchases of grain from September, 1863, to April, 1865. I ascertained from their distiller their average production to the bushel to be fifteen quarts. Upon this basis the discrepancy between their returns and the actual production was 3,500 barrels. They claim forty gallons to the barrel of their manufacture, which would amount to 140,000 gallons. They also claim that the whiskey was under proof The distillery and the whiskey have been seized ; also the establishment in Cincinnati. The case is still under consideration. [Witness then detailed at length another case, giving names, places, and dates specifically, in which a firm, made up of irresponsible parties, was substi- tuted in place of others of recognized responsibility, engaged in the business of distilling. This irresponsible firm shipped to Chicago, and sold without cog- nizance of the inspectors, five hundred (500) barrels of whiskey. The amount of tax which the government would appear to have been entitled to in this tran- saction, and of which it was defrauded, was between three and four hundred thousand dollars.] " Question. Then, in your opinion, these frauds have been committed mainly through a lack of proper inspection 1 " Answer. Entirely so ; that is to say, no safeguards have been thrown around the work of inspection so as to prevent frauds. The majority of dis- tilleries are so situated that the inspectors have to live from twenty to fifty miles from them. No fees are paid except those derived from gauging." REVENUE SYSTEM OF THE UNITED STATES. 177 Much additional testimony of a similar character might be adduced by the commission tending to show both the insufficiency of the present law and the ve^ imperfect manner in which it has been administered. During the greater part of the year 1865 the market price of distilled spirits (proof) was less than the cost of manufacturing with the tax of $2 per gallon added ; the quoted rates for a short period having been as low as $1 95 per gallon. These prices have generally been regarded by the public as prima facie evidence of fraud ; but the truth of the case undoubtedly is, that the bulk of the spirits sold at this under-valuation was derived from the enormous stock manufactured prior to the imposition of the $1 50 tax of July 1, 1864, and was held by speculators and others who were desirous of realizing, and were conteni with the then accrued profits. From the 1st of July, 1864, to November, 1865, with the exception of a few weeks prior to the imposition of the $2 tax, (January, 1865,) nearly every dis- tillery of any importance in the country suspended operations, it being impos- sible to manufacture and pay the tax for the prices at which proof spirits ruled in the market. Under these circumstances, the small revenue which accrued to the treasury ($15,995,701 66) from this department of the excise for the fiscal year ending June 30, 1865, was really as large as could have been anticipated. With the exhaustion -of the stock on hand, however, the business of distillation must be resumed on an extensive scale, unless largely interfered with by illicit production. From data submitted to the commission by the Commissioner of Internal Revenue, it would appear that the comparative receipts from the excise on dis- tilled spiriJiS for the first quarter of the fiscal year 1865, and of the first quarter of the fiscal year 1866, v.'ere as follows: 1865, ,$3,501,071 43; 1866, .$1,085,031 20. During the month of November, 1865, however, the receipts from the tax on distilled spirits was estimated at $2,500,000 ; and for December of the same year, it was believed that the receipts would exceed those figures. ILLICIT PRODUCTION'. In regard to illicit production, in a small way, the commission have been un- able to obtain much information of a positive character. Numerous arrests and seizures of small stills have been made, and continue to be made, in all sections of the country ; and the evidence is unquestionable that the coppersmiths of St. Louis, Chicago, Cincinnati, and other cities, have been so largely engaged in supplying the demand for small stills, that the procurement of any other de- scription of work from them has at times been difficult ; the orders for such stills being from the country adjacent to the above-named cities, and also to a considerable extent from Memphis and other points convenient for southern transportation. As stills of small capacity were not required in any number for any purpose previous to tiie imposition of the high rates of duty on distilled spirits, the manufacture and possession of such apparatus cannot be regarded otherwise than as the preliminary step for illicit or fraudulent manufacture. At the same time, it should be remarked that the possession of carefully con- structed copper stills of small capacity is not a necessary adjunct to the busi- ness of illicit distillation, inasmuch as ordinary ingenuity can readily construct out of common household utensils and a coil of metal pipe, an apparatus that will prove, under a high rate of excise upon spirits, profitably ciffective for dis- tillation. Under these circumstances, therefore, the commission would express their concurrence in the general popular belief, that illicit distillation in a small way extensively prevails ; and are further of the opinion that unless more effective 1.? R 178 REVENUE SYSTEM OF THE UNITED STATES. measures are taken to repress the same, the national revenue from distilled spirits must for the future, under any rate of taxation productive of large revenue, be very injuriously affected. In this connexion it is instructive to note that in Great Britain, where a most stringent system of excise inspection prevails, illicit distillation, though greatly restricted as compared with former years, has never been entirely prevented; the average number of detections for this offence in the United Kingdom for the four years ending March, 1864, being 2,106. Of these, by far the greater number were in Ireland, as is shown by the following return for 1864, viz: England, 63; Scotland, 18; Ireland, 2,744; total, 2,825; for the fiscal year •1865, the number of detections for illicit distillation was 3,499, showing an in- crease of 674 in a single year. Illicit distillation has not, however, on the whole, increased in Great Britain within the last twenty-five years, even with a large increase of duty ; thus in- dicating that a well organized system of inspection more than counterbalances the increased inducements to fraud. For example, in 1838, with a duty of 2j. 4^., (58 cents,) there were in Ireland 3,298 detections of persons engaged in making spirits clandestinely; in 1862, with a duty of 10s., ($2 50,) an advance of three hundred and thirty per cent, over the former rate, the number of de- tections was only 1,972 ; and this is not all, for, say the commissioners of inland revenue of Great Britain, in their report for 1863, " It might be supposed that to produce this result, we had been diiveu to employ an enormous force of pre- ventive officers, at an expense very greatly exceeding that of former years ; but here again the comparison is all in favor of the present day. In the time of the low duty the cost of the revenue police was upwards of 6£46,000 per annum, whilo the (present) expenditure of less than 6215,000 upon an increase to the con- stabulary is now sufficient to produce a much more satisfactory result." The commissioners further remark that a similar statement to the above might also be made as regards both England and Scotland. It is generally admitted that the want of a ready market for the disposal of grain in certain districts in Ireland, as well as the accumulation of damaged grain in bad seasons, has much to do with inducing people to embark in illicit distillation. SMUGGLING. As respects smuggling of distilled spirits, especially across the Canadian . frontier, the public are generally inclined to believe that it prevails, like illicit distillation, to a great extent. That specitic instances of this fraud are numerous, there can be no reasonable doubt ; but an examination of the Canadian statistics in regard to the production of distilled spirits, clearly indicates that the amount smuggled must, under the most favorable circumstances, be far less than the amount credited in popular estimates. Thus the total production of distilled spirits in Canada for the years 1862, 1863, and 1864, are officially returned as follows: 1862, 2,875,073; 1863,3,661,668; 1864,3,518,408; and 1865, only 2,973,130 gallons. It is therefore clear that unless the demand for spirits for home consumption has greatly diminished in Canada, the surplus available for fraudulent exportation to the United States has not thus far been sufficiently large to materially affect our revenue. CONSIDERATION CIF TAX. In respect to the expediency of maintaining or reducing the present excise duty of two dollars per gallon on distilled spirits, the commission have to re- port a wide discrepancy of opinion among those who, by observation or by ex- perience, have qualified themselves to express judgment on this subject. REVENUE SYSTEM OF THE UNITED STATES. 179 That distilled spirits ought to contribute a very largo proportion of the amount which the necessities of the country require shall be annually raised by inter- nal taxation, is, we believe, the almost unanimous sentiment of the whole country. It may, indeed, he considered as an axiom in political economy, that there is no article which constitutes a fairer subject for excise, and none which can he made to produce so much revenue with so little suffering to the tax- payer. In Great Britain, where the duty has been, for the last four years, at the very high rate of ten shillings per imperial gallon, the concurrent testimony is to the effect that, of all the methods adopted in that country to raise a revenue, this is the one most cheerfully borne, and least oppressively felt by the people. In this connexion the commission would also refer to the review of the revenue experience of various foreign states in relation to this subject, aa given in the opening pages of this report. That distilled spirits can, furthermore, without detriment to any business interests of the country, be made to yield a revenue sufSciently large to lighten the burden of taxation on almost every other branch of industry, is an assertion that seems to scarcely need proof to substantiate. The great bulk of the con- sumption of distilled spirits, at present, is for drinking purposes, and the expe- rience of Great Britain is, that such consumption is not largely and permanently reduced by any rate of duty. The experience of the United States, under tho excise laws, of the last three years, is undoubtedly confirmatory of the same fact. The imposition of the 81 50 and ^2 rates per wine gallon has operated only to make the procurement of the cheapest and worst class of spirits diffi- cult — not impossible — to the poorer classes ; while as regards those whose means are abundant, or whose wages are large, there is no evidence to show that the consumption has in any degree diminished. In fact, the commission regard the present standard of consumption of distilled spirits for drinking purposes, in the United States, which they now estimate at thirty-nine millions of proof gallons per annum, as one which no legislation, and no augmentation of tax, can mate- rially diminish. They believe, furthermore, that there are no people less in- clined to regard expense in the gratification of their desires and appetites than the Americans. A striking illustration of this, in general, and confirmed by the experience ot every-day life, is to be found in the continued and increased use, by the people of the United States during the last three years, of expensive foreign luxuries, notwithstanding the cost of the same has been greatly enhanced by a large in- crease in the custom duties, and in the rates of exchange. Many more particular and positive illustrations to the same effect could be drawn from the official returns of recent importations ; but as the commission have no confidence in the accuracy of such returns', they feel obliged to sup- press all the results of their examinations in this department. On the fart of many — anci -perhaps a majority — of the leading distillers of the country, an opinion strongly adverse to any alteration of the present rate of excise has been expressed ; and this opinion is undoubtedly concurred in by most of the revenue officials, by many of the leading dealers and rectifiers, and by nearly all who have considered the question from a merely theoretical or moral point of view ; in fact, the general judgment of the country, so far as the com- mission have been able to estimate it, through their investigations, appears to be in favor of the retention and maintenance of the tax on distilled spirits at the present rate of two dollars per proof gallon. The reasons urged in support of these views are : That the experience of the working of the present law, owing to the irregular and speculative charac- ter of the trade since the passage of the act imposing the high rates of excise, can afford no criteria for the future; and that the interests of the distiller as well as of the government would be promoted by stability, rather than by any immediate change in the rate of excise. 180 REVENUE SYS'J'EM OF THE UNITED STATES Again, from the evidence presented to tlie comTiiissiou, it seems unquestion- able that the perpetration of fraud in the manufacture of spirits commenced, and was extensively carried on, under the first and lowest tax imposed, namely, twenty cents per gallon, (act of July 1, 1862,) and continued until after the duty was advanced to $1 50, and upwards, per gallon. With a tax of twenty cents per gallon, the premium offered for the evasion of the law is about one hundred per cent, (assuming the average cost of raw proof-whiskey as from seventeen to twenty-four cents per gallon ;) and as the occurrence of fraud in other branches of manufacturing industry, where the tax is only five or six per cent., is not unfrequent, no other result than what has been described could have well been anticipated. The arguments, therefore, urged in opposition to the tax of two dollars, on the ground of its inducement to fraud, would seem to apply in a great degree, also, to almost any rate of excise that would yield a consid- erable amount of revenue to the government. What is true in this respect of fraudulent manufacturing is equally true of smuggling from the British provinces ; the fact being established by evidence before the commission that prior to the imposition of any excise tax by the United States spirits were largely purchased by distillers in the vicinity of Buffalo, New York, for the avowed purpose of being smuggled across the Cana- dian frontier ; the inducement of profit being the chance of successfully evading the (then) comparatively small provincial excise of only fifteen cents per gal- lon. It therefore seems evident that no extensive diminution of smuggling is to be expected on the frontier until the respective rates of taxation on distilled spirits in the United States and the British provinces (especially Canada) have been equalized, or, at least, caused to closely approximate. From the above statement it would also seem clear that no rate of duty on distilled spirits likely to yield any considerable amount of revenue can be fixed on which will not necessitate a system of close inspection and the enactment, on the part of the government, of stringent restrictive conditions ; and hence it may be argued that it would be inexpedient to make the tax per gallon any other than one fully commensurate with the machinery which any productiw rale will require for its enforcement and collection ; or, in other words, it maybe claimed that a rate of $2, while producing more revenue, will not entail a larger burden of cost and trouble to the government than 61, or even sixty cents, per gallon. This view appears to the commission to be the one which the govern- ment revenue officers have very generally arrived at as the result of their ex- perience and observation. The commission have thus endeavored to present, as fully and as strongly as the case will admit, the argument and reasons that may be adduced in favor of the maintenance of the existing rate of excise (two dollars per proof gallon) on distilled spirits, and in opposition to the reduction of the same. That these arguments are weighty cannot be denied, and in the outset ot their investigations they seemed to the commission entirely conclusive. Deeply impressed, however, with the conviction that a thorough inquiry into this whole subject was of the utmost importance to the country, and determined to let no preconceived opinions or prejudices stand in the way of an impartial discharge of their duties, they instituted a most careful and laborious examination, and have sought to avail themselves of every opportunity of acquiring correct information. In carrying out this design, the commission have personally ex- amined several hundred witnesses, embracing most of the leading distillers, rec- tifiers, and dealers in spirits in the country — the representatives of the various branches of American pharmacy, and of the industrial interests into which alcohol enters as a constituent ; and have also sought to acquaint themselveB, by correspondence and otherwise, with the history and detail of foreign experi- ence and legislation on this subject. The result of this inquiry has led to a re- versal of their original opinion, and induces them to believe that, in a revenue, REVENUE SYSTEM OF THE UNITED STATES. 181 industrial, and moral point of view, it would be expedient to reduce the existing excise of §2 ■per gallon on distilled spirits, and to substitute therefor a lower rate of $1 per proof gallon. The reasons-which induce this recommendation are as follows : A tax of $2 per proof gallon (American standard, i. e. 50 per cent, alcohol) on distilled spirits is a higher rate of tax than any foreign state at present finds it expedient to levy. If the existing tax of 10*. ($2 50) per imperial proof gallon (British standard, i. e. 57 per cent, alcohol) levied in Great Britain on distilled spirits may seem to establish the contrary of this statement, it is to be remembered that the British excise is levied on the imperial gallon, which is one-fifth larger than the wine gallon adopted as the American standard,* and also that the first cost of British spirits ranges, according to the price of grain, from 1*. Old. (37J cents) to 2s. (50 cents) per imperial gallon, while the first cost of the American product ranges from 17 to 24 cents per wine gallon ; thus making the excise on British spirits range from five to six and two-thirds times the first cost of production, while the existing excise on American spirits ranges from eight to twelve times their cost, or about seventy per cent, greater than that of the former. In adopting extraordinarily high rates, moreover, the British government were obliged, by way of compensation, to allow certain admixture of spirits for industrial purposes to be used free of duty ; but in the United States the tax is not merely greater, but without this compensation. It may, we think, be laid down as an axiom in the economy of taxation, that whenever a tax equivalent to 100 per cent, of the average cost of an article is imposed upon it, a limit has been attained when the ordinary provisions of 'law relative to the tax are sufiicient for its execution. In proportion as this limit is departed from, the enactment of extraordinary laws to secure the tax are ren- dered necessary, until finally a point is reached where the inducement to evade or resist the law becomes too powerful to admit of restraint. All experience, therefore, shows that every unreasonably high tax contains within itself the elements of its own annulment. The history of the duties on distilled spirits in other countries is especially confirmatory of the above proposition, and furnishes, moreover, conclusive evidence of the " superior productiveness of reasonable duties on spirits, and of the loss of revenue, smuggling, and other pernicious consequences that invariably follow every attempt to carry them beyond their natural limits." " Few governments," says McOulloch, "have been satisfied with imposing moderate duties on spirits, but partly in the view of increasing the revenue, and partly in the view of placing them beyond the reach of the lower classes, have almost invariably loaded them with such oppressively high duties as have entirely defeated both objects. The imposition of duties does not lessen the appetite for spirit.s, and as no vigilance of the officers or severity of the laws has been found sufficient to secure a monopoly of the market to the legal dis- tillers, the real eflect of the high duties has been to throw the supply of a large proportion of the demand into the hands of the illicit distiller, and to superadd the atrocities of the smuggler to the idleness and dissipation of the drunkard." From the same and other authors we quote the following record of the expe- rience of Great Britain on this subject. A duty equivalent to four cents a gallon was imposed in England on spirits and high-wines under Charles II. From this point the rate was gradually in- creased, with an accompanying increase in revenue, until finally intemperate zeal and fiscal rapacity produced the greatest disturbances, and nearly extin- guished all receipts from distilled spirits. * The wine gallon contains 231 cubic inches ; the imperial gallon, as settled by the act of George IV, contains ten pounds avoirdiipois of distilled water, or 'iTi'^oSa cubic inches. 10s. tax on the imperial gallon of spirit,'!, British proof, is equivalent to 7s. id. on the wine gal- lon, American proof. 182 REVENUE SYSTEM OF THE UNITED STATES In 1736 an act was passed by tlie British Parliament, " the history and effects of which," says McOulloch, " deserve to be studied by all who are clamorous for an increase in the duties on spirits." This act imposed a duty of twenty shillings ($5) a gallon on spirits, and a license duty of fifty pounds (8250) a year on retailers ; at the same time the sale of all quantities less than two gal- lons was prohibited. Extraordinary encouragements were also held out to informers, and a fine of one hundred pounds ($500) was ordered to be rigor- ously exacted from all unlicensed dealers, and from every one who, were it even through an inadvertency, should vend the smallest quantity of spirits which had not paid the full duty. The efi'ect of this act was directly opposite to what was contemplated by the ministry. " Respectable dealers withdrew from a trade proscribed by Parliament, and the business fell into the hands of the lowest and most profligate characters. The people espoused the cause of the smugglers and unlicensed dealers, the officers of the revenue were openly as- saulted in the streets, informers were hunted clown like wild beasts, while drunkenness, disorder, and crime increased with a frightful rapidity." In two years twelve thousand people were convicted in London alone of offences con- nected with the sale of spirits, " but no exertions on the part of revenue officers and magistrates could stop the torrent of smuggling " (illicit traffic.) According to a statement made by the Marquis of Cholmondeley in the House of Lords, it appeared that at the very moment when every possible exertion was made to suppress the illegal traffic in spirits, upwards qf seven millions of gallons of illicit spirits were annually sold in London and its environs alone — as much as paid" duty in all England before the adoption of the law in question. Under such circumstances the government had but one course to follow — to give up the unequal struggle, and in 1742 the high prohibitory duties were repealed, and moderate duties in their place imposed. The bill for this purpose was vehemently opposed in Parliament by many members, who exhausted all their rhetoric in depicting all ths consequences that would result from a relaxation of law on the part of the government. " To these declamations it was unanswer- ably replied that it was impossible to put down drinking by prohibitory enact- ments, and that the attempts to do so had been productive of far more mischief than had ever resulted or could be expected to result from the greatest abuse of spirits. The consequences of the change were highly beneficial ; an instant steppage WIS put to illicit traffic, and if the vice of drunkenness was not materially diminished, it has never been stated that it was increased." At the time this unfortunate experiment was tried in England, the quantity of spirits paying duty was reduced from 12,498,000 to 2,800,000 gallons, but the sale of illicit spirits increased in London alone to about 7,000,000 gallons annu- ally. The population of England, and Wales at this time was below six millions, and that of London less than six hundred thousand ; so that the consumption, which previously averaged in England but two gallons per head, apparently rose in London to over ten gallons under the restrictive law. The effect of high rates of duty on distilled spirits is also strikingly illustrated by the experience of the British government in Ireland. In 1811, accordingto the reports of the revenue commissioners, when the duty on spirits in Ireland was 2s. 6d. per gallon, the duty was paid on 6,500,000 gallons; whereas, in 1823, when the duty was 5*. 6d., only 2,900,000 gallons were "brought to the charge." According to the commissioners, the annual consumption of spirits in Ireland was, at this very period, not less than 10,000,000 gallons; and, as scarcely 3,000,000 paid duty, it followed that 7,000,000 were illegally supplied: It is also important to bear in mind that this vast amount of evasion was car- ried on in defiance of the most stringent laws, and of the utmost exertions on the part of the military and police to prevent it; "but instead of putting down illicit distillation, the heavy punishments imposed seemed to render it universal, and filled the country with bloodshed, and even rebellion." "In Ireland," say the REVENUE SYSTEM OF THE UNITED STATES. 183 commissioners of the revenue in the report made at this period, "it appears that parts of the country have been absolutely disorganized, and placed in opposition, not only to the civil authority, but to the military force of the government. The profits to be obtained from the evasion of the law have been such as to encour- age numerous individuals to persevere in these desperate pursuits, notwithstand- ing the risk of property and life with which they have been attended."* "To put au end to such evils, the commissioners recommended that the duty on spirits should be reduced from 5s. 1\d. to 2s. 4|)i., and the government having wisely consented to act upon this recommendation, the duties were reduced accordingly in 1823." The effect was immediately seen in an increase of the legitimate consumption of spirits in Ireland from about three and a half to above nine millions of gallons per annum, while the revenue increased from .£600,000 to above 661,000,000! In 1828 the revenue from spirits still further rose to above <£1,400,000. "It is not easy," says McOuUoch, "to imagine a more unanswerable demonstration of the greater productiveness of moderate duties." The reduction of the duty on spirits in Ireland was objected to at the time on the ground that it was injurious in a moral point of view, by occasioning au increased consumption of spirits. This view, however, the commissioners of the revenue entirely dissented from ; and alleged, in reply, that " the reduction of the duties substituted legal for illegal distillation, and freed the country from the perjuries and other atrocities that grew out of the previous syst?m ; but it would be wholly erroneous to say that it increased drimkenness." The experience of the British government in Scotland is hardly le.-is conclu- sive in regard to the advantage of low duties on spirits than that in Ireland; the exorbitant duties having produced nearly the same effects in the former as in the latter country. It was stated in evidence before the British revenue com- missioners, that at the time of the imposition of the high duties in Scotland, revenue was collected in the highlands on a quantity of spirits barely sufficient to meet the demands "of two moderately populous parishes." It was also testi- fied at the same time, that the moral effects of the evasion of law on the lower classes was most conspicuous, as was evidenced by the increase of crime, and by "a degree of insubordination formerly little known in that country." The history of duties imposed by British legislation on imported spirits, further affords additional illustrations of the pernicious influence of extraordinary high duties. Thus, in 1783, when the duties on brandy and gin imported into Great Britain amounted to nine shillings per wine gallon on proof spirits (a less rate than is imposed by the present American tariff,) the quantity officially reported as entered for consumption was 740,000 gallons annually, while that clandestinely imported, at the same time, was estimated by the commissioners of excise at upwards of 4,000,000 of gallons ! Mr. Pitt, at that time the premier, being fully aware of the magnitude of this evil, determined upon its suppression, and in that view reduced the duty on imported spirits from nine shillings to five shillings per gallon. The event more than answered his expectations, as the entries for consumption increased in comparatively few years from an average of 740,000 to upwards of 2,200,000 gallons per annum. The recent experience of Great Britain as regards the relation of the rate of tax on distilled spirits to consumption and revenue, is, furthermore, worthy of especial attention. In 1823, on account of the increase of illicit distillation, and the persistent eva- , sion of the law in Scotland and Ireland, the rate of duty was reduced from 6^. 2d. in Scotland, and 5s. Id. in Ireland, to 2s. i%d. per gallon for both countries ; * In 1811, 1812, and 1813, there were no less than 19,067 illicjt distilleries destroyed by the authorities in Ireland. 184 EEVENUK SYSTEM OF THE UNITED STATES and subsequently, in 1826, in England, also, from 11^. 8][d. to 7s. per gallor,. The result was a very large increase in the consumption of legally-made spirits ; the quantity reported for 1826 being 18,200,000 gallons for the whole kingdom, as against 9,600,000 gallons in 1820. As illicit distillation, however, abated, and as the consumption increased, the government again gradually put up the rates of duty ; so that at the present time they are largely in excess of any recent average. The reported result is no marked effect upon the consumption or revenue in England or Scotland ; a result attributed mainly to the increased prosperity of the two countries, which has enabled the population to bear the greatly increased taxation. In Ireland, however, which did not participate in this increased prosperity, the result has been different. Consumption, after rising largely upon the reduction of the rate of duty, (from 6,690,000 gallons in 1824 to 11,381,000 gallons in 1835,) fell off to nearly one-half (6,485,443 gallons) in 1841;* and from 1841 to 1861 experienced scarcely any fluctuation attribu- table to alterations in duty, although the rate increased during that period from 2s. 8d. to 8s In 1861, on an increase of the duty from 8*. to 10s. per gallon, the consumption diminished from 6,101,000 gaUons per annum to 4,800,000 gallons, and has since remained very nearly stationary. It is also curious to note in this connexion, that under a duty of 6s. per gallon in 1856, the amount of spirits consumed in Ireland was greater than under a 2s. 8d. duly in 1844, although in the mean time the population of the country had greatly decreased ; and fur- ther, that under the present 10s. tax, the consumption of spirits used for drink- ing purposes in 1865 was returned at 270,000 gallons more than in 1864, not- withstanding that during the same time the population diminished by upwards of 200,000 souls, and illicit distillation increased. As has been already stated, the British government found it expedient in 1856-57 to fix the excise on distilled spirits, for the whole kingdom, at eight shillings {$2) per imperial proof-gallon, which rate was afterwards advanced, in 1862, to ten shillings {$2 60.) In 1863, the commissioners expressed the opin- ion that no increase of illicit traffic would accompany the increase of excise; but this opinion does not, however, seem to have been sustained by the experi- ence of 1864 and 1865 ; inasmuch as it appears from the returns of the commis- sioners, that the number of detections for illicit distillation which were reported in 1863 at 2,103, amounted in 1864 to 2,825, and in 1865 to 3,499; thus show- ing an increase in two years, under the increased rate of tax, of 1,396, or over sixty-six per cent. The commissioner would also call attention, in this connexion, to another im- portant admission of the British authorities on this subject. In 1855, an act was passed to allow a mixture of spirits of wine to be used under certain cir- cumstances (to be referred to hereafter) in the arts and manufactures of the United Kingdom, duty free. In 1863, the commissioners of inland revenue, in reporting on the working of the advanced rate of excise, use the following very significant language : " It is scarcely too much to say, that if this mixture had not been devised for the relief of our manufacturers, it xoould have been almost impossihle to main- tain the present high rate of duty. Illicit distillation must have been largely developed in all our great cities ; the unscrupulous traders would have been the customers of the smuggler, thereby injuring both the licensed distiller and their more honest rivals in trade; and those who carried on their business by the use of the legal material only, would have been so burdened by the duty, as to com- pete at a grievous disadvantage with the foreigner. Hence would have arisen a clamor against a tax fraught with so many evils, which it would have been difficult to resist." * "The cause of this sudden and very large decline was not an increase of any rate of duty, but the adoption of the temperance pledge, which began to be administered at this time by Father Mathew, and which took so strong a hold of the people of Ireland." — SIR MoUTON Peto — " Taxation; its Levy and Expenditure," EEVENUE SYSTEM OF THE UNITED STATES. 185 It would, therefore, appear that, in Great Britain, a country of limited area and dense population, possessing, at the same time, a most carefully-prepared system of law, and a thoroughly organized and experienced corps of revenue officers, it has been found wholly impossible to prevent the continued increase of illicit distillation, or other evasions of the excise. And if such has been the experience iu Great Britain, of an attempt to main- tain a high rate of excise on distilled spirits, what must be the result of an effort to maintain a considerably higher rate, without any compensating pro- visions for the relief of industry, in a country like the United States, whose territory and area are continental, and whoso population is sparse, and, in part, disafFected? In the outset of our revenue policy, it is now for us to decide whether we will profit by the examples of other and older countries in relation to the manage- ment of this special department of the excise, or learn for ourselves in the ex- pensive school of expericnco. But if it be urged that the reasons given in favor of a reduction of the two- dollar rate of excise will apply equally well to a reduction to a still lower figure than one dollar — or, in other words, that a removal of all extraordinary induce- ments to fraud would be equivalent to abandoning all idea of raising from spirits any considerable amount of revenue — it may be replied, that as regards the two rates under discussion, there is all the difference between excess and moderation , and that although the commission do not expect that a reduction to one dollar will prevent fraud, yet they do feel sanguine that it will greatly diminish it. As has been already shown, the average cost of raw-proof whiskey (allowing a yield of fourteen quarts to a bushel) ranges, according to the price of grain and locality, from seventeen to twenty-four cents per gallon. Now, in the con- duction of illicit distillation, especially in the face of a stringent and well- executed law, it is not probable that an average of more than eight to ten quarts to the bushel can be obtained; which reduction, coupled with other expenses to which the legitimate dealer would not be subjected, will probably carry up the price of the illicit product to fifty or sixty cents per gallon, leaving a profit con- tingent upon a successful evasion of the law of nearly an equal sum, which in turn must necessarily be shared with several other persons to prevent information. With a continuance of the present rate, however, the inducement of profit would range from one dollar and fifty cents to one dollar and sixty cents per gallon — an inducement which will undoubtedly tempt many to engage in illicit production, who would be unwilling lo do so with a much less rate of profit, especially if the prospect of severe punishment on detection was reasonably certain. Again, as has been before shown, the consumption of spirits for all purposes will undoubtedly, under the present excise of two dollars per gallon, average from about .forty-two to forty-five millions of gallons per annum. Allowing the whole excise to be collected on that amount, the annual revenue from the same would be in excess of eighty-four million dollars. In view of our own expe- rience and that of Great Britain, the commission cannot believe that the govern- ment will succeed in collecting anything like this amount. It was the opinion of the late Commissioner of Internal Eevenue, whose judgment on this subject is well worthy of consideration, that the government, under a stringent law, might probably collect two-thirds of the amount, or from fifty-five to sixty mil- lions of dollars. On the other hand, with a reduction of the tax to one dollar per gallon, the commission believe that the aggregate production and consump- tion through an increased demand for industrial purposes would approximate closely to sixty millions of gallons per annum ; and as a tax of one dollar per gallon is conceded by all parties to be not unreasonable, it seems probable that with an effective law an immediate revenue of at least fifty millions of dollars might be collected, with a subsequent annual increase. 186 REVENUE SYSTEM OF THE UNITED STATES.' We come next to consider the bearing o£ this question — the tax on distilled spirits — on industrial development. From the evidence submitted to the commission it seems certain that the present extremely high price of alcohol is most extensively and injuriously felt by both the industry and the science of the country. The statements already submitted in this report are believed to be conclusive upon this point, and make it imperative that some steps to relieve industry from an undue, and, in some instances, crushing burden, sho\ild be taken. The necessity for the adoption of some such policy having, become apparent in Great Britain, as far back as 1855, (when the British rate of excise was less than the existing one,) a commission of scientific men was appointed under authority of Parliament, to investigate and report upon the subject. The result of this investigation was to indiice Parliament to authorize and permit a mixture of spirits of wine (alcohol) and wood naphtha to be sold and used, free of duty, for industrial purposes. This mixture, technically termed "methylated spirits," is prepared under certain requirements of law, in not less than five hundred gallons at one lime, by mixing spirits of wine of not less than fifty per cent, over proof, (containing eighty-six per cent, of pure alcohol,) with not less than one- ninth of its bulk measure of wood naphtha. Spirits thus treated, without being made poisonous, are rendered bo offensive to taste and smell as to be unfit for human consumption, while at the same time they have been regarded as gen- erally available for the purposes of the arts or manufactures. At the time of the enactment of this provision it was also believed that the purification of spirits once mixed with naphtha, to an extent sufficient to allow of their use for drinking purposes, would be impossible by any practicable chemical method. In order to ascertain whether a similar provision of law would be desirable in the United States, the commission have caused a quantity of methylated spirits to be prepared, and have also procured samples of the mixture from Great Britain; and have submitted the same for trial to the representatives of various indus- trial pursuits, in which alcohol is extensively used. The judgment of these persons, as rendered to the commission, has been unfavorable to the use of " me- thylated spirits," and induces a belief that even if the government were to authorize its preparation and sale, duty free, its application and use in the United States would not be very extensive. The commission are corifirmed in this view, moreover, by the returns of the board of commissioners of inland revenue of Great Britain, which show that the maximum amount of methylated spirits ever used in that country in any one year has never equalled one million of gallons. There is, however, a more serious objection to the introduction and use of methylated spirits in the United States than that above presented ; which is, that within a very recent period the advance in the science of chemistry has been such as to allow of the complete purification and deodorization of spirits impreg- nated with wood-naphtha ; so that the British authorities have been obliged, during the last year, to subject the manufacture and subsequent use of methyhe alcohol to the same restrictions as are imposed upon the manufacture of distilled spirits. The commission would also add that they have had submitted to them sam- ples of spirits impregnated with wood-naphtha, so completely deodorized as to ' render them entirely available for drinking, or for manufacture into the various liquors designed to be used as beverages.* It should also be noted that raethy- * It appears from the reports of the board of commissioners of inland revenue of Great Britain that methylated spirits, even without deodorization, can be made palatable to those whose appetite for drink is uncontrollable, by the addition to these spirits of peppermint ot other strong essences ; and an additional illustration of the extent to which a depraved appe- tite will lead individuals, under certain circumstances, to use mixtures of the most repulsive character, the commission would state that it has been represented to them that, in some of the penal institutions of the country, alcohol-shellac varnish has been drank by prisoners for the sake of its stimulating qualities. KEVENUE SYSTEM OF THE UNITED STATES. 187 lated spirits are not applicable for pharmaceutical purposes, or at least should not be so used, and thus the allowance of its use duty-free does not extend any relief whatever to a department of industry most seriously affected by the present high prices of alcohol. The commission, therefore, do not believe that it would be either practicable or expedient to allow the use of metliylated spirits, free of duty or at a reduced rate, in the United States, or, if allowed, that it would give the full relief to in- dustry that is desired. At the same time they would also urge upon Congress the importance (in case of the maintenance of the two-dollar -tax) of adopting some measures by which alcohol can be made available to American industry and science at a less price than at present. In a communication made to the commission by the American Pharmaceutical Association, the memorialists urge that "the enormous increase in the price of alcohol (twelve times its former cost) has very materially interfered Vith the best interests of pharmacy, by tending to cramp and hinder the progress of the art, and materially lessen the vise of alcohol by encouraging the use of imperfect and improper substitutes. This diminished use has as yet by no means reached its limit, and it may be safely estimated for pharmacy, that if the present high rate of duty be maintained, the use of alcohol will be diminished more than one- half With half tlie present rate of duty, pharmacy might not be seriously affected ; and if so, the revenue accruing from one-half the pl-esent rate of duty would be larger, and be more easily collected, than from the existing rate. " Furthermore, such a reduction would dispose of all the valid reasons which can now be found for either a discrimination in favor of pharmacy, or for the introduction of a methylated spirit, or any other like clumsy method whose ten- dencies would be probably as bad as this." In common with the pharmaceutists, it also appears to be the general opinion of a majority of the representatives of the various trade interests who have ap- peared before the commission in relation to this matter, that a reduction of the tax on proof spirits to one dollar per gallon would sufficiently relieve them from the injurious effect of the present high price of alcohol, and lead to a very large increase in its consumption for industrial purposes. It should also be borne in mind that an increase in the use of spirits for in- dustrial purposes, to the extent of ten to twenty millions of gallons per annum, would lead to an increased market for western grain of from three to six mil- lions of bushels ; and that much of the grain which would thus be made appli- cable for use, being damaged by overheating, is of but little value for any other purpose than the production of alcohol. Finally, regarding the question in a moral point of view, the commission would respectfully ask whether it is either just or expedient, on the part of the government, to impose by law, in the first instance, a tax so unprecedentedly high as to constitute in itself a premium for fraud, which it is morally certain that human nature, as ordinarily constituted, will not resist; and then, secondly, to impose severe penalties for the violations of the law ; and whether the hourly provocation to perjury, evasion, and concealment, held out by a two-dollar tax, will not more than sufficiently counterbalance any good which may result from a possible decrease in the consumption of spirits, by reason of their consequent enhancement of price. That the use of alcoholic liquors has, however, to any great extent, been di- minished by reason of the high rate of excise imposed upon them, the commis- sion have no reason to believe. The weight of evidence received by them in relation to this point tends to establish the contrary. But if such were the fact, it is altogether probable that a portion of the small diminution has been fully compensated for by the increased use of opium or other more injurious substances — thus supplanting one vice by substituting a more degrading one in s place. If this be true, the effect of the very high tax has been mainly to- 188 REVENUE SYSTEM OF THE UNITED STATES increase the pecuniary profits upon vice without controlling it or raising an adequate revenue upon the process ; and if, as is here maintained, the attempt to discriminate against vice by the high rate has been successful neither in a moral point of view, nor in raising the largest revenue, then it is hardly wortt while to interfere injuriously with so many of the established wants and neces- sities of civilization by continuing a further unsuccessful trial. As respects smusrgling of spirits along the northern frontier of the United States, it is not probable, as has already been pointed out, that any reduction of the rate of excise- will seriously interfere with this business. > If, however, an arrangement could be made with the provincial authorities for an equalization of duties on distilled spirits in the respective countries, it is obvious that all evasions of the revenue laws by the smuggling of spirits would instantly terminate; and that the attainment of the above result would be of great advantage to the United States. That such an equalization can be made a part of some future commercial arrangement which may be entered into with the British provinces, in rase the rate of excise on spirits in the United States is fixed at a rate not exceeding one dollar, the commission have the inost positive assurance; and this fact alone, independent of any other consideration, would seem to warrant them in recommending the proposed reduction. The commission have collected a large amount of information respecting the cost and consumption of imported wines and liquors, and also in respect to the manufacture of imitation liquors and the production of domestic wines in the United States. As the time has not sufficed for a sufficient consideration of these topics, their report, in relation to the same, is deferred for the present.* They will, however, state that the evidence taken by them leads to the conclu- sion that it would be for the interest of the revenue to reduce the duties on imported wines and liquors to an extent commensurate with the reduction recommended by them on domestic spirits. They also doubt the expediency of endeavoring to collect an excise tax on wines of domestic production. The attempt to do so thus far has been a practical failure. Thus, the revenue col- lected from domestic wines of all varieties (native and imitation) for the several years since the internal revenue system has been in operation has been as follows : In 1863, $8,823 64 ; in 1864, $28,302 80 ; and in 1865, $43,210 36. A tax on the production of domestic wines, furthermore, is represented to the commission as calculated to seriously check the development of this important branch of industry in the Pacific States. From domestic brandy no revenue accrued in 1863 and 1864; but for 1865 the sum of $10,546 is returned. Under the present law a discrimination is made in favor of domestic brandy distilled from grapes, apples, and peaches, in contradistinction to spirits distilled from grain; brandy distilled from grapes being subjected to an excise oi fifty cents per gallon; and brandy from apples and peaches to an excise of one dollar and fifty cents. Such discrimination, the commission believe, should be discontinued, and all distilled spirits placed on the same footing. QUESTION' OF LAW. But whatever may be finally determined on by Congress, as the tax per gal- lon on distilled spirits, the commission — always assuming that the rate will not * The regulation of duties on imported wines and liquors in Great Britain has been made the subject of a special investigation by a commission appointed by Parliament for that pur- pose, which resulted in the establishment of the present improved British tariff and inspection regulations relative to this department of their customs. Attention should also be called, in this connexion, to the fact, that it occupied nearly as much time for the investigation of this single department of the British revenue as has thus far been afforded to the commission for the investigation of the entire subject of the revenue system of the United States, both customs and excise. REVENUE SYSTEM OF THE UNITED STATES. IS'd be below a standard largely productive of revenue — are unanimously of the opinion that the present law requires such alterations and amendments as will enable the government to regulate in detail the process of mauufacture, and also provide for a rigid inspection of the whole business. In fact, with a tax of from one to two dollars per gallon, on an article whose normal cost of manufac- ture is from seventeen to twenty-four cents, it may be fairly assumed that every distillery in the country is a government manufactory — conducted for the interests and profits of the treasury. And, therefore, it may be argued, on the grounds of expediency alone, that the government, in the Jirst instance, should protect its own interests ; and secondhj, that after having, through reasons of public necessity, interfered with the business of a class of its citizens, it is bound by every principle of justice to give to the men who furnish, at their own expense, tlie apparatus for manufacturing, such protection against fraud and illicit pro- duction as will allow the honest distiller to continue his business, and participate in the ordinary ciiances of commercial profit. Anything less than this would be equivalent to a premium, on the part of the government, in favor of dis- honesty; and unless such protection, by the enactment and enforcement of effective measures, is afibrded, the commission are decided in their convictions, that it would not only be useless to expect any great increment of revenue from the manufacture of distilled spirits, over and above what is received at present, but also that the legitimate business will be in a great measure broken up and destroyed. Apart from this, there would seem to bo no other just course fur Congress to pursue, except to place distillation on the same footing with all other manufacturing business, and to assess its product with a duty which would not offur any special and extraordinary inducements to fraud. The collection of an annual revenue of from fifty to sixty millions from dis- tilled spirits will in itself ofl'er a solution of many of the difficulties which at present attend the assessment and collection of the national revenue. It will enable the government to follow the example of Great Britain, in dispensing with taxation on nearly every other description of manufacturing industry;* and to dispense with every species of tax that is now regarded as especially burdensome or odious. Such inducements would seem to warrant the enact- ment by Congress of all that can be demanded under the form of law, and also an expectation of a rapid development of a sentiment ou the part of the whole people, which would not sanction any dereliction of duty on the part of officials in respect to the enforcement of such law, or shield auy offender, through the press or the jury-box, from speedy and severe punishment. It should, furthermore, be borne in mind, in reference to this matter of law, that the question is not whether distOled spirits can sustain a heavy burden of taxation. That question our own experience, and the experience of other nations, has already settled in the affirmative; but it is whether this tax, which is already paid, (and will be paid under any rate of excise, to the uttermost farthing, by the consumer,) shall flow into the coffers of the government, or be diverted, as now, into the pockets of the illicit producer and trader. Upon this point, the interests of the government and of the great majority of the people are identical. The commission, in accordance with the requirements of the act authorizing their organization, present, in connexion with this, their special report, the draught of a new law, which they believe will be effectual for the prevention of fraud, and securing the revenue. This bill, which is necessarily arbitrary and restrictive, does not, in some of its essential features, meet the approval of a portion of the distilling interest of the country, and their opposition to it may be expected. * There is no longer any duty or excise imposed on manufactured goods in Great Britain, except so far as any manufactured article may tie composed in part of any article subject of duty ; then a proportionate sum is charged for the duty on that part of the article " — Heport Parliamentary Commission on Internal Revenue, 1882, p. 31. 190 REVENUE SYSTEM OF THE UNITED STATES. The commission have, however, given a great amount of time to the inves- tigation of this subject, and have availed themselves of the judgment of the most experienced revenue officials, distillers and dealers, from various sections of the country ; and have also sought to ace^uaint themselves most thoroughly vcith the manner in which this subject is treated for revenue in the various states of Europe. If it be urged that the bill, as reported by the commission, is too restrictive and arbitrary in its character, destructive of small private interests, and as imposing large additional restrictions and expenses upon all engaged in the business, it may be replied that the amount of good which must inevitably accrue to the whole country, by the course recommended — if the same will in- sure an enforcement of the law, and the collection of the revenue^ — is sufficient to justify a disregard of the interests of a comparatively small number of indi- viduals. And it may fairly be urged, in opposition to any plea that a free government has no right to disregard the interests of individuals, that it is also the cardinal principle of a democratic state, that legislation should always bs shaped in such a way as to secure "the greatest good to the greatest number." If, moreover, we are to attach any weight to the evidence presented to the commission, the conclusion is inevitable, that, since the imposition of an excise tax on distilled spirits, the perpetration of fraud on the part of the manufac- turers has been the rule, and honesty the exception. There can in fact be no escape from the conclusion, that the whole subject is narrowed down to two propositions — a stringent law and a large revenue; or an inefficient law like the present one, coupled with a system of compromises and settlements,* and a small revenue. Without considering it necessary in this connexion to discuss the peculiarities of the draught of the law submitted by them, the commission would simply remark that its essential features are : the providing for a close inspection of the pro- duction of spirits ; the retaining of a lien upon the same by the government until the assessed taxes have been paid ; and the imposition of high license fees on all engaged in the business. These provisions are considered by a majority of the commission as the essentials of any efficient law. Without inspection- constant and watchful — fraud will prevail ; while to allow every individual to engage in the manufacture of spirits without some proper restrictions, will ren- der inspection impossible. By reference to the table submitted on page C, it will be seen that the num- ber of distilleries in the western States was returned in 1860 as 494, employing a capital of over six millions of dollars, and producing annually over fifty-two millions of gallons ; while the number returned in the same year from the southern States was 326, employing a capital of $648,651, and producing only 2,642,.')00 gallons, v The commission cannot submit any stronger argument to prove the fact, that the concentration of manufacture must precede, and is essen- tial to, the establishment of any economic or practicable system of inspection, i In further illustration, however, of their proposition, the commission herewith submit selections from the testimony of one of the most experienced and intel- ligent of the government officials who have appeared before them as witnesses : Extracts from the testimony of Benjamin A. McDonald, United, States revenue agent. Question. "Have you any knowledge of illicit distillation, in a small way?" Answer. " I have, sir. My attention has beeen called to it, right here, in the city of New York. These small stills can be used in a small space— in a gar- * "In my opinion tie compromises and settlements with parties prosecuted for fraud have thus far been fatal to the efficient working of the revenue laws. I Icnow of but one instance where the penalty of imprisonment has been imposed." — Testimony of B. A. McDonald, U. S. revenue agent REVENUE SYSTEM OF THE UNITED STATES. 191 ret. or anywhere — because here there is Oroton water up through all the build- ings. The law now allows such stills to be licensed. The quantity produced, per day, can be run up from twenty to fifty gallons. These small distillers carry on the trade by selling to small dealers in demijohns. They will make returns, as provided by law, in due form once in thirty days. They will report from three to four gallons per day, and the inspector is obliged to make the returns in conformity. They will make a run of, say, forty gallons, return four gallons, and the remaining thirty-six they will send off in demijohns at night. That is the way, in my opinion, that the small trade is carried on in New York and other cities ; and it shows the importance of restricting and limiting the license to those who have a legitimate distillery of not less than a certain capacity. I should recommend that no distillery should be licensed until large enough to give bonds for not less than SIO.OOO. No man who car- ries on illicit distillation can give such a bond.'^ , Question. " How do illicit distillers conceal their grain 1" Answer. " The production being from three to four gallons to the bushel, no large amount of grain is necessary to be kept on hand — ten or twelve bushels will make forty gallons. Then there is another system which they practice successfully. They set up a vinegar factory, in which they make vinegar from whiskey. They will have a little still on the premises, situated in a dark cellar, making whiskey from sour beer, or from molasses, and that whiskey they make into vinegar. They never sell whiskey — the operation saves them from buying whiskey to make into vinegar." " Pl'om all the information I have been able to gather, on my tour west, I believe four-fifths of the whiskey produced there does not pay a tax. Inspectors should be appointed, at least one for every distillery, and be paid a sufficient salary to warrant the inspection of every distillery every day. The collection districts are now too large to admit of daily inspection." " One great fact which leads me to belie%'e that a large amount of illicit dis- tillation is going on throughout the country, in a small way, is the closing of nearly all the large distilleries, and yet continued large production to meet the demand. While in Cincinnati I was advised that a very considerable number of copper stills had been shipped i'rom that city to. Memphis. From that place they are distributed through Mississippi, Alabama, sonthern Kentucky, southern Tennessee, northern Georgia, and Arkansas. The people being disloyal, and the collection districts exceedingly large, information is with difficulty obtained by the revenue officers." Question. " Does it seem possible, in your opinion, for the government to prevent illicit distillation, except by refusing licenses to small establishments ?" Answer. " It is utterly impossible." Question. " What would be the efiect of demanding a high price as a license fee for a distillery?" Answer. " It would have no efiect whatever on illicit production. The profits being so enormous, no practicable charge forlicense would make it prohibitory. A man having a small still, capable of producing fifty gallons a day, would make $30,000 a year, if he did not pay duty. The price of a license to him, therefore, would be no object. I would propose where a small still is now with- out license, that it should be seized and destroyed, and the distiller be subjected to imprisonment. The prohibition of possessing a small distilling apparatus will have this advantage, that it will enable the government at once to determine the question of fraud ; while if small stills are licensed, it will be a matter of great difficulty to prove whether the product manufactured has or has not paid a tax. As the law now stands, the detective ascertains the existence of a small distilling apparcitus. The proprietor, on being questioned, acknowledges pos- session, but denies illegal use. The moment the inspector withdraws, illicit 192 REVENUE SYSTEM OF THE UNITED STATES. distillation may be resumed, and unless actual possession of the spirits, or de- tection in tlie act, can be proved, the government has no remedy." "Before the imposition of the tax on whiskey, the use of small stills through- out the country was in a great measure unknown, the few employed being used mainly for the manufacture of peach-brandy, apple-jack, &c. They were not used for the reason that the manufacture of whiskey by means of theni would cost more than the whiskey could be bought for from the large distillers. ' Bour- bon,' 'Monongahela,' 'Eye,' &c., were made to some extent in small stills by farmers in Kentucky, and some in Pennsylvania, before the high tax was put on. It would be for the interest of the government to prohibit the use of small stills, and then buy up all the old ones, and sell them for old copper. I would also make it a penal offence for any coppersmith to make a -still below a certain capacity. I would prohibit farmers from making whiskey for their own use." If a plan of accurately measuring by means of a metre the flow of spirits from the tail of the still could be devised, the system of inspection of distilleries might be greatly simplified. Much attention has been given to this subject in Europe, especially by the Austrian government ; but the results thus far have not been satisfactory. By an official communication from Hon. J. Lothrop Motley, United States minister at Vienna, dated August 25, 1865, the commission are informed "that the evasions and frauds practiced in regard to the use of these instruments are so common, and the cost of the supervision required is so great, that the Aus- trian government is proposing to abandon the use of them altogether ,- and a government commission is now sitting in Vienna, the result of whose labors will, in all probability — as it has already declared itself against the present system- be the adoption of something quite different." Experiments in regard to the use of metres for the measurement of spirits in distillation are also now in progress in Canada, the results of which are promised to the commission by the provincial authorities, but have not yet been received. Some plans of mechanism intended to accomplish the same end have also been submitted to the commission by American inventors, but time has not yet been afforded for their examination. It is also interesting to notice, in this connexion, that the bill reported by the commission for the regulation of the manufacture of distilled spirits, and the collection of the excise on the same, is in many respects identical with that passed, in the infancy of the republic, by Congress (March 3, 1791;) which bill it is understood was draughted by Alexander Hamilton, then Secretary of the Treasury. The following is an abstract of the provisions of this act : "It imposed a duty on imported spirits varying from ;«iY«('y io_/orty cents per gallon according to strength, and an excise duty of eleven to thirty cents upon domestic spirits, distilled from molasses, sugar, or other foreign materials, and of nine to twenty-five cents per gallon on that made from materials the groAvth or produce of the United States. For the collection of these duties, each State was made a collection district, with as many supervisors as were necessary, whose duty it was, in case of home-distilled spirits, to appoint officers each to have charge of one or more distilleries, to gauge, prove and brand every cask, according to its contents ; and having collected the excise in cash, or by bond, to give a certificate, without which it could not be removed on pain of forfeiture. On private stills, in country places, using a domestic material, a yearly duty of siicty cents per gallon on the contents of the still was imposed. Every distiller was required to place on his buildings, and the doors of his vaults, the words, " Distiller of Spirits," and before commencing the business was to enter in writing, at the nearest inspection ofl5ce, a particular description of his buildings and apartments. These were made subject to the inspection of the officers, who were also to furnish, and from time to time inspect, books, REVENUE SYSTEM OF THE UNITED STATES.' 193 in which the distiller was required to make a daily entry of the quantity and quality of spirits distilled, sold or delivered according to the marks ; and to verify the same by his oath or affirmation. An allowance equal to the duty in each case, less half a cent per gallon, was allowed by way of drawback upon spirits exported ; and upon spirits distilled from molasses in the United States, an additional allowance of thret cents per gallon, equivalent to the duty laid on molasses. The net product of the duties was pledged for the payment of interest on loans, and the surplus, if any, to the reduction of the public d^bt ; and the act was to cease when these objects had been attained." The commission would also call attention to the very imperfect methods which at present prevail in the United States for the inspection of liquors. In the custom-house, Tralle's hydrometer has been adopted as the standard instru- ment ; but in the internal revenue, where the amount of inspection performed is much greater than under the customs, no one "instrument is recognized as a standard. Neither does a uniform method of gauging, or determining the capa- city of the "cask, prevail. In some instances the commission have reason to believe that inspectors have been appointed who have but a very imperfect knowledge of the use of any instrument; while the evidence taken by the commission indicates that a wide discrepancy between the inspection returns of one and the saine lot of spirits, made in different sections of the country, is the rule and not the exception ; the effect of which discrepancy has been, in some instances, to compel distillers to change the market for their products. The importance, in a revenue point of view, of correctly regulating this matter may be realized from the statement that a loss to the government, in inspection, of one per cent, on the estimated annual product of distilled spirits would be under the present rate of excise, over $800,000 per annum ; while the evidence submitted to the commission would seem to indicate that the actual loss is, in some instances, as great as from three to five per cent. The commission would recommend that the duty on all spirits be levied and collected solely at the tail of the still, and that no interference with their subse- quent treatment, sale, or consumption, other than by way of licensing, (their manufacture into imitation wines excepted,) be attempted on the part of the government. The reasons in favor of such recommendations are, mainly, the greater simplicity of this method of raising revenue, and the inexpediency of attempting to accomplish by various plans and at various times what can be more easily and less expensively effected by but one method and upon one occasion. As an illustration of the different results which flow from an efficient in op- position to a feeble administration of law in the collection of taxes, the recent experience of the national authorities and of those of the city and county of New York, in respect to -the license tax on retail dealers in liquor, may be referred to as both curious and instructive. The license tax imposed by the national revenue system on retail liquor dealers is twenty-five dollars per annum. A similar license fee, under the laws of the State, is also assessed by the author- ities of the city and county of New York. In the latter case an organized and politically powerful society, known as the " Liquor Dealers' Association," has for years interposed, and, through the machinery of local courts, aided by per- sonal and party influence, has thus far successfully defeated all attempts of the authorities to enforce and collect the tax in question. In, the case of the national revenue, its officers, in entering upon the discharge of their duties in the city of New York in 1862 and 1863, encountered resistance from the retail liquor dealers from the outset. It was assumed by many of the dealers in question that the association above referred to, which had so successfully baffled the local or State authorities, would be equally successful in their opposition to the representatives of the national government, and the aid and protection of this association was accordingly confidently sought and expected. Comparatively 13 K c 194 EEVENUE SYSTEM OP THE UNITED STATES. few of the dealers, therefore, in conformity with the law, made application to the United States officials for licenses, and in some of the notoriously had dis- tricts of the city personal violence against the collectors and assessors was threatened, and in at least one instance inflicted. The revenue officers, how- ever., went on with their work enefgetically, making arrests and distraints in a few instances, and commencing suits in all cases where repeated notification and remonstrance on their part had proved unavailing. The effect of this action was, very immediate. It soon became apparent to the dealers that the authori- ties were not to be trifled with — that the tax was to be enforced uniformly and equitably, and that needless delays and objections would not be tolerated by the officers of the United States courts. The conclusion is well set forth in the following statement reported to the commission : " The whole number of license fees collected from retail liquor-dealers in the city of New York by the United States authorities, for the fiscal year ending June, 1 865, was upward of seven thousand ; while the whole number collected by the authorities of the city of New York, for the same period, was only about four hundred." The report to the commission from the United States revenue collectors in the worst district of New York city is further to the effect, that the license taxes from retail liquor- dealers are, now, nearly as easily and as promptly collected as those from any other class of the community. In conclusion, the commission would remark, that they are well aware that the recommendations made by them, in favor of a reduction of the existing rate of excise levied upon distilled spirits, and possibly, also, those in reference to the enactment of a more stringent law regulating the manufacture and sale of spirits, are not in accordance with the general public sentiment. As these recommendations are, however, the result of an extensive and impartial exami- nation of the whole subject, they trust that the facts and arguments submitted by them in support of the same may receive from Congress and the public an impartial consideration. Respectfully submitted for the commission. DAVID A. WELLS, Chairman. Hon. Hugh McCulloch, Secretary of the Treasury. APPENDIX. The system of supervision, whereby the British revenue on spirits is collected, is a remarkable instance of excise machinery — a supervision rendered important by the great revenue yearly collected, and the comparatively small number of distilleries from which the payments are made. The whole number of licensed distilleries in Great Britain, in 1850, was as follows: England, 86; Scotland, 164; Ireland, 87; total, 337. The whole number of distilleries in the United States, in 1860, was 1,193. The following are the principal features of the present British statute relating to the distillation of spirits : No person can keep or use a still for the distillation of spirits, or carry on any part of the process of di.stillation without having in force a license. Every person having in his possession "mash or wash" fit for distillation, or spirits of low proof and a still, shall be deemed to be a distiller, liable to the duties and penalties imposed by law "on distillers. No license shall authorize a person to carry on the business of distilling elsewhere than on the premises mentioned in such license. No person, without a special permit, can have a license to distil, if the distil- lery be more than a quarter of a mile from a market town. REVENUE SYSTEM OP THE UNITED STATES 195 Distilling cannot be carried on, on the same premises with other trades, nor upon premises having any internal communication with that of a dealer in or a retailer of spirits ; and no person can establish a distillery within the distance of cue quarter of a mile from a rectifying house. The commissioners of inland revenue have power to refuse to license any dis- tillery, in any location, whenever it may appear to them, from any cause, to be inex- pedient. Before a license is granted to any distiller, he must produce a certifi- cate, signed by three justices of the p6ace, that he is a person of good character, fit and proper to be licensed to keep a still, and that his intended distillery premises are of at least ofilO ($50) yearly value. No distiller in England can keep any still of less contents than^ar hundred gallons, and no person is authorized to keep a still of less content? than forty gallons, or any distilling apparatus not capable of distilling two hundred gallons per day. The commissioners of internal revenue have power to suspend the license of any distiller not complying with the regulations of the statute. No distiller is allowed to retail spirits within two miles of his distillery. After obtaining a license, a distiller must erect and keep a certain specified number of utensils or pieces of apparatus, and no more; he must also provide a close safe to be affixed to the worm end of every still, unless the worm is con- nected by means of close metal pipes with the proper receivers, and must also provide a proper and secure spirit store at his distillery, and in the store, a store cask or vat with proper fastenings. Every safe affixed to the worm end of the still must be connected with a spirit receiver by means of a close metal pipe, ex- ternally visible throughout itp whole length, and so placed that the spirits shall run directly from the safe to the receiver; the receiver must also be furnished with a discharge pump, cock or pipe, externally visible throughout its whole length, for conveying the spirits directly from the receiver to the store-cask or vat in the spirit store. Every receiver must be a close-covered vessel, and must be placed in a convenient situation, exposed to open view and easy of access and inspection. The stills may be of any form or construction, but there must be no openings in them except those prescribed by law. The situation, position, size or capa- city of any still, vessel, utensil, or pipe, cannot be legally altered in any manner after it has been inspected, without two days' notice thereof. The pipes for the conveyance of difierent products are to be painted of different and specified colors. All utensils required by law are to be kept and fixed at the expense of the distiller. Before any distiller can commence business, he must present to the revenue officer an account, in writing, signed by himself, setting forth his residence, loca- tion of his distUlery, a true and particular description of every place, room, vessel, and utensil used in his business, and its capacity for production ; and, in con- nexion with the same, must deliver a drawing, model or description, distinctly showing the course of all fixed pipes and their branches used in the distillery. Brewing and distilling must take place in alternate and distinct periods ; and before commencing to work or recommencing after having discontinued work- ing, for a longer period than one month, six days' notice in writing must be given. No spirits can be received in the stock or spirit store of the distillery other than the spirits distilled in the distillery, and conveyed direct from the spirit receiver to the store ; and no spirits once removed from such store shall he brought back to it from any place whatever. All spirits produced in a distilling period (one hundred and fifty gallons in one cask excepted) shall be removed from the store within ten days after the termination of the period. 196 REVENUE SYSTEM OF THE UNITED STATES. All duties on spirits intended for domestic consumption are to be paid before delivery. The spirit store is not to be open on Sundays, nor on other days between the hours of eight p. m. and five a. m. and all spirits in the store are to be filled into casks in the presence of an officer. Proper accommodations must be pro- vided in the store for the officer in attendance ; and the distiller must also furnish correct weights, scales, and measures, and permit the officer to use them. Spirits cannot be sent out of store in less quantity than nine gallons in one cask ; nor at any other strength* than at twenty, fifteen, or ten, per cent, under proof; at proof ; eleven or twenty -five per cent, over proof, or within six-tenths of either of these strengths, or at and above forty-three per cent, over proof And all spirits sent out must be accompanied by a permit expressing the quan- tity and the exact strength of the spirits in each cask. Every distiller must cause to be legibly cut, branded, or painted with oil-color, on the outside of both heads of every movable cask used for keeping or deliver- ing spirits, his name or firm, the name of the distillery o;- place, with the full contents in gallons. In addition to the above provisions by statute, the commissioners of inland revenue have established the following additional regulations : A complete survey must be made of every distillery while at work, by the officer in charge, at least three times each day ; and on such surveys, the con- dition of every vessel is to be ascertained, the locks on every vessel and utensil examined, and the manner in which the operations are proceeding carefully ob- served, and the minutes of each survey entered in a book kept in the distillery for this purpose. When two or more officers are in charge of a station in which there is a distilleiy, they are to survey the distillery in courses of eight hours each. Although an officer while in charge of a, distillery is not required to be constantly on the premises, he must not absent himself so that he cannot be im- mediately found, if required by the distiller or any superior officer. On Sun- days only one complete survey is required. • No hydrometer or any other testing instruments are to be used by any officer except such as are supplied by the board of revenue commissioners ; and all instruments and keys of stills and receivers when not in use are to be kept un- der government lock by the officer on duty. The officer in charge of the spirit store must attend therein whenever the dis- tiller requires it to be opened, any time between the hours of five a. m. and eight p. m., Sundays excepted. When in attendance the officer must place himself so that he can see whatever is brought into or removed from the store by the en- trance door. When the distiller does not requii-e the store to be opened, it must be kept locked, and the officer in charge must at all times keep the key in his own possession. Officers may survey distilleries by night or by day, and may force entrance, if admittance is refused on demand. When any duties payable by a distiller shall not be paid at the proper time, the district collector or other officer in charge of the collection may, by warrant under his hand, empower any person to take and distrain all materials and vessels for distilling and all spirits in warehouse, and cause the same to be sold at auction on six days' notice. Should there he any surplus after paying costs and expenses, it must forthwith be paid or ten- dered to the distiller or his lawful representative. Before such sale, the distiller may have any spirits or malt by paying the value and the duly on such articles. Any officer may arrest any person removing malt, sugar, molasses, or mash, , from a distillery, or any spirits, without being accompanied by a proper permit, and convey him before a justice of the peace residing near the place, who, as soon as practicable, shall hear and determine the charge ; and, on confession oi 'According to Sykes's hydrometer. REVENUE SYSTEM OF THE UNITED STATES. 197 proof, convict the offender in a penalty not less than <£10 ($50,) nor more than .£100 (#500,) and if such penalty is not forthwith paid to the officer, the justice shall commit the offender to jail for not less than one, nor more than six months, unless the penalty is sooner paid. If any officer has cause to suspect that unlicensed distillation is carried on, ' he must obtain a search warrant to enable him to break open the premises ; and, if at night, must also secure the presence of the peace officer, who is bound to assist. All stills, vessels, and apparatus, and all spirits or other materials, pre- paring for distillation, found in such premises, may be seized and removed ; the whole of the articles thus seized, if not claimed within ten days by the lawful owner, are absolutely forfeited, and, whether claimed or not, the owner is liable to the penalties prescribed by the statute. The amended and consolidated acts of the British Parliament relative to the distillation of spirits, (Act 23 and 24 Vic, c. 114, Oct. 1, I860,) as -well as all former British legislation, has unquestionably been based on the belief that the ordinary safeguards of an official oath, required entries, and occasional inspec- tion, are entirely insufficient to prevent fraud and secure the revenue, under the extraordinary inducements offered to illicit production, by the imposition of rates of excise, varying from 500 to 700 per cent, per gallon (8s. and 10*.) over and above the cost of manufacture. The government, apparently further adopting as a principle, that where the interests of the nation and the rights of a comparatively small class of manu- facturers, under the ordinary laws and regulations of industry, are antagonistic, the latter are to be considered as of little importance, have, therefore, rigidly prescribed, to the minutest details, a specific manner jn which thfe process of dis- tillation shall he carried on, and no other ; subjects the business to constant in- spection — following the disposition of the manufactured product so long as it retains a bulk of three gallons — and most rigidly enforces all fines and penalties for violation of the statute. The effect of such enactments, as was doubtless intended, is to restrict the business of distillation to comparatively few estab- lishments, a restriction which tesults to the advantage of the government, inas- much as it necessarily greatly facilitates and economizes the system of constant inspection ; while, at the same time, the more practical result is attained to, viz., of enabling the government to collect so large a revenue, from an acknowl- edged article of luxury, as to materially alleviate the burden of every other form .of taxation. lf)8 REVENUE SYSTEM OF THE UNITED STATES. EEPOKT OF THE COMMISSIONERS APPOINTED BY THE UNITED STATES BREWERS' ASSOCIATIONS TO THE UNITED STATES REVENUE COMMIS- SIGN ON THE TAXATION AND MANUFACTURE OF MALT LIQUORS BT GREAT BRITAIN AND ON THE CONTINENT OF EUROPE. Commissioners on behalf of the Brewers^ Associations. Predric Collins, Matthew P. Read, Frederick Lauer. At a convention of the brewers of the United States, held at Baltimore on the 17th day of October, 1865, it was Resolved, That the report just read, of the commissioners who visited Europe on behalf oi the brewers, be placed in the hands of the chairman of the United States commissione pointed for the revision of the internal revenue, with the request that the same be prers ^p. 10 Cci g)essnd senked PREFACE. At a meeting of the Associations of Ale and Porter and Lager Beer Brewera of Philadelphia, held on the 7th of March, 1865, it was Resolved, That a committee should be appointed, consisting of three members of each of the two associations, who should invite the co-operation of simila,r committees of associations in other cities, to obtain full and accurate information of the excise laws of Europe apper- taining to malt liquors, by sending two commissioners, to be selected by them, to Great Britain, France, and the German States, duly accredited by the brewers of this country, who should famish a report of the statistics thus obtained, to the commissioners to be appointed by the Secretary of the United States Treasury for the purpose of revising the internal system of taxation, and prepare the form of a bill for the consideration of the next Congress. Sim- ilar resolutions were adopted by a general meeting of the brewers of New York, and also ot Cincinnati. Under these resolutions Mr. Frederic Collins, of Philadelphia, and Mr. Matthew P. Eead, of New York, were appointed the commissioners, and sub- sequently Mr. Frederick Lauer, of Beading, was appointed to accompany the commission through the German States. Before proceeding on their mission they visited Washington, and stated to the Hon. H. McOulloch, Secretary of the Treasury, the object of their intended visit, who addressed to them a letter approving of their plan. Two of the commissioners, Messrs. Collins and Eead, sailed from New York on the 19th of April, and arrived at Queenstown the 29th of the same month; they were joined by their colleague, Mr. F. Lauer, in London on the 15th day of May, who accompanied them through Belgium, the Germaa States, Switzer- land, and France, and returned with them to New York 'on the 26th day of July, after aiS absence of fourteen weeks from the day of their departure. The committee appointed in pursuance of the above resolutions beg leave to submit to the United States Brewers' Convention an account of their mission. REPORT OF BREWERS' COMMISSION. GREAT BRITAIN. Our first visit being to Great Britain, the condition of the brewing interest there became a prominent object of inquiry, and a visit to some of the great breweries as indispensable as it was agreeable to us. Landing in Ireland, we REVENUE SYSTEM OF THE UNITED STATES. 199 called, after our arrival in Dublin, at the celebrated porter brewery of Messrs. Guinness, Soh & Co. This is one of the largest breweries in Great Britain, and Mr. Guinness informed us that it ranked about the fourth in the extent of its production. Mr. Guinness is widely known as a Christian philanthropist. In one instance he contiibuted <£150,000 ($726,000) for the renovation and en- • largement of St. Patrick's (Protestant Episcopal) Cathedral in Dublin. The quantity of malt mashed daily in this brewery is 3,040 bushels. The mash tuns are iron ; the coppers domed, with a copper reservoir attached for coutaining liquor (water,) into which the steam is conducted from the copper when boiling. The liquor thus heated is used in the following mash, or for sparging. The gyles, or fermenting tuns, are square. The porter, when the fermentation is nearly finished, is run into other square's, where it is skimmed, and, when this process is completed, pumped into the storing vats, which are sixty- seven in nunlber, varying in capacity from 300 to 2,0(i0 hogsheads. A cylin- drical yeast press is here employed for separating the porter from the yeast by hydrostatic power, the invention of the head brewer. When we consider that it was only about the dawn of the present century that the manufacture of porter was first introduced into Ireland, the extent of business transacted at this one establishment is truly surprising. ■ There are sev- eral other extensive breweries in Ireland, the largest of which are probably those of Messrs. Watkins, in Dublin, and Messrs. Beamish and Crawford, and Sir John Arnot, in Cork. Yet the whole produce of malt liquor in Ireland and Scotland equals but one-tenth of that of the United Kingdom, with more than one-fourth of the population. Crossing over from Ireland into Scotland, we stopped but a few hours at Glas- gow, and proceeded directly to Edinburgh, where, among other large brewing establishments, we visited the brewery of the Messrs. Younger. The brewing here is only conducted during the fall, winter, and spring, when the ale can be fermented at a low temperature. It is finished in the fermenting tuns by the skimming process, and racked from these into casks. Scotland has, for a long period, been justly celebrated for the manufacture of a superior quality of ale, much of it of a heavy gravity or great strength. The increased demand for a lighter ale is now, however, freely met by the brewers there, and they are successfully competing, in their own market, and, to some extent, in London, with the famous breweries of Burton-on-Trenf. From here we passed over to London, one of the great central points to which our attention was particularly directed. The quantity of beer manufactured here (under which head we shall class the various descriptions of malt liquor, as a general term) is about one-sixth of the entire production of Great Britain. The breweries here and at Burton-on-Trent are th^ largest in the world. Of the twelve great breweries in London, it is difficult to decide, out of several of them, which takes precedence in the ex- tent of its operations. Formerly it was easily ascertained, as the quantity of malt on which duty was paid by each house was published annually. Now, however, owing, it is said, to local jealousies, it is suppressed. For a long period, the celebrated house of Messrs. Barclay, Perkins & Co. ranked as the first. Now, it is believed that Messrs. Truman, Hanbury, Buxton & Co., take precedence in the extent of their production, although some assign this position to the house of Messrs. Bass, Eatclifie, Gratton & Co., of Burton- on-Trent. But this matters not. The houses which we have naiaed, together with those of Messrs. Whitbread & Co., AUsopp & Co., of Burton-on-Trent, Meux & Co. and Reid & Co., approximate so closely to each other, that, in the ebbing and flowing of their vast business, a distant wave, in its onward and irre- sistible course, may lift any one of them a little higher and carry it beyond the line of the foremost of the others. A transfer of the orders (contracts) of the 200 EEVENUE SYSTEM OF THE UNITED STATES. i government would produce this result, as it is stated that they amount to 200,000 barrels annually for their troops in India and elsewhere. On the 8th of May we visited the brewery of Messrs. Barclay, Perkins & Co. We here registered our names, and were then taken through this vast establish- ment. Originally a porter brewery, they now brew both porter and ale, and, although the brewings are conducted under one roof, yet the arrangement of the mills, coppers, mash tuns, fermenting tuns, &c., as distinct as if it were two breweries instead of one. The arrangement and management of the porter brewing are similar, in most respects, to that of Messrs. Guinness & Co., to which we have alluded. The principal difference is in the manner of iinishing the ale. This is done in pontoons, the porter in settling backs. The mash tuns here are also of iron. They mash from 1,000 to 1,400 bushels of malt in each, and average about 5,600 bushels daily, except in the summer season, when it is less. They can store away in their large storing vats nearly 200,000 barrels. Their largest vats contain nearly 5,000 of our barrels. They have one chief brewer and two assistants, and adopt the plan of instructing the sons of the members of the firm in the art of brewing, who serve an apprentice- ship of four years, rising at four o'clock in the morning, or earlier, if required, and whenever any of the clerks go into the country for a week or two, as it is the custom to permit them to do, they take their places at the desk during their absence. In this way they become familiarized with the whole routine of the business. They reside on the premises, in a building erected for their especial occupancy, and there are now five young men, with the expectation of a large interest in the firm, occupying this position. Their malt is kept in covered bins, and is conveyed by endless screws and elevators wherever required. The hops are kept in comparatively dark rooms The prejudice against American hops is rapidly disappearing. A portion of them is now used in nearly all the large breweries. The brewery and buildings connected with it cover an area of about twelve acres of ground. Their malt houses, or makings, as they term them, are situated ■ in the country. Their casks are made on their own premises, and the brewers generally adopt this course. Their stables, where are kept 120 dray horses, weighing from 1,700 to 1,900 pounds each, are well worth visiting. The visitor is impressed with the magnitude of this and other large breweries, and with the perfect system which is adopted in the distribution of labor in every department of business. The value of time is nowhere more regarded. A person desiring to see any member of the firm must send his card and state particularly his business, the importance of which determines his success. We subsequently called at the brewery of Messrs. Whitbread & Oo. Here the water is pumped from wells from 300 to 500 feet in depth. The pumps are almost constantly at work throwing the water into the reservoirs, which are situated on the roofs of their buildings. They have immense cellars under their buildings, embracing probably from eight to ten acres. Their ale is all racked into casks, and their porter conveyed into storing vats. We also visited the brewery of Messrs. Truman, Hanbury, Buxton & Co. Presenting our order from one of the firm to Mr. Frazier, the chief manager, he placed us uhder the guidance of one of their intelligent brewers. This brewery differs from the other two which we have named mainly in the material of their rounds, squares, pontoons, stillions, &c., many of which are made of slate. They have had a few of them in use long enough to test their qualities, and are highly pleased with them on account of their cleanliness and durability. They have on their premises a machine shop, copper and blacksmith shops, carpenter shop, paint shop, &c., for their own convenience in making repairs, &c. The price at which ordinary porter is sold is S3s. per barrel; ale, 35*. It is retailed by the glass, containing a full half pint, at 1 J