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The Civil War Tariff

Mises Daily: Thursday, July 14, 2011 by

The Tariff History of the United States

The Civil War revolutionized the financial methods of the United States. A new monetary system was created, and tax resources before undreamed of were resorted to, at first timorously, in the end with a rigor that hardly knew bounds. The tariff, which had long been the sole source of federal income, was supplemented by a series of extraordinary internal taxes, and was itself called on to yield more revenue and still more.

The high duties which the war thus caused to be imposed, at first regarded as temporary, were retained, increased, and systematized, so developing gradually into a system of extreme protection. For many years the tariff was spoken of, and accurately, as "the war tariff," — a name which faded out of use as the community became accustomed to the new regime, and forgot the various half-hearted and unsuccessful endeavors which were made from time to time toward reduction and reform.

Before the war we had a tariff of duties which, though not arranged completely or consistently on the principles of free trade, was yet very moderate in comparison with the existing system. For about 15 years before the Rebellion began, duties on imports were fixed by the acts of 1846 and 1857. The act of 1846 had been passed by the Democratic Party with the avowed intention of putting into operation, as far as was possible, the principles of free trade.

This intention, it is true, was by no means carried out consistently. Purely revenue articles, like tea and coffee, were admitted free of duty; and on the other hand, articles like iron and manufactures of iron, cotton goods, wool, and woolen goods — in fact most of the important articles with which the protective controversy has been concerned — were charged with a duty of 30 percent. Other articles again, like steel, copper, lead, were admitted at a lower duty than this, not for any reasons of revenue, but because they were not then produced to any extent within the country, and because protection for them in consequence was not asked. Protection was by no means absent from the act of 1846; and the rate of 30 percent, which it imposed on the leading articles, would be supposed, in almost any civilized country, to give even a high degree of protection.

Nevertheless, the tariff of 1846 was, in comparison with the present tariff, a moderate measure; and a return to its rates would now be considered a great step of reform by those who are opposed to protective duties. The act of 1857 took away still more from the restrictive character of our tariff legislation. Congress, it may be remarked, acted in 1857 with reasonable soberness and impartiality, and without being influenced by political considerations. The maximum protective duty was reduced to 24 percent; many raw materials were admitted free; and the level of duties on the whole line of manufactured articles was brought down to the lowest point which has been reached in this country since 1815. It is not likely we shall see, for a great many years to come, a nearer approach to the free-trade ideal.

The country accepted the tariff acts of 1846 and 1857, and was satisfied with them. Except in the years immediately following the passage of the former act, when there was some attempt to induce a return to a more rigid protective system, agitation on the tariff ceased almost entirely. There is no doubt that the period from 1846 to 1860 was a time of great material prosperity, interrupted, but not checked, by the crisis of 1857.

It would be going too far to assert that this general prosperity was due chiefly to the liberal character of the tariff. Other causes exercised a great and perhaps a predominant influence. But the moderate tariff presumably was one of the elements that contributed to the general welfare.

It may be well to add that prosperity was not confined to any part of the country, or to any branches of industry. Manufactures in general continued to flourish; and the reduction of duties which was made in 1857 had the consent and approbation of the main body of the manufacturing class.

The crisis of 1857 had caused a falling off in the revenue from duties. This was made the occasion for a reaction from the liberal policy of 1846 and 1857. In 1861 the Morrill Tariff act began a change toward a higher range of duties and a stronger application of protection. The Morrill act is often spoken of as if it were the basis of the present protective system, but this is by no means the case.

The tariff act of 1861 was passed by the House of Representatives in the session of 1859–1860, the session preceding the election of President Lincoln. It was passed, undoubtedly, with the intention of attracting to the Republican Party, at the approaching presidential election, votes in Pennsylvania and other states that had protectionist leanings. In the Senate the tariff bill was not taken up in the same session in which it was passed in the House. Its consideration was postponed, and it was not until the next session — that of 1860–61 — that it received the assent of the Senate and became law. It is clear that the Morrill Tariff was carried in the House before any serious expectation of war was entertained; and it was accepted by the Senate in the session of 1861 without material change.

It therefore forms no part of the financial legislation of the war, which gave rise in time to a series of measures that entirely superseded the Morrill Tariff. Indeed, Mr. Morrill and the other supporters of the act of 1861 declared that their intention was simply to restore the rates of 1846. The important change which they proposed to make from the provisions of the tariff of 1846 was to substitute specific for ad valorem duties.

Such a change from ad valorem to specific duties is in itself by no means objectionable; but it has usually been made a pretext on the part of protectionists for a considerable increase in the actual duties paid. When protectionists make a change of this kind, they almost invariably make the specific duties higher than the ad valorem duties for which they are supposed to be an equivalent — a circumstance which has given rise to the common notion, of course unfounded, that there is some essential connection between free trade and ad valorem duties on the one hand, and between protection and specific duties on the other hand.

"Probably no country has seen, in so short a time, so extraordinary a mass of financial legislation."

The Morrill Tariff formed no exception to the usual course of things in this respect. The specific duties which it established were in many cases considerably above the ad valorem duties of 1846. The most important direct changes made by the act of 1861 were in the increased duties on iron and on wool, by which it was hoped to attach to the Republican Party Pennsylvania and some of the western states. Most of the manufacturing states at this time still stood aloof from the movement toward higher rates.[1]

Hardly had the Morrill Tariff act been passed when Fort Sumter was fired on. The Civil War began. The need of additional revenue for carrying on the great struggle was immediately felt; and as early as the extra session of the summer of 1861, additional customs duties were imposed. In the next regular session, in December 1861, a still-further increase of duties was made. From that time till 1865 no session, indeed, hardly a month of any session, passed in which some increase of duties on imports was not made. During the four years of the war every resource was strained for carrying on the great struggle. Probably no country has seen, in so short a time, so extraordinary a mass of financial legislation.

A huge national debt was accumulated; the mischievous expedient of an inconvertible paper currency was resorted to; a national banking system unexpectedly arose from the confusion; an enormous system of internal taxation was created; the duties on imports were vastly increased and extended. We are concerned here only with the change in the tariff; yet it must be borne in mind that these changes were only a part of the great financial measures which the war called out. Indeed, it is impossible to understand the meaning of the changes which were made in the tariff without a knowledge of the other legislation that accompanied it, and more especially of the extended system of internal taxation which was adopted at the same time.

To go through the various acts for levying internal taxes and imposing duties on imports is not necessary in order to make clear the character and bearing of the legislation of the war. It will be enough to describe those that are typical and important. The great acts of 1862 and 1864 are typical of the whole course of the war measures; and the latter is of particular importance, because it became the foundation of the existing tariff system.

It was not until 1862 that the country began to appreciate how great must be the efforts necessary to suppress the rebellion, and that Congress set to work in earnest to provide the means for that purpose. Even in 1862 Congress relied more on selling bonds and on issuing paper money than on immediate taxation. But two vigorous measures were resorted to for tariff acts of taxing the people immediately and directly.

The first of these was the internal-revenue act of July 1, 1862. This established a comprehensive system of excise taxation. Specific taxes were imposed on the production of iron and steel, coal oil, paper, leather, and other articles. A general ad valorem tax was imposed on other manufactures. In addition, licenses were required in many callings. A general income tax was imposed. Railroad companies, steamboats, express companies were made to pay taxes on their gross receipts. Those who have grown to manhood since the great struggle closed find it difficult to imagine the existence and to appreciate the burden of this heavy and vexatious mass of taxation; for it was entirely swept away within a few years after the end of the war.

The second great measure of taxation to which Congress turned at this time was the tariff act of July 14, 1862. The object of this act, as was stated by Messrs. Morrill and Stevens, who had charge of its passage in the House, was primarily to increase duties only to such an extent as might be necessary in order to offset the internal taxes of the act of July 1.[2] But although this was the chief object of the act, protective intentions were entertained by those who framed it, and were carried out.

Both Messrs. Morrill and Stevens were avowed protectionists, and did not conceal that they meant in many cases to help the home producer. The increase of duties on articles which were made in this country was therefore, in all cases, at least sufficient to afford the domestic producers compensation for the internal taxes which they had to pay. In many cases it was more than sufficient for this purpose, and brought about a distinct increase of protection.

Had not the internal-revenue act been passed, affording a good reason for some increase of duties; had not the higher taxation of purely revenue articles, like tea and coffee, been a justifiable and necessary expedient for increasing the government income; had not the increase even of protective duties been quite defensible as a temporary means for the same end; had not the general feeling been in favor of vigorous measures for raising the revenue; — had these conditions not existed, it would have been very difficult to carry through Congress a measure like the tariff of 1862. But, as matters stood, the tariff was easily passed. Under cover of the need of revenue and of the intention to prevent domestic producers from being unfairly handicapped by the internal taxes, a clear increase of protection was in many cases brought about.

The war went on; still more revenue was needed. Gradually Congress became convinced of the necessity of resorting to still-heavier taxation, and of the willingness of the country to pay all that was necessary to maintain the Union. Passing over less important acts, we have to consider the great measure that was the climax of the financial legislation of the war. The three revenue acts of June 30, 1864, practically form one measure, and that probably the greatest measure of taxation which the world has seen. The first of the acts provided for an enormous extension of the internal-tax system; the second for a corresponding increase of the duties on imports; the third authorized a loan of $400,000,000.

"The line between public duty and private interests was often lost sight of by legislators. Great fortunes were made by changes in legislation urged and brought about by those who were benefited by them."

The internal-revenue act was arranged, as Mr. David A. Wells has said, on the principle of the Irishman at Donny-brook fair: "Whenever you see a head, hit it; whenever you see a commodity, tax it." Everything was taxed, and taxed heavily. Every ton of pig iron produced was charged two dollars; every ton of railroad iron three dollars; sugar paid two cents a pound; salt, six cents a hundred-weight. The general tax on all manufactures produced was 5 percent. But this tax was repeated on almost every article in different stages of production. Raw cotton, for instance, was taxed two cents a pound; as cloth, it again paid 5 percent. Mr. Wells estimated that the government in fact collected between 8 and 15 percent. on every finished product. Taxes on the gross receipts of railroad, steamboat, telegraph, express, and insurance companies were levied, or were increased where already in existence. The license-tax system was extended to almost every conceivable branch of trade. The income tax was raised to 5 percent. On moderate incomes, and to 10 percent. on incomes of more than $10,000.

The tariff act of 1864, passed at the same time with the internal-revenue act, also brought about a great increase in the rates of taxation. Like the tariff act of 1862, that of 1864 was introduced, explained, amended, and passed under the management of Mr. Morrill, who was chairman of the Committee on Ways and Means. That gentleman again stated, as he had done in 1862, that the passage of the tariff act was rendered necessary in order to put domestic producers in the same situation, so far as foreign competition was concerned, as if the internal taxes had not been raised. This was one great object of the new tariff; and it may have been a good reason for bringing forward some measure of the kind. But it explains only in part the measure which in fact was proposed and passed.

In 1864 the men who were in charge of the national finances were as prompt in taxing heavily as in 1861 they had been slow in taxing at all. Under the pressure of almost unlimited financial need, and with the conviction that a supreme effort was called for, they were willing to tax every possible article at the highest rate that anyone had the courage to suggest. They carried this method out to its fullest extent in the tariff act of 1864, as well as in the tax act of that year.

At the same time these statesmen were protectionists, and did not attempt to conceal their protectionist leanings. What between their willingness to make every tax and duty as high as possible for the sake of raising revenue, and their belief that high import duties were beneficial to the country, the protectionists had an opportunity such as the country has never before given them. It would be unfair to say that Mr. Morrill, Mr. Stevens, and the other gentlemen who shaped the revenue laws consciously used the urgent need of money for the war as a means of carrying out their protectionist theories or of promoting, through high duties, private ends for themselves or others. But it is certain that their method of treating the revenue problems resulted in a most unexpected and extravagant application of protection, and moreover, made possible a subservience of the public needs to the private gains of individuals such as unfortunately made its appearance in many other branches of the war administration. There was neither time nor disposition to inquire critically into the meaning and effect of any proposed scheme of rates. The easiest and quickest plan was to impose the duties which the domestic producers suggested as necessary for their protection.

Not only during the war, but for several years after it, all feeling of opposition to high import duties almost entirely disappeared. The habit of putting on as high rates as anyone asked had become so strong that it could hardly be shaken off; and even after the war, almost any increase of duties demanded by domestic producers was readily made. The war had in many ways a bracing and ennobling influence on our national life; but its immediate effect on business affairs, and on all legislation affecting moneyed interests, was demoralizing. The line between public duty and private interests was often lost sight of by legislators. Great fortunes were made by changes in legislation urged and brought about by those who were benefited by them; and the country has seen with sorrow that the honor and honesty of public men did not remain undefiled.

The tariff, like other legislation on matters of finance, was affected by these causes. Schemes for moneymaking were incorporated in it, and were hardly questioned by Congress. When more enlightened and unselfish views began to make their way, and protests were made against the abuses and excessive duties of the war period, these had obtained, as we shall see, too strong a hold to be easily shaken off.

Such were the conditions under which the tariff act of 1864 was passed. As in 1862, three causes were at work: in the first place, the urgent need of revenue for the war; in the next, the wish to offset the internal taxes imposed on domestic producers; and finally, the protectionist leanings of those who managed our financial legislation. These causes made possible a tariff act which in ordinary times would have been summarily rejected.

It raised duties greatly and indiscriminately — so much so that the average rate on dutiable commodities, which had been 37.2 percent under the act of 1862, became 47.06 percent under that of 1864. It was in many ways crude and ill-considered; it established protective duties more extreme than had been ventured on in any previous tariff act in our country's history; it contained flagrant abuses, in the shape of duties whose chief effect was to bring money into the pockets of private individuals.

Nothing more clearly illustrates the character of this piece of legislation, and the circumstances which made its enactment a possibility, than the public history of its passage through Congress. The bill was introduced into the House on June 2 by Mr. Morrill. General debate on it was stopped after one day. The House then proceeded to the consideration of amendments. Almost without exception amendments offered by Mr. Morrill were adopted, and all others were rejected. After two days had been given in this way to the amendments, the House, on June 4, passed the bill.

In the Senate much the same course was followed. The consideration of the bill began on June 16; it was passed on the following day. That is to say, five days in all were given by the two houses to this act, which was in its effects one of the most important financial measures ever passed in the United States. The bill was accepted as it came from the Committee on Ways and Means, and was passed practically without debate or examination.

This haste was the natural result of the critical stage of affairs and the urgent need of revenue. As in other parts of the legislation of the war period, the recommendations of the administration and of the party leaders were acted on promptly and with the minimum of debate. Obviously, it was not intended or expected that measures so enacted should become the foundation of a permanent economic policy. Yet in several directions this proved to be the result, and in none more strikingly than in the final outcome of the tariff changes. The legal-tender paper, resorted to as a war measure more distinctly than any other, was retained, it is true; but at least specie payments were resumed, even though after an interval unexpectedly long, and the greatest evils of inconvertible money were done away with.

The national banking system, from the first more clearly designed to be a permanent institution, was also retained, though with changes and vicissitudes not dreamed of at the time of its foundation. The national debt was reduced at a rate unexampled in history. Most of the internal taxes were repealed as fast as possible, leaving only those on spirits and tobacco as permanent parts of the federal fiscal system. The tariff was changed least of all.

Some significant modifications in the revenue duties were indeed made, as will be pointed out in the following chapters. But on almost all the articles with which the protective controversy is concerned the rates of the act of 1864 were retained, virtually without change, for 20 years or more; and when changes were finally made, they were undertaken as if these rates were not in any sense exceptional, but were the normal results of an established policy.

The identical duties fixed in 1864 were left in force for a long series of years.[3] When a general revision came to be made, in 1883, they had ceased to be thought of as the results of war legislation. The public, and especially the protected industries, had come to think of them as parts of a permanent policy.

Thus habituated to high duties, it was not a difficult step for Congress, under the stress of political contention, to proceed to duties still higher. Hence the war tariff, though from time to time patched, amended, revised, not only remained in force in its important provisions for nearly 20 years, but became in time the basis for an even more stringent application of protection. The steps by which this unexpected transformation in the customs policy of the United States was brought about will be followed in the ensuing chapters.


[1] Mr. Rice, of Massachusetts, said in 1860: "The manufacturer asks no additional protection. He has learned, among other things, that the greatest evil, next to a ruinous competition from sources, is an excessive protection, which stimulates a like ruinous and irresponsible competition at home," — Congress. Globe, 1859–60, p. 1867. Mr. Sherman said: "When Mr. Stanton says the manufacturers are urging and pressing this bill, he says what he must certainly know is not correct. The manufacturers have asked over and over again to be let alone. The tariff of 1857 is the manufacturers' bill; but the present bill is more beneficial to the agricultural interest than the tariff of 1857." — Ibid., p. 2053. Cf. Hunter's Speech, Ibid., p. 3010. In later years Mr. Morrill himself said that the tariff of 1861 "was not asked for, and but coldly welcomed, by manufacturers, who always and justly fear instability." — Congr. Globe, 1869–1870, p. 3295.

[2] Mr. Morrill said, in his speech introducing the tariff bill: "It will be indispensable for us to revise the tariff on foreign imports, so far as it may be seriously disturbed by any internal duties, and to make proper reparation. … If we bleed manufacturers, we must see to it that the proper tonic is administered at the same time." — Congr. Globe, 1861–1862, p. 1196. Similarly Mr. Stevens said: "We intended to impose an additional duty on imports equal to the tax which had been put on the domestic articles. It was done by way of compensation to domestic manufacturers against foreign importers." — Ibid., p. 2979.

[3] It should be stated that the act of 1864 was not in form a general act, repealing all previous statutes. It left in force, for instance, all provisions of the Morrill Tariff of 1861 and of the act of 1862, not specifically affected by its provis ions. But it changed so generally the range of import duties, and especially the protective duties, that it had practically the effect of a new general tariff act.