CHAPTER XII. OF BOUNTIES AND SUBSIDIES. "British shipping subsidies, $91,000,000 in twenty years.” BOUNTIES may be defined as a reward or premium, given to certain designated individuals by the government, to attempt some uncertain enterprise, the success of which would be of public benefit. They have been applied to a vast variety of subjects. Thus, we owe the accuracy of our pocket time-pieces to a bounty, offered by the British government, over one hundred years ago, which induced Horrax to experiment until he discovered the chronometer balance, and it may be doubted whether steam navigation across the ocean would be possible, as now conducted, but for this bounty-fed discovery. In more modern times, the states of our Union, and cities and towns, have given bounties to encourage a great variety of enterprises to be prosecuted to a successful issue, or located within their limits. Such bounties are, for example, that of $100,000 offered by the State of New York, for a successful application of steam propulsion to canal boats, and the exemption from taxation, given for a term of years, by towns and cities, to manufacturing enterprises established within their limits. Bounties are also offered for the destruction of noxious animals, birds, etc. In short, the bounty is recognized as peculiarly adapted to the encouragement of uncertain enterprises, as for instance, the bounties paid to induce soldiers to enlist during the war of the Rebellion. The bounty is favored and established as a proper agent to apply in such circumstances, not only by the states of the Union but by the general government, for the latter allowed a bounty for many years to vessels and sailors engaged in the deep-sea fisheries, in order to encourage and continue a nursery, whence able and hardy seamen could be drawn to man our frigates in time of war. Bounties have, by some writers, been classed with protective tariffs, but while they have some analogy to these, there are important differences between them, which adapt them especially to different spheres of application. In one cardinal particular alone, if in none other, the protection of a tariff differs widely from the stimulus of a bounty. The latter does not reserve the home market for the competition of home producers, in the same way and to the same extent as a tariff. The tariff arrests the foreign goods at the custom-house, and requires the foreign importer to invest a large capital in payment of duties, before he can place them before the retail purchaser. In many instances the importer prefers to deposit the foreign goods in the government bonded warehouse, and to sell them by sample, thus adopting a circuitous and more or less inconvenient way of sale, while competing home producers are hampered by no such obstructions. Even if the foreign importer elects to pay the duty, the very fact that he has to invest that much more capital in the goods, and subject it to the accidents and caprices of trade, renders him cautious about placing so large an importation of goods at once on sale in the protected country. A single change in fashion might compel him to sell a whole invoice, of a particular style or pattern, at less than cost, as it frequently does. If he is obliged to pay the duties in advance of reaching the protected market, he loses that much more, which he must recoup out of prices of subsequent consignments, because the domestic competition of the protected market controls the price; the protection being, of course, applied only to those legitimate branches of production, in which the protected country has the capacity to produce in that economy and extent. If a direct bounty were paid to the domestic producer, and the duty removed, none of these hindrances would be experienced by the foreign competing importer in his access to that market, on account of the bounty. Such effects of a duty, in reserving the domestic market for home competition, are very important, in these days, when the whole profit, at the best, amounts to a fraction of a cent per yard, or pound, of many commodities seeking the market. Fifty years ago, or more, when the margin of profits was much greater, these differences in effect between a duty and a bounty were undoubtedly comparatively unimportant. Hence, economists in those days made no account of them. Other like differences between a duty and a bounty will undoubtedly occur to the reader, but they need not be dwelt upon here. On the other hand, while the only possible scientific justification for a protective tariff on a given article is that the capacity of the protecting country, so far as human foresight goes, is ample to establish the control of home-market prices, the grounds on which a bounty on the given article may be legitimately granted, are much wider and more indefinite. A consensus of human experience and opinion, as found in the legislation of mankind for a thousand years, justifies the grant of a bounty upon the production of an article when its successful production is uncertain, or even verging on the improbable in some cases. The importance and value of that successful production may be so great to a community, or even to a state or nation, as to warrant the grant of the bounty long before the prospect of it is certain enough to warrant a protective duty, according to the principles we have laid down. In other words, it is the function of protective duties to realize and secure to us the advantages of producing a commodity which the light of experience tells us we can produce to benefit all classes, while it is the function of a bounty to determine what production is possible in that uncertain and unknown field which the light of experience cannot penetrate. In the case of a commodity which we can produce in quantity and economy to substantially supply our domestic wants, the operation of the protective system, as we have shown, is to constantly cheapen those grades of the commodity used by the masses of the people, until their price reaches the level of the foreign price, and the protective system then only and valuably operates to reserve the home market to home competition. But a bounty, instead of costing less and less as the production increased, would cost more. It therefore fails to relieve the people from taxation as production increases, and hence, lacks the essential feature in this respect which justifies its wide application. In short, for a limited and experimental production it may well be cheapest, but not for an unlimited one. There a protective tariff is economically suitable. Another field of application of bounties should not be overlooked. That is, where the nature, conditions, or surroundings of the subject of the bounty are such that protective duties cannot be applied. Here all nations have always recognized the appropriate ness of bounties, as is illustrated by Great Britain in the millions she has paid, and still pays, in transportation and steamship subsidies.' The experimental subjects of a bounty, where some kind of a tariff might also be applied, are ordinarily those commodities which the best experience indicates to us the doubtfulness of producing at home in quantity to reduce or control domestic prices. A tariff levied upon these would be a free-trade tariff of the British type, imposing its unjust exactions mostly upon the wage-earners of the nation. In the course of national development, we must recognize that changes in methods, or sources, of production are constantly taking place, and that these may give us the capacity to economically produce an article, so as to make it a proper subject of protection, when we had not such capacity a few years before. Bounties are useful as the advance scouts of the protective system, to discover when this has occurred or is about to occur, for, like many other things; it does not always discover itself. In this aspect of them, we may by a small expenditure, comparatively, discover when a branch of production has become qualified by our capacities to become a fit subject of protection, without resorting to the injustice of imposing a large expense upon the people, by levying what may turn out, after all, to be only a free-trade tariff by reason of our ultimate lack of capacity to produce the given commodity in quantity and economy sufficient to regulate home-market prices. Such tariffs should not be encouraged, for their vicious and inequitable features render them only a proper resort when the fiscal necessities of the nation cannot be otherwise met. In that case the necessity may be said to overpower equitable considerations, since to the laboring classes the destruction of the nation would be a heavier burden than even nine-tenths of its duties levied upon their wages by the free-trade tariff system. 1 The subsidies of the new route for commerce which the British have established across the Atlantic, and through Canada and across the Pacific, between Liverpool and China, are as follows: Subsidy of steamer line Liverpool to Halifax, Nova Scotia, per year. Subsidy of Canadian government annually, to part of Canadian Total per year. $500,000 10,500,000 186,000 $11,561,000 APPENDIX TO CHAPTER XII. SUBSIDIES TO SHIPPING PAID BY FOREIGN COUNTRIES. THE postal subsidies paid by the British government to steamship lines, since the year 1868-9, are as follows: Besides the above, the British government has agreed to pay a subsidy to British steamship companies, as follows:— Also, $300,000 per annum to Canadian Line to China.' The Austrian government subsidizes twenty-one lines of steamers to different ports of the Mediterranean, India, China, Brazil, etc., at an annual cost of $761,184.2 1 See Documents and Reports, Consul-Gen. New, U. S. Consular Rep., Jan., 1889, pp. 2, and 12 to 21. 2 Ibid., Rep. Minister Grant, pp. 23, 25. |