stantially similar circumstances." Lord Stanley's bill of 1887 in fact expressly provides that the justice of differential rates should be measured by the necessity of securing the traffic.1

We are thus prepared to pass an opinion on the Interstate Commerce law. The short-haul clause reads as follows:

That it shall be unlawful for any common carrier subject to the provisions of this act to charge or receive any greater compensation in the aggregate for the transportation of passengers or of like kind of property, under substantially similar circumstances and conditions, for a shorter than for a longer distance over the same line, in the same direction, the shorter being included within the longer distance. . . . Provided, however, that upon application to the commission appointed under the provisions of this act, such common carrier may in special cases, after investigation by the commission, be authorized to charge. less for longer than for shorter distances for the transportation of passengers or property; and the commission may, from time to time, prescribe the extent to which such designated common carrier may be relieved from the operation of this section of this act.

It is improbable that the commission will interpret the act in the sense that the words "under substantially similar circumstances and conditions" justify all existing differential rates due to competition. This would practically emasculate the law. But on the other hand an analysis of the principles of rates and the results of European experience have shown us that any attempt to apply the law in all cases would be ruinous. A strict enforcement of the short-haul clause would most certainly result in general discontent and a speedy repeal. The safetyvalve consists in the discretion afforded to the commissioners, and upon them the success or failure of the law depends. The act is an expression of a correct principle, but the limitations of the principle are no less obvious. The country is to be congratulated on the legislative recognition of the rule; let us trust that there may be equal cause for congratulation on the official recognition of its limitations.

Our preliminary conclusion may now be formulated. Under a system of free competition among private railways the

1 Railway and Canal Traffic bill, § 25, sec. 2.

principle of value of service or charging what the traffic will bear is the only rational method, calculated to give the most efficient service and the greatest profits. But the existence or possibility of the abuse of power requires the restriction of this unlimited liberty in the public interest. The reconciliation of the railways and the public can take place only through the interposition of public authority. The public authority must lay down the rule of equal treatment as the fundamental doctrine, but must recognize the principle of value as a reason for departing from the doctrine in any individual case. Omission of either duty necessarily entails injustice or inefficiency. The short-haul clause is a partial recognition of the demand for equal treatment; the discretion given the commission is im plicitly a partial recognition of the theory of value. The Interstate Commerce act thus accepts the principle and concedes its limitations; in this respect at least it is a wise and judicious measure. For the commission to ignore the limitations in the attempt to realize the principle would be an act of consummate folly.

EDWIN R. A. SELIGMAN.

A

HOW CUSTOMS DUTIES WORK.

PECULIAR change has of late come over the character

of the never-ceasing controversy as to what is the wisest system of customs duties. Not only do we see the free-trade party in this country becoming bolder and more persistent in their attacks on our protective policy at the same time that a sentiment in favor of imitating that policy has begun to raise its head in the land of Cobden and Bright; but American protectionists, who have always appealed to the marvellous advance of the United States in the last quarter of a century as an argument worth more than any theories of political economy, now seem more inclined to prove the logical correctness of their views than to show their practical effect, while free traders are turning from theory to fact, and begin to claim that the logic of events is on their side. The transformation cannot be without cause, and the most obvious one is a fact which has been freely conceded only by a few that economic conditions vary inevitably in different countries, and are constantly changing with the progress of time. Oblivious to this, the advocates of either cause go on threshing out the same old chaff which was once wheat, repeating arguments that are now as applicable to the situation as would be a discussion of the feudal system in an effort to settle the labor question.

Forty-five years ago, English public sentiment had been so fully convinced of the need of encouragement to manufacturing industries, that English statesmen resolved to withdraw the protective barriers against foreign breadstuffs which had kept

up

the price of domestic produce and thus insured high rents to the landlords. Twenty years later, after a period of modified free trade, we began to carry out a radically different fiscal policy; due to a variety of causes perhaps, but if not in the first instance the outcome of a definite economic conviction, certainly

resulting in a very short time in a widely spread popular belief that we needed to develop manufacturing industries, and that the only way to do this was by keeping out foreign manufactured goods. Although England removed all duties, or rather retained only a few very low ones, and these purely for revenue, she did not aim at securing cheap iron or cotton or wool, but at giving her factory operatives cheap grain. In like manner we now have prohibitive duties on wheat and corn, but they are practically inoperative when we are producing a great surplus at lower cost than is possible in western Europe. Both nations sought from the beginning, and still seek, the same end to develop manufactures at the expense of agriculture; in other words, either to force the owners of land to pay a bonus to the makers of articles which are the product of labor rather than the gift of nature, as in America, or to equalize matters between these two classes, as in England. So far as the object is concerned, it may be conceded to be good, without considering the method for its attainment; and I will not delay to discuss what must always be a disputed point because impossible of actual demonstration, viz., whether a nation does well to encourage industries which can only be pursued at an artificial cost, when the purpose of doing so is to attain a political or social advantage or to so naturalize the desired industries as to put them ultimately beyond danger from foreign competition. Waiving the question whether such policy is wise, let us see practically whether we are succeeding to-day in our efforts in this direction as well as our British cousins have done in theirs, which must be admitted to have made their little island a great manufacturing country.

Since the Morrill Tariff was first adopted, our manufactures have certainly been marvellously increased, and if the increase was not caused by protection, it has at least been coincident with its sway. But for ten years past it has been quite evident -and doubtless the trouble had been growing for some time before it became apparent · - that while we are by no means standing still, we seem, if anything, further away from the industrial utopia. Prices, while to some extent reduced, have

267 still been maintained at higher levels than rule abroad, and yet manufacturers find their margins of profit daily vanishing. Wages have for the most part stood still in protected industries, have in some cases absolutely fallen, and have nowhere advanced as they should have done with a rapidly advancing civilization. America is no longer a promised land for the laborer; for of the swarms of immigrants whom we have attracted, many cannot find work. Meanwhile stocks of unsalable goods accumulate until the pressure forces out enough establishments to check the supply. Not one of these things should have happened under a system of protection, according to its friends, and at least one would not have been prophesied by its enemies that manufacturers' profits should have decreased, although the prices of their goods are only slightly reduced. But this has gone on to such an extent that free traders are hard put to it for examples of extortion which they can hold up to excite the indignation of farmers and other consumers of manufactured goods, on whom must fall the burden of high prices created by protective duties. Manufacturers get, in most industries, nearly as high prices as they got fifteen years ago; they pay no more wages, and yet their (real or assumed) extravagant profits have been reduced to a minimum. Now the protective theory is that when protection has been maintained until industries are fully developed, domestic competition will reduce the price of manufactured goods to as low a point as that at which they could be imported free, and yet the work will be done at home. Up to this point, the whole nation would practically contribute to build the plant, educate the workmen and support their employers; but once these ends accomplished, we should pay nothing for our privileges, and we should even be on a basis from which to export our surplus. The surest sign that domestic competition has reached its full limit is that wages are low and that profits are at the same time cut down to the narrowest margin, and that we are able to make all the goods that we can use. These tokens stare us in the face to-day; but manufacturers have certainly not remitted any of their profits to consumers by means of