The Unconstitutional Tax on American Exports

The January 2004 issue of North & South magazine features a debate on the topic, "Lincoln: Savior or Tyrant?" between myself and Professor Gerald Prokopowicz of East Carolina University. The debate occurred online between the two of us, and was then published in North and South. The unscrupulous editor of the magazine, one Keith Poulter, apparently couldn’t resist the cheap shot of inviting Princeton historian James McPherson to add an additional critique of one sentence of my contribution, without offering me the opportunity to respond or without treating my debating partner in the same way by asking someone to critique some of his more dubious statements.

The sentence that McPherson was asked to criticize was one in which I cite Charles Adams who, in When in the Course of Human Events, estimated that in 1860 Southerners were paying a disproportionate share of the federal import tariff, which at the time accounted for 95 percent of all federal revenues (See U.S. Bureau of the Census, Historical Statistics of the United States, Colonial Times to 1970).

Southerners had been complaining about such an injustice since the 1824 tariff act, which received only 3 votes out of 107 from Southern congressmen and 2 out of 25 U.S. senators who voted on the bill. South Carolina nullified the even more heavily protectionist 1828 "Tariff of Abominations," after which tariff rates were gradually reduced. By the late 1850s, however, the protectionist Republican Party regained the upper hand and more than doubled the average tariff rate with the Morrill Tariff (named after Vermont congressman and steel manufacturer Justin Morrill). Only 1 "yes" vote on the Morrill Tariff (out of 105) came from a secessionist state (Tennessee) during the 1859–60 session in the U.S. House of Representatives.

North and South editor Keith Poulter labeled McPherson’s comments "The Truth About Tariffs" and promised they would "set the record straight." It is easy to prove, however, that McPherson’s comments are misleading, a-historical, and contrary to standard economic theory.

McPherson relied on his "authority" as the "dean" of "Civil War" historians to make a "fair guess" that Northerners paid 70 percent of the tariff in 1860. But in the next sentence he essentially admits that his guess is completely useless by admitting that "there is no way to measure this precisely" since no statistics were kept on the final destination of dutiable products.

McPherson’s comments are worse than "data mining" – he merely speculates and fumbles around without the benefit of any data at all. But the more fundamental problem is that his comments are completely uninformed by even elementary economic theory. Commenting on the incidence of tariffs without the benefit of economic theory is like trying to find one’s way around a foreign city without the benefit of street signs.

Southern congressmen were not being stupid or delusional in voting almost unanimously against protectionist tariffs in 1824, 1828, and 1860, or in outlawing protectionist tariffs altogether in the Confederate Constitution – as McPherson and Poulter imply. They were voting their economic self-interest, and the basic economics of international trade – something that McPherson and Keith Poulter seem completely oblivious to – bear this out.

It has long been understood by economists that import tariffs impose a disproportionate burden on export-dependent regions. And even McPherson admits that the South in 1860 exported about 60 percent of what it produced (others have estimated it as being closer to 75 percent). As Wilson Brown and Jan Hogendorn explain in their popular textbook, International Economics (p. 121), a tax on imports is effectively a tax on exports as well. This is because after a tariff causes the price of certain goods to rise,

. . consumers . . . include the . . . price increases in their wage and salary demands. Everybody tries to pass the tax to someone else. The only group that is powerless to pass the costs on further are the exporters, who have to sell at world prices and swallow these costs. In essence, a tax on imports becomes a tax on exports (emphasis added).

International trade economists call this the "pass-through effect" of a tariff. Unlike McPherson and Poulter, early nineteenth century Southerners understood this perfectly well because they observed how their incomes fell whenever tariff rates rose. As John C. Calhoun explained in a September 1, 1828 letter to Micah Sterling of Watertown, New York regarding his opposition to the Tariff of Abominations, a protectionist tariff "gives to one section [the North] the power of recharging . . . the duty, while to the other [the South] it is a pure unmitigated burden." This is so, wrote Calhoun, because the South "was engaged in cultivating the great staples of the country for a foreign market, in a market where we can receive no protection, and where we cannot receive one cent more to indemnify us for the heavy duties we have to pay as consumers" (Clyde Wilson, ed., The Essential Calhoun, p. 190).

There is a second, more roundabout way in which import tariffs impose a disproportionate burden on exporters. As Wilson and Hogendorn further explain:

As tariffs cause imports to fall, less foreign exchange is needed to purchase them and the demand for foreign currency declines. The domestic currency will thus rise in value on the foreign exchange market. Exporters find that their foreign-currency earnings purchase less domestic currency and therefore they suffer.

Milton and Rose Friedman explain how tariffs discriminate against exporters and export-dependent regions on an even more fundamental level in their bestseller, Free to Choose (Avon paperback, 1980, p. 38):

f tariffs are imposed on, say, textiles, that will add to output and employment in the domestic textile industry. However, foreign producers who no longer can sell their textiles in the United States earn fewer dollars. They will have less to spend in the United States. Exports will go down to balance decreased imports. Employment will go up in the textile industry, down in the export industries. And the shift of employment to less productive uses will reduce total output.

This again is exactly how the export-dependent South viewed all the protectionist tariff bills promoted by the likes of Abraham Lincoln, a lifelong protectionist, and his Republican Party. Apply the Friedmans’ example to 1861, and one can easily see how higher tariffs on textile imports benefited the New England textile manufacturers and workers but harmed the export-dependent South. This is exactly how protectionist tariffs are always and everywhere a tool of political plunder. To make matters worse, as the Friedmans point out, they also cause an overall reduction in total output in an economy, making everyone poorer in an aggregate sense.

It wasn’t just the antebellum South that was victimized by Republican Party protectionism. By 1863, with the Southern Democrats out of Congress, the Republican Party increased the average tariff rate to nearly 50 percent. It remained at such lofty levels until the income tax was adopted in 1913. In a classic bait-and-switch con game, the federal government temporarily reduced the average tariff rate to gain support for the income tax, and then once the income tax was adopted tariff rates rose sharply once again.

During this time of Republican Party protectionist hegemony the farmers of the American West and the Midwest, who also depended quite heavily on foreign markets, were similarly plundered by tariffs. This led to a political movement for lower tariffs on the part of the "Populists." As explained by Frank Chodorov in his classic book, The Income Tax (pp. 36–37):

The plight of these farmers was made worse by the protective-tariff policy of the government. The best they could get for their products was the competitive world price, while the manufactures they bought, from the East, were loaded down with duties. Next to their demand for more money, the Populists clamored for lower tariffs.

Finally, the great mid-nineteenth century British champion of free trade, Richard Cobden, understood that 1) the South had a constitutional right to secede; and 2) the North was waging a war of economic plunder, not of humanitarianism. (Along with William Bright, Cobden was responsible for getting the British government to abolish almost all tariffs by the early 1850s). In a June 22, 1861 letter to one W. Hargreaves, Cobden wrote:

I have been reading Tocqueville’s Democracy in America . . . he takes the Southern view of the right of secession. He says, ‘The Union was formed by the voluntary agreement of the States; and in uniting together they have not forfeited their nationality, nor have they been reduced to one and the same people. If one of the States chose to withdraw its name from the contract, it would be difficult to disprove its right of doing so; and the Federal Government would have no means of maintaining its claims either by force or by right.’ He then goes on to argue that among the States united by the Federal tie there may be some which have a great interest in maintaining the Union on which their prosperity depends; and then he remarks – ‘Great things may then be done in the name of the Federal Government, but in reality that Government will have ceased to exist.’ Has he not accurately anticipated both the fact and the motive of the present attitude of the State of New York? Is it not commercial gain and mercantile ascendancy which prompt their warlike zeal for the Federal Government? At all events, it is a little unreasonable in the New York politicians to require us to treat the South as rebels, in the face of the opinion of our highest European authority [Tocqueville] as to the right of secession (John Morley, The Life of Richard Cobden (London: T. Fischer Unwin, 1905), pp. 849–50).

Thus, the nineteenth century’s greatest European champion of free trade, a British counterpart to John C. Calhoun, interpreted the War to Prevent Southern Independence as being motivated primarily by a lust for commercial gain on the part of the North, with the protectionist tariff as one of its chief weapons.

Regardless of what the exact percentage of tariffs that were ultimately paid by North versus South in 1861 was, it is not debatable that Southern secession and the creation of free trade in all the Southern ports would have been a huge drain on federal revenues, fully 95 percent of which came from tariff revenues. That is why, in his First Inaugural Address, Lincoln stated that it was his duty "to collect the duties and imposts," but beyond that "there will be no invasion of any state." That is, fail to collect the newly-doubled tariff rate, as the South Carolinians did with respect to the 1828 Tariff of Abominations, and there will be an invasion. He was true to his word.

The founders wisely made taxes on exports unconstitutional because they are so obviously harmful to American interests. What they failed to understand, however, is the basic economics of tariffs, which shows how a tax on imports is also effectively a tax on exports as well. As with all forms of tax incidence, what matters is who ultimately actually pays the tax, not who the law says should (in theory) be paying. John C. Calhoun understood this, as did most of his fellow Southerners since they were so burdened by protectionism. Northern steel manufacturers like Congressmen Justin Morrill of Vermont and Thaddeus Stevens of Pennsylvania understood it as well, for the opposite reason: They were on the receiving end of the plunder that was extracted by the Morrill Tariff.

If taxes on exports are unconstitutional, then so are taxes on imports, or tariffs. Anyone who claims to believe in the U.S. Constitution should therefore be in favor of one hundred percent free trade with no tariffs, quotas, or trade barriers of any kind.

From the ACW moderated newsgroup:

"DiLorenzo's argument was based on lies, half-truths, fallacies, lost cause mythology, and strawmen.

His so-called "Myth #1" was nothing but a strawman. He then equates that with claiming slavery was the cause of the war. That is a fallacy at best. The two are not equal. The secession of the confederacy was based on the protection of slavery. The war, in the first two years, was fought solely over secession. The confederacy fought to sustain it and the Federals fought to overturn it. The desire of the confederates to protect the institution of slavery, then, was the central underlying factor in bringing on the war.

DiLorenzo's claim that the Constitution referred to the states as "free and independent" is false. The Constitution does not do so.

Virginia, New York, and Rhode Island did not reserve a right to secede from the Union. This has been discussed in this group and others time and time again.

DiLorenzo also asserts that the right of secession was an uncontroversial view in 1861. That's a lie. James Buchanan himself, in December of 1860, specifically denied a right of unilateral secession. Andrew Jackson specifically denied a right of unilateral secession during the Nullification Crisis, and James Madison himself specifically denounced any idea that unilateral secession was a right that any state possessed under the Constitution.

DiLorenzo claimed that reading _Constitutional Problems Under Lincoln_ by James G. Randall would show that it was "obvious that Lincoln exhibited reckless disregard for Constitutional Liberty." That's another DiLorenzo lie. Reading Randall makes one realize how restrained Lincoln was. "Civil liberties were not annihilated and no thoroughgoing dictatorship was established. There was nothing like a Napoleonic coup d'état. No undue advantage was taken of the emergency to promote personal ends. A comparison with European examples shows that Lincoln's government lacked many of the earmarks of dictatorial rule. His administration did not, as in some dictatorships, employ criminal violence to destroy its opponents and perpetuate its power. It is significant that Lincoln half expected to be defeated in 1864. The people were free to defeat him, if they chose, at the polls. The Constitution, while stretched, was not subverted. The measures taken were recognized by the people as exceptional; and they were no more exceptional than the emergency for which they were used." [James G. Randall, _Constitutional Problems Under Lincoln,_ pp. 521-522]

DiLorenzo says, "Lincoln launched an invasion without the consent of Congress." That's a ridiculous statement. The Congress met on 4 July 1861, 17 days before the First Battle of Bull Run. Congress approved all actions Lincoln took prior to their session, and Lincoln didn't need the consent of Congress to put down a rebellion anyway due to the Militia Act of 1795 and his Constitutional duties to take care that the laws be faithfully executed.

The rest of his argument is more of the same. Prokopowicz nailed DiLorenzo perfectly when he said, "If DiLorenzo wishes to discuss that political topic, and to treat the past as a grabbag from which to extract bits of evidence supportin ghis views, he is free to do so, but no one should mistake such activity for the practice of history."

Walt

From the ACW NG:

"In the _North and South Magazine_ article, DiLorenzo equates his strawman "Myth 1" with claiming slavery was the "cause" of the war. That is a fallacy at best. The secession of the confederacy was based on the protection of slavery. The war, in the first two years, was fought solely over secession. The confederacy fought to sustain it and the Federals fought to overturn it. The desire of the confederates to protect the institution of slavery, then, was the central underlying factor in bringing on the war.

DiLorenzo's claim that the Constitution referred to the states as "free and independent" is false. The Constitution does not do so. Virginia, New York, and Rhode Island did not reserve a right to secede from the Union. This has been discussed in this group and others time and time again. We can discuss this further if necessary.

DiLorenzo claimed that reading _Constitutional Problems Under Lincoln_ by James G. Randall would show that it was "obvious that Lincoln exhibited reckless disregard for Constitutional Liberty." That's another DiLorenzo lie. Reading Randall makes one realize how restrained Lincoln was. "Civil liberties were not annihilated and no thoroughgoing dictatorship was established. There was nothing like a Napoleonic coup d'état. No undue advantage was taken of the emergency to promote personal ends. A comparison with European examples shows that Lincoln's government lacked many of the earmarks of dictatorial rule. His administration did not, as in some dictatorships, employ criminal violence to destroy its opponents and perpetuate its power. It is significant that Lincoln half expected to be defeated in 1864. The people were free to defeat him, if they chose, at the polls. The Constitution, while stretched, was not subverted. The measures taken were recognized by the people as exceptional; and they were no more exceptional than the emergency for which they were used." [James G. Randall, _Constitutional Problems Under Lincoln,_ pp. 521-522]

DiLorenzo makes several unsupported assertions, including the assertion that Northern elections were rigged. He claims that West Virginia was illegally created by Lincoln, which it wasn't. It was created by the people of what became West Virginia, and all the constitutional requirements were met. DiLorenzo claims Lincoln had Vallandigham arrested when he didn't.

DiLorenzo very selectively quotes Lincoln on the issue of equality for blacks, conveniently ignoring Lincoln saying that "in the right to eat the bread, without leave of anybody else, which his own hand earns, he [the Negro] is my equal and the equal of Judge Douglas, and the equal of every living man." [_Collected Works,_ Vol 3, p. 16] DiLorenzo also ignores that, when speaking of the new Constitution of Louisiana in 1865, Lincoln said, " It is also unsatisfactory to some that the elective franchise is not given to the colored man. I would myself prefer that it were now conferred on the very intelligent, and on those who serve our cause as soldiers." [_Collected Works,_ Vol 8, p. 403]

DiLorenzo claims Lincoln was a lifelong advocate of colonization. This is not quite true. Lincoln dropped the idea of colonization in 1864.

"Lincoln gave it up and in February, 1864, ordered a ship to return the surviving colonists [from Ile A' Vache, Haiti] to the United States. Congress gave the coup de grace to colonization in July, 1864, by repealing all provisions of the legislation of 1862 appropriating funds for colonization purposes." [James M. McPherson, "Abolitionist and Negro Opposition to Colonization During the Civil War," _Phylon,_ Vol XXXVI, No. 4, Winter, 1965, p. 398] Lincoln signed this measure.

David H. Donald wrote of Lincoln, "the failure of his colonization schemes had taught him that African-Americans were, and would remain, a permanent part of the American social fabric. He believed that the more intelligent blacks, especially those who served in the army, were entitled to the suffrage. Hence he encouraged teh education of the freedmen, and he supported the Freedmen's Bureau to protect them from exploitation by their former masters." [David H. Donald, _Lincoln,_ p. 583]

As Gabor Boritt wrote, "Colonization was dead and Lincoln did not mourn. He did not march backwards." [Gabor Boritt, "Did He Dream of a Lily-White America? The Voyage to Linconia," in Gabor Boritt, ed., _The Lincoln Enigma,_ p. 17]

On 1 July 1864, John Hay recorded in his diary that Lincoln had "sloughed off" all these notions of colonization: "I am glad the President has sloughed off that idea of colonization. I have always thought it a hideous & barbarous humbug." [John Hay in his diary, in Tyler Dennett, ed., _Lincoln and the Civil War in the Diaries and Letters of John Hay,_ p. 203, quoted in Paul David Nelson, "From Intolerance to Moderation: The Evolution of Abraham Lincoln's Racial Views," _Register of the Kentucky Historical Society,_ Vol LXXII, No. 1, January, 1974, p. 3]

DiLorenzo says Lincoln supported the Fugitive Slave Law, implying it was a bad thing to do. The FSL was the law. Lincoln was sworn to take care that the laws were faithfully executed. DiLorenzo ignores the fact that Lincoln also supported the additional article of war passed in 1862 to forbid all military personnel from returning fugitive slaves to their masters. DiLorenzo also ignores the fact that Lincoln supported the bill passed in June of 1864 that repealed the Fugitive Slave Law.

DiLorenzo equates Lincoln's actions in the Civil War with the President today carpet bombing Los Angeles, San Diego, and San Francisco if California seceded. That's a false comparison. The war didn't start upon secession. It started when the confederate forces fired on Fort Sumter. DiLorenzo attempts to deflect attention away from that inconvenient historical fact because he's not interested in what is factual history. He's only interested in creating a distorted picture of what he wants you to think happened in order to advance his own political agenda.

DiLorenzo makes the assertion that New England Federalists attempted secession after Thomas Jefferson was elected. I'd like to see the evidence on that. Where are the ordinances of secession? Where were the secession conventions held?

When Prokopowicz pointed out that many of the people arrested were guerilla, DiLorenzo called that "silly, if not dishonest." It's actually DiLorenzo who is silly, but he's also dishonest to boot. DiLorenzo has previously quoted James Randall favorably, so he presumably would accept Randall as an authority:

"To suppose that Lincoln's suspension of the habeas corpus privilege set aside all law would be erroneous. The suspension was indeed a serious matter; but men were simply arrested on suspicion, detained for a while, and then released. The whole effect of their treatment was milder than if they had been punished through the ordinary processes of justice. As to the military trial of civilians, it should be noticed that the typical use of the military commission was legitimate; for these commissions were commonly used to try citizens in military areas for military crimes. Where citizens in proximity to the Union army were engaged in sniping or bushwhacking, in bridge burning or the destruction of railroad or telegraph lines, they were tried, as they should have been, by military commission." [James G. Randall, _Constitutional Problems Under Lincoln,_ pp. 520-521]

Randall also tells us, "But as a rule the men confined in the Old Capitol Prison, Fort Lafayette, Fort McHenry, or the other state prisons were there for good reason. They had been acting as Confederate agents, furnishing supplies to the enemy, encouraging desertion from the service of the United States, committing outrages upon Unionists, stealing military supplies, destroying bridges, engaging in bushwhacking, making drawings of fortifications, carrying 'treasonable' correspondence, intimidating loyal voters, or otherwise materially assisting the enemy. Many of the prisoners were actual spies." [Ibid., p. 155]

DiLorenzo, in a mystifying statement for a Professor of Economics to make, claims, "By tax historian Charles Adams' calculations of tax incidence, the export-dependent South was paying about seventy-five percent of the federal tariff in 1860, and the tariff accounted for ninety percent of all federal revenue." One would think that an Economics professor would know that the tariff was not applied to exports, but instead was applied only to imports. I point you to the sidebar article by James McPherson called "The Truth About Tariffs."

In summary, DiLorenzo's assertions are nothing more than half-truths, false history, distortion, and cherry-picked quotations."

Walt

From the AOL ACW Forum:

"It has always puzzled me how the tariff issue continues to agitate neo-Secessionists. It was a bogus issue in the late 1850's and its survival as an alleged "cause of secession and war" still thrives on ignorance. Most people who use it to explain secession are quite mistaken as to the facts of the matter and think that the Federal government taxed the South's cotton exports for the benefit of the North. In fact, the pre-ACW tariff problem involved import tariffs, not export duties. That is quite plain from the record and from Article 1, Section 9, Clause 5 of the US Constitution, which states unequivocally that "No tax or duty shall be laid on Articles exported from any State." In short, the Feds never taxed the South's cotton exports.

OK. What about import duties? Could these have damaged the South to the extent that secession and civil war were justified? Lordy, no. Before the ACW, the rate of Federal taxation was tiny by today's standards. The total revenues of the Federal government in 1860 amounted to a mere $56,054,000. The population of the whole US in 1860 was 33,443,321. Thus, Federal taxation per capita was less than $2 per person. Even if the 9,103,332 people in the soon-to-secede Southern states paid all of the Federal taxation in 1860 (which they did not), their per capita cost would still have been less than $7 for the entire year. From these inconsequential sums, another secessionist myth has been created and sustained for 140 years.

Be that as it may, the record shows that tariffs were an irritant, however irrational, to Southern interests up to 1846. In that year, accordingly, Federal tariffs were generally lifted in response to Southern pressures and in favor of free trade. From 1846 until early 1861, what was essentially a free trade regime existed in the whole of the USA. It was only after (and because) rebellion broke out that the US Congress passed the hated Morrill tariffs.

It is instructive to note again that the tariffs that the South protested before the ACW were actually taxes on goods and services imported into the South. In the real world, these imports included significant proportions of luxury goods such as fine British furniture and whiskey, French fashions and perfumes and Cuban rums and cigars. Most of these things were available from the North, and Northern interests wanted to protect their markets in both North and South by adding costs to their foreign competition. Likewise, the South also wanted to protect its markets in the North on products produced in the South but not the North. Accordingly, well before the ACW, southern legislators in the US Congress sought and received substantial tariffs on imports impinging on the domestic markets of Southern agricultural products. For example, the prewar sugar growers of the deep South and the hemp growers of the upper South got protective Federal tariffs on imported products from their foreign competition.

In point of fact, the long-standing Federal sugar import tariff imposed to protect Louisiana sugar growers was extensively debated at the Montgomery Convention and, in spite the highly-touted Confederate devotion to free trade principles, was retained in the Confederacy through out the ACW. Additionally, the Confederacy placed tariffs on exports, including a duty on exported cotton. I repeat here for emphasis --- tariffs on Southern cotton exports were prohibited by the US Constitution. So much for high secessionist principles concerning tariffs! They talked the talk, but didn't walk the walk, as goes the modern formula for hypocrisy.

It is humorous to note that the prewar Federal iron import tariff, so despised by Secessionist firebrands, was continued by the Confederacy after some of the realities of fiscal and industrial policy set in. On 16 February 1861 the Provisional Confederate Congress blithely passed a bill providing for free import of railway iron. A month later, however, fiscal realities set in and an ad valorem import tax was imposed on such goods at the rate of 15% --- a rate confirmed in the Confederate Tariff Act of 21 May 1861. For further details, see Robert C. Black's THE RAILROADS OF THE CONFEDERACY (Chapel Hill, NC: U. of NC Press, 1998)."

Walt

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