The Panic of 1819 (38 page)

The protectionists offered two subsidiary measures as part of their political program. Both were designed to supplement tariffs in restricting imports. One proposed that the government cease granting time to importers for payment of duties. The particular criticism of this system was that the debt induced excessive imports. Some merchants joined the protectionists in this proposal in order to limit the competition of those fellow-importers who had meager capital, and were therefore dependent on credit.
⁸⁶
The Convention of Friends of National Industry began the drive to abolish credits on
duties. It pointed out that since the war many foreign merchants had been induced by the credits to import heavily, thereby depressing domestic manufactures and injuring American mercantile stability.
⁸⁷

Conversely, other merchants fought back in defense of the credits system. The Chambers of Commerce of Philadelphia and New York City defended the system. They charged that abolition would repress enterprise, credit, and commerce. The New York
Daily Advertiser
pointed out that abolition would help the large capitalists at the expense of the small, since it was the young and enterprising merchants who would be forced to abandon trade for lack of capital.
⁸⁸
John Pintard—leading merchant, founder of the New York Historical Society, and Secretary of the New York City Chamber of Commerce—taking a position similar to John Taylor on the tariff, charged that imposition of a cash duty would increase the tax burden on commerce. He estimated that cash duties would double the real value of taxes on imports.
⁸⁹

A group of Baltimore merchants headed by Isaac McKim, adopted this ingenious reasoning: “all duties on imports are taxes on consumption.” An importer had to have time to convey the goods to consumers. In every government grant of credit to the importers, the time period of the credit fell short of the period before which the capital of the merchants could be realized.
⁹⁰
The Baltimore merchants struck
a similar note as did Cambreleng—cycles of trade were inevitable in business affairs:

Commerce always tends to extremes and excesses of trading occur under all systems and in the finest periods of commercial prosperity. But if importation does sometimes swell until business stagnates, commerce has a power of self-correction and the resource of self-recovery, and reverses soon allay the intemperate ambition of gain.

One proponent of credit on duties went to the extent of proposing a
lengthening
of the credit period as a remedy for the depression.
⁹¹
He reasoned as follows: A particular depressant in the commercial situation was the large amount of custom house bonds owed by merchants for payment of import duties. They could not sell the goods they imported because of the “scarcity of money and the stagnation of business.” Therefore, to acquire the money to pay the bonds, the merchants had to discount their bills at the banks. After the merchants paid the bank notes into the Treasury in payment of their debts, the Treasury deposited the notes in the Bank of the United States, thereby adding to the pressure on state banks to redeem their notes in specie. This exerted deflationist pressure, obliging banks to curtail greatly their loans and discounts. Thus, the author demonstrated how taxes exerted a deflationary effect on the money supply and economy.

Senator William A. Trimble (Ohio), an ardent protectionist, introduced a bill to suspend credits on duties, but the bill failed to come to a vote in Congress, as the failure of other protectionist measures doomed this one as well.

The other subsidiary measure was a prohibitory tax on sales at auction. Protectionists charged that auction sales, which had become a prominent form of wholesale import sales after the war,
spurred cheap foreign competition with American products.
⁹²
Thus, a group of Merchants and Citizens of Philadelphia, in a memorial to Congress, pointed to the pernicious effects of auction sales during the previous few years.
⁹³
Auction sales provided a means for agents of foreign exporters to dispose of their goods easily. These channels had been deluged with every sort of imported goods, fostered by the “extreme elevation of the market at the close of the war, owing to the few foreign productions in the country at the time.” Auction sales of imported goods had wrecked domestic manufactures, by underselling the established merchants. Here again the leading role in attacking auctions was taken by merchant competitors of the auction system.
⁹⁴
Critics also charged that auction prices fluctuated more rapidly than regular prices, since they were not regulated by cost. A prohibitory tax had first been proposed by a group of New York City merchants and traders as early as 1817.
⁹⁵
Merchants were, however, by no means unanimous in advocating a prohibitory tax on auction sales. Baltimore merchants split on the issue, and the Chamber of Commerce of New York City opposed a tax on auctions.
⁹⁶
The drive for a 10 percent tax on auction sales was launched in earnest by the protectionist Convention of Friends of National Industry.
⁹⁷
It pointed out that large quantities of imported clothes were sold at auction. Even domestic goods sold at
auction were frowned on, because auctions generally promoted goods of “inferior quality.” The proposed 10 percent tax was to apply to both foreign and domestic goods at auction.

Congress, however, rejected a bill, submitted by Representative Baldwin at the same time as his tariff proposal, to levy a 10 percent tax on auction sales.
⁹⁸
Baldwin charged that the auction system was ruining the fair traders by “inundating the country with worthless goods at reduced prices, benefiting foreigners and bankrupting American merchants.” On the other hand, Representative Albert H. Tracy of Buffalo defended traders who sold at lower prices and advocated consumer freedom to buy from whatever source they desired. Representative Johnson of Virginia asserted that the measure would ruin one part of the country for the benefit of another, and that free choice was still the best system of trade. Middle-of-the-roaders, such as the influential Representative Samuel Smith of Baltimore, advocated a very small duty of 1 to 2 percent. The auction bill was closely fought. It was first rejected in the House by a vote of 77 to 72, and then was modified to a 5 percent tax on dry goods and 1 percent on minor items, and passed by an 89-to-61 vote. After the defeat of the Baldwin Tariff Bill, however, the bill never came to a vote in the Senate.

Failing to obtain legislative action, merchants of New York and other cities decided to combat the competition of auction sales of imported goods by banding together to refuse to buy goods at auction. Thus, the United Dry Goods Association of New York, representing nearly all the wholesale and retail dry goods merchants of the city, met on May 21, 1821 and resolved not to purchase any dry goods at auction, in order to combat the “price fixing” of the “auction monopoly.”
⁹⁹
Protectionists had high hopes for this measure, and Niles hailed the action as a check on the British menace to
American employment and injury to the merchant and retailer.
¹⁰⁰
Shortly thereafter, similar boycott action was taken by organizations of Philadelphia, Boston, and Baltimore merchants, in the dry goods and hardware fields.
¹⁰¹
The New York Association took the lead in appointing a Vigilance Committee to keep watch over the membership in carrying out the pledge. Not only did they agree not to buy at auction but they also agreed not to sell any goods at auction, except at sheriffs’ sales for bankruptcy. All these boycott efforts soon came to naught, and the report of the Vigilance Committee in September of that year provides insight into the reasons for its complete failure and into the difficulties faced by any such “cartel” arrangement.
¹⁰²
First, there was a lack of “complete uniformity of views upon the subject.” A few merchants, mainly small dealers, were opposed to the suppression of auction sales. Second, several large merchants, though opposed to auctions on principle, indulged in their self-interested advantage and continued to purchase—more cheaply—at auction. Third, New York, the auction center of the country, was filled with merchants from other cities who did not participate in the agreement and continued to buy at auction. And fourth, even the most “patriotic” (i.e., anti-auction) merchants were chafing at the restriction because, unfortunately, American importers did not import a sufficient variety of goods as demanded by consumers. Therefore, many merchants were “in a measure compelled” to buy at auction “for the sake of an assortment of goods” provided by auctions from foreign exporting houses. The Association, followed by the merchants of other cities, had to repeal its boycott. The repeal in New York carried by only two votes, 64 to 62.

In addition to the failure to obtain federal legislation, a proposal to tax auctions in Maryland was rejected by only two votes, after a struggle in the Maryland House.
¹⁰³

Thus, the depression rejuvenated a protectionist movement that had arisen after the war and become dominant. The postwar movement resulting in the Tariff of 1816, however, had been a general patriotic expression connected with the war and its aftermath, and meant to provide temporary relief to the industry spawned by war. Adherents comprised most Americans, including such later vigorous free traders as Thomas Jefferson and John Calhoun. With the passing of the war, the tariff issue had more or less disappeared. The character of the new depression-born movement would become more familiar to later generations. The movement was led by the new manufacturers, most of whom had begun during the war of 1812 when foreign trade was virtually suspended. Cotton textiles led the clamor for greater protection from imports, followed closely by woolen, iron, glass, and paper manufacturers. The battle over an increased tariff, which reached its peak in 1820 over the Baldwin Bill, was far more of a sectional controversy than the monetary issues. Protectionist sentiment flourished in the states where the manufactures were located—especially in the Middle Atlantic states, and adjacent states such as Ohio. The South, on the other hand, dependent on the export of its staples, almost solidly opposed the higher tariff, while the West and commercial New England split on the issue.

______________________

¹
U.S. Congress,
American State Papers: Finance
3, no. 455 (December 13, 1815): 32; no. 458 (December 22, 1815): 52; no. 460 (January 5, 1816): 56; no. 533 (April 7, 1818): 265; no. 476 (March 6, 1816): 103; no. 501 (February 4, 1817): 168. Also see
Niles’ Weekly Register
10 (March 23, 1816): 49; 10 (April 13, 1816): 99; 11 (November 9, 1816): 424; 11 (May 10, 1817): 166–67.

²
Most of them cited a statement advocating deliberate dumping made by the influential Lord Brougham before a Parliamentary Committee.
Niles’ Weekly Register
11 (December 28, 1816): 284.

³
The minimum duty of 25 cents per square yard was equivalent to an over 6 cents per yard rise in price. Clark,
History of Manufactures
, vol. 2, p. 275.

⁴
Bishop,
History
, pp. 230ff. Also see
Niles’ Weekly Register
12 (March 29, 1817): 75; New York
Evening Post
, June 14, 1817.

⁵
The report of the Corresponding Committee to the American Society for Encouragement of Manufactures, in the New York
Evening Post
, February 28, 1819.

⁶
In the summer of 1821, the citizens of ardently protectionist Wilmington, Delaware, presented Carey with a plaque commemorating his services to the cause.
Niles’ Weekly Register
20 (July 28, 1821): 345.

⁷
For examples, see Carey,
Essays
, pp. 141, 198ff., 230, 318ff., 416. Also see Washington (D.C.)
National Intelligencer
, May 26, 1819.

⁸
Of the 36 delegates, there were 12 from New York, 7 from Pennsylvania, 5 from New Jersey, and 5 from Connecticut. For the personnel of the threeday convention, see
Niles’ Weekly Register
17 (December 11, 1819): 229.

⁹
For the petition, see U.S. Congress,
American State Papers: Finance
3, no. 560 (December 20, 1819): 440. Also see the very similar petition of the American Society of New York City for the Encouragement of Domestic Manufactures, ibid., 561 (December 27, 1819): 443; and, their later petition, ibid., 593 (April 24, 1820): 532. Leaders were William Few, Peter Schenck, and John E. Hyde. Few, a leading lawyer and banker, had had in former days a distinguished career in Georgia. Few had been United States Senator from Georgia, a delegate to the Constitutional Convention, and Federal Judge. Also see
Petition of a Convention of Friends of National Industry in New Jersey
(Washington, D.C.: Gales and Seaton Co., 1820). The American Society of New York, in particular, stressed recovery from the depression as the reason for advocating protection.

¹⁰
Most of Carey’s numerous writings in this period are collected in his
Essays
. See particularly his widely distributed “Addresses of the Philadelphia Society for the Promotion of National Industry,” in ibid., pp. 18ff., 36–38. Also see Philadelphia
Union
, September 17, 1819.

¹¹
Carey,
Essays
, pp. 67, 362ff. Also see New York
Patron of Industry
, July 9, 1820.

¹²
Carey,
Essays
, pp. 13ff. An almost identical argument was offered by Niles.
Niles’ Weekly Register
17 (October 23, 1819): 117. Niles also printed Carey’s Philadelphia as well as other material, and arguments of his own. Ibid., 16 (April 17 and August 28, 1819). For Niles as a protectionist leader see Norval N. Luxon,
Niles’ Weekly Register
(Baton Rouge: Louisiana State University Press, 1947), p. 110.