Special interest protectionism and the antebellum woolen textile industry: a contemporary issue in a historical context

American Journal of Economics and Sociology, The, Nov, 2006 by Grant D. Forsyth

I

Introduction

IN THE WEALTH OF NATIONS, Adam Smith correctly noted that "[p]eople of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices ... though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary" ([1776]1937: 128). Although Smith published these words in 1776, both academic and nonacademic work focusing on special interest lobbying tends to ignore America's early history in favor of the 20th century, leaving the origins of the organized commercial lobby vague. For example, one of the few contemporary works on early pressure groups is Pincus's (1977) Pressure Groups and Politics in Antebellum Tariffs. Focusing on the 1824 tariff act, Pincus found that lobbying up to 1824 was not highly organized. However, because of the limited work in this area, there is a popular and misguided notion that the organized lobby did not arise until the establishment of the modern industrial economy with its stable two-party system.

In this context, the protective tariff on textiles represents an excellent focal point, since its use has a long and controversial history in the United States and its economic impacts have been understood since the publication of The Wealth of Nations. Using the antebellum woolen textile industry as a case study, this article finds that this industry was one of the first to demonstrate the potential benefits of interstate, interindustry coalitions for rent-seeking activities. Using pressure tactics frequently observed today, but innovative for the time, not only was the industry successful in obtaining relatively high legislated tariffs by 1828, but it also altered the traditional congressional avenues for obtaining information from aggrieved parties. This article clearly demonstrates that organized and public lobbying by commercial interests has a longer history than is typically recognized.

Before turning to the woolen textile industry specifically, Section II presents a brief history of the antebellum tariff debate. Section III presents a brief history of the woolen textile industry. Sections IV through VI discuss the strategies used by the industry to obtain higher tariffs. Sections VII and VIII discuss the aftermath of the industry's strategies and summarize the overall findings of the article.

II

A Brief History of the Antebellum Tariff Debate

THE AMERICAN TARIFF CONTROVERSY can be traced back to the Federalist period (roughly 1790 to 1800), when, in 1791, Alexander Hamilton, then Secretary of the Treasury, presented his Report on Manufactures to Congress. In his report, Hamilton noted that other countries routinely protected domestic firms from foreign competition and concluded: "To be enabled to contend with success, it is evident that the interference and aid of their own governments are indispensable" (1791: 24). However, many anti-Federalist Republicans objected to Hamilton's proposal to encourage domestic manufactures on two points that remained largely unchanged up to the Civil War (e.g., Stanwood [1903]1967; Edwards 1970; Fogel 1989; and the Register of Debates in Congress).

The first point was a general ideological bias against increasing the role of the federal government in the economic affairs of individual states. The second, somewhat masked by the first, was the argument that the tariff had a negative impact on agriculture, especially in the slave-dependent South. Henry George ([1886]1980: 197-198) summed up the South's position when he made the general observation: "Trade ... is a mode of production, and the tendency of tariff restrictions on trade is to lessen the production of wealth. But protective tariffs also operate to alter the distribution of wealth, imposing higher prices on citizens and giving extra profits to others." When the tariff was increased, it raised the price of both domestic- and foreign-made production inputs and consumer goods; reduced the foreign demand for raw cotton by raising the price for foreign-made textiles in the United States; and increased the likelihood that important trading partners, like Great Britain, would retaliate by raising the duties on American products, including raw cotton. In effect, the South argued, there was a transfer of wealth from them toward the increasingly industrialized North. Although work by Pope (1972) has shown that the South could have benefited from the tariff given a large change in the terms of trade and a sufficiently inelastic demand for cotton exports, subsequent work by Baack and Ray (1973/74), James (1978), and Harley (1992) has shown that the South was likely harmed by the protective tariff.

From the end of the Federalist period to 1828, average tariff rates steadily increased, with the peak coming in 1828 with the passage of the so-called Tariff of Abominations. The 1828 act generated a level of protection that would not materialize again until the passage of the 1930 Smoot-Hawley tariff. However, this act also generated a new high in the South's agitation over the protective tariff. The agitation culminated in the early 1830s with the Southern "nullification" movement. The movement, which held that an individual state could refuse to carry out the federal statutes it deemed unconstitutional, created a major constitutional crisis in 1832 when South Carolina refused to recognize the tariff rates established by Congress. In response, "a 'force bill,' authorizing [President Andrew Jackson] to use force to execute the laws, was introduced in the Senate" (Schlesinger 1945: 95). Ultimately, the crisis was resolved with the passage of the 1833 "Compromise Tariff" in the 22nd (1831-1833) Congress; this stipulated a gradual reduction of most rates to a uniform ad valorem rate of 20 percent by the early 1840s.