you can bring up the production of lumber and nails and plaster to the limit of 2,000 houses, in order to fill out the necessary composition with the bricks, and to use them up. That disproportionate production is the only kind of over-production that I know anything about. Now, when you lay on a protective tariff for the purpose of developing certain industries, one great trouble is, that you bring about that disproportionate production. Is such a disproportionate production possible in a natural state of things? Not at all. The law of supply and demand makes it utterly impossible. You cannot produce brick for 2,000 houses when the other materials are only sufficient for 1,000 houses, because the bricks would immediately begin to be reduced in their market price. You would have your warning. But, when you have this protective system in force, the first thing you know is that you have brought out a disproportionate production of commodities in those particular lines.

The next result that you must look out for is that you will draw your population to the particular localities which you have artificially decided on by law. You have invited the population and encouraged them, as it is called, to come to places, and to occupy themselves in occupations into which they would not have gone naturally if things had been left to take their own course. For instance, you can produce a congestion of population in the iron districts (they have got it now in Pennsylvania, and perhaps would like to get rid of it) by deciding that you want to force iron production whether the circumstances of the country call for it or not; but because it is a good thing to have, you gather your population together there where they would not have gone had they been left to distribute themselves just where the greatest profit called them. Mr. THOMPSON. Probably the greatest prostration and depression in any business in Pennsylvania is in the oil business to-day. That business is absolutely free in every respect. There is, I think, an increase, an over-production of oil. The history of the world shows that about 33,000 barrels of oil are consumed daily. Now, the production of one small district in Pennsylvania to-day (not stimulated by friendly legislation nor retarded by unfriendly legislation) is 40,000 barrels of oil a day. The result of that is that oil which ought to be worth $5 a barrel, is to-day worth $1.0178. So, you see that over-production comes in the absence of all legislation.

Mr. SUMNER. I do not see the over-production there. The oil is all used up. Mr. THOMPSON. No, sir; there are probably 6,000,000 barrels of oil to-day in tank. Mr. SUMNER. I would guarantee that there are millions of people who would like to have it to burn if you only lower the price sufficiently.

Mr. THOMPSON. There is no light comparing with it that it nearly equal to it in lowness of price to-day.

Mr. SUMNER. No; but if you lower the price still more you will find a market.
Mr. THOMPSON. It is absolutely a case of over-production.

Mr. SUMNER. I do not see it. You say that it is selling at $1.0178 a barrel. Reduce it to fifty cents a barrel, and you will see how much of it will go off. I admit that there is an over-production at the price wanted for it. There is more of it than can be sold at the price they want.

Mr. THOMPSON. There is more of it than is consumed in the channels of use for any purpose. Take wheat; if you raise an inordinate amount of wheat, people would not consume it if it was given to them. Is not that over-production?

Mr. SUMNER. Of course it is conceivable that there may be a production of wheat beyond what can be eaten up, but there is no such thing conceivable in the course of production as the production of more wheat by the hands of the people on the earth than the people on the earth would be very glad indeed to eat up.

Mr. RICE. That would reduce the wages of those raising the wheat to a very low sum indeed.

Mr. SUMNER. Then they would abandon it and go to something else, and the price would find its level at the point where it should stand. And so, if there are more people in Pennsylvania getting out oil than there ought to be there, they must go away, and take to some other business.

Mr. RICE. But you think it better to produce that result by the process you speak of, than to build up a market near the oil-fields or near the wheat-fields, by establishing a manufacturing city, where the farmers, or those at work in getting out oil, can sell their produce, and in that way absorb a portion of the labor which otherwise would go into agriculture or the petroleum business?

Mr. SUMNER. It is not in human ingenuity or wisdom to decide by an outside party, where you ought to take that factory or city and set it down, in order to be near the farmers or the oil-producers, that they may have a market, as you express it. Least of all is it in the judgment of Congress or of any legislature to do that by a general law.

Mr. RICE. Is it not better for those who raise the wheat in Wisconsin or Illinois, to sell it there than to send it to Europe?

Mr. SUMNER. Not a bit. They never get more than one price for their wheat. Suppose a farmer lives in the neighborhood of Racine, Wis., and sells his wheat there for so much. Whether it is eaten in Racine or Liverpool he can get but the one price for it.

Mr. RICE. Is not that affected by the question whether there is a demand beyond a certain amount? We read now that there is going to be such a surplus product of wheat in this country this year, and that the demand in Europe will probably be so much less than that surplus. Does not the fact that the surplus is greater than the demand reduce the price which the farmer gets for his wheat?

Mr. SUMNER. Certainly; but that has nothing to do with the establishment of factories near his barn.

The CHAIRMAN. The Secretary of the Treasury is required by law to purchase silver. The product of American silver (in Nevada) has been heretofore sent to Europe and sold there. The bullion owners here, therefore, receive the price of the silver in London, less the cost of transportation from Nevada to London. Now, the Secretary goes into the market to buy the silver here, and the bullion owner demands the price of silver in London, plus the cost of transportation, instead of minus. And the Secretary has had that matter under discussion. Now take the same thing and apply it to wheat. If there is a demand at home for more wheat than is raised, would not the price at this point be the price in Liverpool (which is the great market for wheat) plus the transportation between Liverpool and this point, or would it be minus the cost of transportation?

Mr. SUMNER. Minus of course.

The CHAIRMAN. You mean to say that if I want to buy more wheat than I can get here, and have to send to Liverpool for it, I can get it at the cost in Liverpool minus the transportation?

Mr. SUMNER. Certainly. The London (not the Liverpool) market gives the controlling quotations for wheat, and wheat nowadays goes into the world's market. You have your London quotations, and of course the transportation is so much added.

The CHAIRMAN. But suppose that I am in Milwaukee. The price of wheat in Milwankee is the price in London minus the cost of transportation, is it not?

Mr. SUMNER. Yes.

The CHAIRMAN. Suppose that, instead of there being a surplus in Milwaukee I had to bring wheat there from London, would I not have to pay the price at London plus the transportation?

Mr. SUMNER. It would not make a particle of difference.

The CHAIRMAN. That is to say, if we did not export a dollar's worth of wheat from this country, but imported it as we did in 1836-37, the price of wheat here would be the price in London minus the transportation, or plus the transportation?

Mr. SUMNER. Then it would be plus the transportation?

The CHAIRMAN. What is true of this country must be true of any locality?

Mr. SUMNER. Certainly.

The CHAIRMAN. Then we agree?

Mr. SUMNER. Quite so.

The CHAIRMAN. You said that the price must be, under all circumstances, the cost in London minus the cost of transportation?

Mr. SUMNER. You put the case of a possible importation into the United States which I had dropped out of the account as not being within the range of hypothesis.

The CHAIRMAN. What is true of the country at large, would be true of any locality that had to import wheat?

Mr. SUMNER. Yes, sir.

The CHAIRMAN. They would have to pay the market-price in the cheapest market plus the cost of transportation?

Mr. SUMNER. Precisely. (To Mr. Rice.) I thought that you were putting that old story about setting down a factory next door to a barn.

Mr. RICE. Take a rural county in New York, or in Ohio, or Massachusetts-an agricultural county. Is that county benefited any by establishing within it a manufacturing city of 50,000 inhabitants, thereby furnishing a home market for the agricul tural products of the county?

Mr. SUMNER. I first want to know whether this city is supposed to come and build itself up on account of natural facilities. I will answer your question according to the answer you gave me. If there is an agricultural county in the State of New York, and there is a large water-power in it which attracts manufacturing industry there, and if a gentleman takes his capital and goes and builds a factory there (supposing him left entirely to his individual risks and speculation), and if somebody else comes and builds another, and then somebody else builds another, and so they build up another Lowell, then, of course, that is a very great advantage to the county. But that is only to say that a county that is well off is well off, or that a county which has great natural advantages has great natural advantages.

Mr. RICE. If a protective tariff stimulates the building of these factories, you think that is not a gain but a loss, and would be a disadvantage on the whole to the county! Mr. SUMNER. I should say so.

Mr. RICE. And you would rather not have water-power facilities than have them stimulated by protection. Is that your position?

Mr. SUMNER. Yes; and you cannot always say that, even with great water-power, factories should be established. Water-power has seduced a great many men to their ruin in this country. It might be a very unfortunate thing to go into Saint Lawrence County, far away from tide-water, and establish a factory because there is water-power there. A man must be very careful about going into such a business; and it is for the man going into it to consider all the points bearing on the question, and to take his own chances. If he makes money he is very fortunate, and his neighbors ought to be glad; but if he loses money he is unfortunate, and his neighbors ought to be sorry. Mr. RICE. Do you think that manufactures can grow up in a new country in competition with old countries, unless they are protected?

Mr. SUMNER. Why not? They have grown up in Ohio, and they are growing up in Illinois, and in the far West, in competition with Rhode Island, Massachusetts, Counecticut, New Jersey, and Pennsylvania.

Mr. RICE. Is not that owing to the fact that they are near the market in those places where these factories are established? Are they not nearer the market than the factories of Rhode Island and Massachusetts are?

Mr. SUMNER. That may be an advantage; and, of course, if it is, they are entitled to it; but so we are nearer the market here than the manufactories on the other side of the water are.

Mr. RICE. Would Massachusetts or Rhode Island have been able to establish their manufactories if they had never been protected against foreign competition?

Mr. SUMNER. Certainly; why not? They have had 3,000 miles of transportation to protect them all the time, a great deal more protection than Illinois or Ohio ever got against Massachusetts or Rhode Island. Take, for instance, the boot and shoe industry in competition with Boston. I am told that that industry in the West is growing to be a very large and independent industry in several of the Western States.

Mr. RICE. How do you account for the fact that the Massachusetts boot and shoe manufacturers have their leather tanned in Illinois and transported to Massachusetts, and that they make the boots and shoes in Massachusetts, and send them back to Illinois, and sell them.

Mr. SUMNER. Do you state that as a fact?

Mr. RICE. Unquestionably.

Mr. SUMNER. I have no difficulty in understanding how it may be, although I do not know the fact. While the people of the Western States have this corn and wheat land around them to work upon, and to raise hogs and cattle on, and to pursue industries of that kind, it does not pay them to make shoes in competition with the people around Boston who live on a very poor soil, and who have no other scope, and where there is a very dense population. I think it a conceivable thing, indeed, that it may pay to transport leather from the Western States to Massachusetts, there to make it into boots and shoes, and to send them back again to the West.

Mr. RICE. There is nothing more common than for the boot manufacturers in Massachusetts to have tanneries in the West, and to move their leather to Massachusetts and send it back in a manufactured form.

Mr. SUMNER. I am not surprised at all. It is just like bringing cotton from the Southern States to Massachusetts and manufacturing it and sending back cotton cloth to the South.

The CHAIRMAN. I understood you to say that where trade is controlled and not obstructed by tariffs there cannot be disproportionate production?

Mr. SUMNER. Yes.

The CHAIRMAN. In England trade is practically free, is it not?

Mr. SUMNER. Yes.

The CHAIRMAN. Take two branches of business which I happen to know something about, the cotton business and the iron business. Do you mean to say that there are not times in British industry when there is an overproduction, a commercial glut of cotton goods and pig-iron?

Mr. SUMNER. No; I do not mean to say that.

The CHAIRMAN. How does it happen to occur there just as much as it does here? Mr. SUMNER. We understand that, in the fluctuations of trade, the balance will go over now a little on one side and now a little on the other side. You cannot possibly guard against such fluctuations. But, under a free system, and with the play of natural forces only, it is impossible that any industry can go on in an exaggerated direction to a degree producing convulsion and crisis and reaction. Of course you must have a turning over to one side or a turning over to the other. The history of business consists in that. Business never goes forward on a straight line. things correct themselves by natural forces within the shortest time.

But these

The CHAIRMAN. I do not see that they are corrected, in fact, any more readily in Great Britain, where they have free trade, than in the United States, where we have a protective system. For instance, I have known the stock of pig-iron to go on steadily increasing in England for five consecutive years on a falling market, and I have known the stock to get up to twelve hundred thousand tons in the warehouses of Glas

gow alone. I have known the stock of cotton goods to go on increasing in Manchester steadily for a period of three years on a falling market, and at last the thing has corrected itself. It is correcting itself at this present moment. But I find that that era is quite as long, and, in fact, a little longer on the other side of the water than on this side, because there is more capital there.

Mr. SUMNER. Which nation is getting out of its troubles in the iron business quickest?

The CHAIRMAN. So far as my knowledge goes, neither of us is getting out of it. Mr. SUMNER. I was under the impression that the late reports from England showed considerable improvement in the iron business.

The CHAIRMAN. The stock of iron is not being reduced, though perhaps it is not going up. There is a slightly-increasing demand there, and we all know that there is a slightly-increasing demand here. Last year, 1877, we produced about 200,000 tons of iron more than that produced in 1876, and we reduced the stock on hand about 50,000 tons, showing that there was an increased consumption in 1877. That increased consumption has begun to show itself now in Great Britain. But I speak of the condition of the iron-masters there. I do not think they are getting out of trouble any more rapidly than we are. You laid down the doctrine that this disproportionate production would be less liable to occur in a country where there was free play in trade, and that it would come to an end more rapidly than in a country that had the protective system. The facts, as I understand them. in these two branches of business, do not seem to confirm your statement.

Mr. SUMNER. You quote me correctly. I stand by that form of statement, although I believe I stated it from a little different standpoint; that was, that the effect of protection is to produce disproportionate production, because it stimulates and pushes forward certain industries, not because the market naturally stimulates them, but because legislation has decided that it is a good thing to have them started and carried on. The first effect of your tariffs, of course, is that a great many people think that when you have got a high tariff on iron it must be profitable to go to work and make iron. A great many rush into the business, get the plant, &c., and push it forward until a crisis comes and a reaction. That has been the history of every protective industry. Just the same state of things occurs, of course, in any country under the free system, by fluctuations and changes in the market. Such, for instance, has been that which occurred in our own country, and in England before 1873, when the great advance in the price of iron caused the opening of new factories; and, when the reac tion came, it produced a glut in the market.

The CHAIRMAN. I agree that excessive demand brings about, in the end, excessive production. I do not see, however, that whether there is a duty on the article or not has any influence on the result. We had a protective system here; we had a speculative era, and there was a rush into the iron business, because it was profitable. Exactly the same rush occurred in the iron business in England; and the fact that there was free trade in the one case and not in the other did not affect the result, for it was common to both.

Mr. SUMNER. That is true, and very fairly stated; but the idea is that where there is protection, you are, artificially and by the action of legislation, continually encouraging and bringing about that same state of things. It may occur under a free system temporarily and within narrow limits, but under a system of government encouragement, you leave it without the necessary limitations and corrections of natural forces.

The CHAIRMAN. Without differing from you as to the propriety or expediency of a tariff, let me say this: the tariff exists here and free trade exists in England, and I find the same experience in both cases. I therefore dissent from the proposition that disproportionate production is the result of a protective system.

Mr. SUMNER. I say that it is a result of the protective system, and that the protect ive system naturally leads forward to that state of things; but I will not deny that you can bring me plenty of cases of similar phenomena produced under other circumstances, in other countries where there is no protective system.

The CHAIRMAN. But, with regard to iron, there is depression in England, and depression here; there is a glut there, and there is a glut here; there are low prices there, and there are low prices here; one country is under one system and one country under another system; it is therefore but fair to assume that some other cause must be found than the one which you lay down.

Mr. SUMNER. I will not say that the case in point can be conclusively and exclusively put under that head. That would not be a reasonable interpretation of my assertion.

The CHAIRMAN. It does seem to me that the question of a glut in the market must be independent of either of those causes and must be due to other causes,

Mr. SUMNER. It may be, but I must insist on my proposition that the tendency and law of protection is always to push forward and to stimulate unduly all protected industries.

The CHAIRMAN. Not unless there is an active demand for the product.

Mr. SUMNER. Certainly not; but if you give a man a wide margin of profit, through your interference, he will go on and produce without the checks and limitations that ought to come upon him, as in your iron business.

The CHAIRMAN. He has no wider margin of profit than in any other business.
Mr. SUMNER. O, yes.

The CHAIRMAN. No; for the moment there is a wide margin of profit, everybody goes into that business, and that is the law of all business.

Mr. SUMNER. They try to do it, but in protected industries you never see the law act in that way.

The CHAIRMAN. We are now able in this country to make twice as much iron as there is any demand for. Our capacity to make iron is 4,500,000 tons, and the demand for it has never yet been 3,000,000 of tons in this country.

Mr. SUMNER. You have got too much machinery for making iron now, a large part of which is standing idle, and the tariff is largely to blame for it.

The CHAIRMAN. But in England the same state of things exists. The capacity to make iron in England amounts to 8,000,000 tons a year, but the actual production is about 5,000,000 tons.

Mr. SUMNER. Certainly you have the iron industry in a very peculiar crisis.

I do

The CHAIRMAN. Take cotton. There is a demand for all the cotton products of the country, whereas in England there is an annual excess in the production of cotton for which they cannot find a market. They have had free play, and we have not. not say that it is not desirable to have free play. I will go as far in that direction as you will, but you have attributed to protection results which do not appear to have followed protection when you contrast the two countries.

Mr. SUMNER. I do not think that that is a correct mode of arguing about it. You put this other case in which, of course, similar phenomena have occurred. That is not denied. But they do not at all meet or contradict the proposition that the tendency of protection is always to force protected industries into distorted and excessive development because they have not the natural check upon them. That proposition does not deny that the same phenomena may be produced in other countries and other circumstances. The proposition is that the character of protection is always to stimulate and bring about this state of things, and to intensify it.

The CHAIRMAN. This is a point which we may as well settle here, because it will mislead either you or me or the public. Suppose that a wall were put around this country and that nothing was allowed to come in from abroad. Would there be any greater production in the normal and regular course of things than the community would consume?

Mr. SUMNER. No.

The CHAIRMAN. Now, in Great Britain, which is absolutely free, and where there is no such wall, has there not been an overproduction; that is to say, a much larger quantity of production than can find a market?

Mr. SUMNER. Just the same as in a country surrounded by a wall.

The CHAIRMAN. Then the putting up of the wall, or the absence of the wall, is not the determining cause of that result?

Mr. SUMNER. That is, on the idea that a tariff is nothing but a wall to keep foreign goods out. That is not the character of a tariff by any means at all.

The CHAIRMAN. There is no iron coming into this country at present.

Mr. SUMNER. I know that.

The CHAIRMAN. The tariff keeps it out; for, without a tariff, iron would come in, and the price of iron in this country would fall as low as the price of iron in England plus freight.

Mr. SUMNER. And plus the tariff.

The CHAIRMAN. No. Take the tariff off, and the market would be supplied with English iron, because it can be landed here from England cheaper than iron can be produced here.

Mr. SUMNER. I suppose so, but you have had the price of iron here lower than, it is

now.

The CHAIRMAN. No, sir; never. Now we are at the very bottom. We are at the lowest prices ever known in the history of the iron trade.

Mr. SUMNER. What are the quotations?

The CHAIRMAN. It commonly rules on the other side at £4 10 for common bars. That would bring it down here to about $25, with transportation; and our present American rate for that sort of iron is $34, so that it is the duty which keeps out the English iron.

Mr. SUMNER. I do not see that we are making any headway on this point.

The CHAIRMAN. I want to arrive at an understanding about disproportionate production.

Mr. SUMNER. It is merely a dialectical difference between you and me, nothing else. We cannot apparently reach each other's mind. I was speaking about the tariff con