tively discussed by the United States Immigration Commission in reports on the woolen industry, and the Tariff Board undoubtedly drew upon this source. Whatever may be the intrinsic value of this volume and however serviceable it may be to students for reference, as a contribution to tariff discussion at the present time it has no value, because it does not contain, or profess to contain, comparative material on efficiency in foreign countries. It deals only with American conditions. Taken in a general way, as showing the status of labor in the woolen and worsted industry, it is less comprehensive than the reports of the Immigration Commission. The board has carried the study of earnings in some instances to a more advanced point than the report of the Immigration Commission, yet this has not materially contributed to the usefulness of the report. This refers particularly to the question of wages per hour, per unit of product, etc., data for which are not found in the Immigration Commission's report, but which, whatever may be thought of them, can not aid now, because of the entire lack of comparable data.

Volume III contains a discussion of manufacturing costs, tops, yarn, and cloth, and ready-made clothing. About one-fourth of the volume is devoted to a study of ready-made clothing—a subject fully covered by the Immigration Commission in a report prepared at great expense which has been available for some time. The readymade clothing report of the board contains an analysis of cost by sample or specimen pieces of clothing, of which a more complete dis cussion will appear later. But, without going into the question of the ready-made clothing inquiry at present, there seems to have been no good reason for devoting to this subject the attention given it by the board. The principal discussion has related to the duties on raw wool and manufactures of wool. The rates of duty on ready-made clothing have been of relatively little importance. Our imports of that article have not been large, amounting to only $1,776,236 during the fiscal year ending June 30, 1910, and would not have been large in any event on account of differences in style. As the board itself points out, the industry is highly competitive, and may be regarded as a minor factor in the tariff issue.

Apparently the chief reason for this inquiry was the opinion that it would show the cost of woolen goods to be but a very small factor in the cost of ready-made clothing. Waiving this issue for the present it may be concluded that, so far as the question of tariff rates on wool and manufactures of wool is concerned, that part of the board's report which relates to ready-made clothing is largely

irrelevant.

SIGNIFICANT FEATURES OF THE REPORT.

Those portions of the report which have a bearing upon the immediate question before Congress and which should be studied in relation to the problem of the tariff are comprised in Volume II and in the first half of Volume III. Included in these volumes is much that has no immediate bearing on the subject. The "Notes on sheep ranching in the West," for example, are fragmentary and contain no direct references to comparative costs that throw light upon the tariff. In the second volume of the board's report, which deals with raw wool, the material deserving of consideration is com

prised within pages 300 to 541, a total of 241 pages, while in Volume III on manufacture, the significant portions are included in the 223 pages between pages 619 and 842. Even on the pages quoted there is much that has only a very general bearing upon the subject of industrial costs, and of this a rather large proportion has been previously published either in this country or abroad, thus being already available to those who might wish to examine it; in many instances material so published was already in the files of the Ways and Means Committee. Practically all of the material as to prices, imports, exports, and foreign conditions was readily available, as was also a large part of the information on shrinkage.

COSTS OF CAPITAL AND NATURAL AGENTS.

Throughout its investigation of costs of production, the Tariff Board apparently considers the maintenance of the existing tariff, or something approximating it, fundamental and necessary. Thereby it adds very greatly to the "cost" stated as representative of the necessities of the American wool and wool-manufacturing industry under existing conditions. This is an error which runs consistently throughout the whole report and which needs to be considered very carefully in order to realize the far-reaching character of the modifications which it involves.

Fundamentally, the mistake of the board in considering the tariff as a permanent feature is found in the attitude it adopts toward the cost of capital and of natural agencies. Starting with the raw-wool industry, the board regards the cost of land or the price paid for the use of it as an integral element in wool raising. In Volume II (p. 309), under the head "The problem of land values," the report says that in some regions "the sheep owners possess but little land, often only enough to give them control of water rights, etc., while in other parts the land owned by them represents a large investment and occasions a heavy charge against the sheep; but all the flock owners depend to a greater or less extent on land which they do

not own."

In getting at the method employed in dealing with this question of land values, the board allows a charge against the sheep designed to cover the grazing value of the land. This allowance "has been determined on the basis of prices actually paid for the use of similar land leased or rented in the same region." It is apparently included in the estimates of cost under the head of "Miscellaneous expenses." Here is a mistake similar to that made by the board in its report on pulp and paper. The value of land, whether estimated as a lump sum, as a rental, or partly, as in this case, a grazing value, is determined solely by the demand for the products of the land, and the consequent price that can be obtained for such product. A farm is worth $50 an acre for the sole reason that the products raised on the farm can be made to bring an income, which, all things considered, will pay interest on $50 per acre. Grazing land leased for the use of sheep owners will bring 20 cents an acre merely because of the fact that the sheep are there, and there is a demand for the land; but the grazing demand is due to the fact that the industry is being carried on subject to tariff protection under conditions which

enable the owners of land to exact such a charge. Reduction of the tariff would eliminate this payment so far as based upon a fictitious or artificially established value.

In the case of pulp and paper, it was found by the board that one reason for the high cost of paper in the United States was the fact that papermakers charged themselves the prevailing rate for pulp wood, and so recorded this charge on their books as an element in cost, notwithstanding that the woodlands were owned by themselves and had been bought years ago at a low figure. They increased in value merely because the scarcity of wood produced by excessive tariff protection rendered it impossible to get the wood without paying an abnormally high price, which in turn raised the value of the land. This enabled the paper manufacturers to claim that the high price which they paid themselves for the wood was really no more than was necessary in order to pay the interest on their investment in the woodlands. It was a clear case of the use of the tariff to maintain an artificial or monopoly value. A somewhat similar condition is seen in the allowance for grazing cost which is included by the board as an integral part of the cost of raising wool. No progress can be made in studying the tariff problem so long as this point of view is adhered to, for the very basis of the argument assumes the continued recognition of artificial values of capital and natural agents from the very moment they are established through the imposition of an excessive duty.

TREATMENT OF IMPROVEMENTS.

The kind of error just discussed is also seen in the treatment by the board of improvement and equipment. The board has ascertained the value of improvements apart from that of the land and then allowed a 10 per cent depreciation. It points out (p. 310) that many articles of equipment depreciate rapidly on account of their nature or carelessness in their use and there is good reason to believe that carelessness has been of much importance in raising the cost of wool production in the United States. Highly protected as the industry has been, producers have not exercised the same moderation in investment nor have they kept the industry upon the careful business basis that foreign countries have. This is borne out by the board's addenda on sheep farming in the various wool-raising_sections of the country (pp. 545-616 in Vol. II). In the notes on sheep farming in the Western States (pp. 593-608), conditions are indicated which show that the industry is not upon the same businesslike basis existing in foreign countries. In many instances the business is not under the personal management of the owner, and the result is a large advance in cost of production because of the expensive methods of conducting the enterprise. The same situation, probably in an aggravated form, is found in the more eastern districts, where the raising of sheep is frequently a side issue and no serious attention is given to carrying on wool-raising upon a well-organized footing.

This means that the allowances made by the board for investment, equipment, etc., do not afford a good guide to the real cost of production, inasmuch as they fail to show conclusively that such costs are the lowest that can be secured. There was the same situation in the paper industry where much of the cost of capital was due to the fact, there clearly set forth, that the machinery employed in many mills

was obsolete in character and therefore cost much more to run than did that in the more recently built mills. Canada's advantage over us was found to be in part due to the fact that as the industry was more recent with her, nearly all of her mills had installed modern machinery. Likewise the tariff has guaranteed a home market for wool, and practically closed it to outside wool so long as any domestic product could be offered in competition, so stimulating and confirming wool raisers in careless and uneconomical methods of doing business, whereas under more competitive conditions they would have cut their costs at all points where reasonable savings could be made. In this connection it is worth while to note that in Texas, New Mexico, and Colorado, where the industry is presumably upon a decidedly commercial basis, the laborers required in carrying it on can be employed according to the board (p. 593) "at very reasonable rates," the laborers being largely Mexicans. In California, Mexicans and Basques are largely employed, and in not a few other States foreigners are engaged in the work at low wages.

The alleged higher cost of investment and equipment can not be explained by a larger amount of capital needed on account of excessive sums tied up in wage payments, but must be explained in the way already indicated. The board makes something of a point of the fact that no allowance is made for interest on capital invested. It is a fact, however, that every other possible allowance is made for capital used and, as thus indicated, is made at a high rate.

ERRONEOUS FIGURES ON MANUFACTURING.

The error of constantly regarding the tariff as a necessary factor in cost is found when the industry is studied from the manufacturing standpoint. There the tariff element is allowed to figure in connection with the cost of building and equipping a mill, which is found to be very much higher in the United States than abroad, amounting probably to double the outlay necessary there for that purpose. The report states (p. 705) that "a very important element in woolen and worsted manufacture is the erection and equipping of the mills and the comparative cost in the United States and abroad. It then furnishes detailed estimates of comparative costs, contrasting the United States and England. Differentiating between buildings, machinery, fire protection, equipment of all kinds, etc., a woolen mill with 14 sets of cards is found to cost in the United States $506,941 as against $339,854 in England, a higher cost in the United States, according to the board, of about 49 per cent. In the case of a worsted spinning mill the increased cost rises to 67 per cent and in case of a worsted weaving mill to 43 per cent. The board admits that the machinery needed, when landed on the wharf in this country will cost from 60 to 65 per cent more than in England and that about 87 per cent of all machinery is imported. As the machinery represented about one-third of the total cost of bulding and equipping the plant, this item alone accounts for much the greater part of the additional expense of a fully equipped plant. The tariff on machinery is thus allowed to figure as a fundamental prposition in the cost of carrying on the industry; nor do we find any ggestion or estimate as to how much would be saved to the busi ess if this entirely unnecessary element of expense should be elimated. The fixed capital fact that this element of cost, due to excessive outlays f

caused by high-tariff duties, is cumulative and runs throughout the estimates of the board can be realized by an examination of the tables in the report. Although there is no explicit statement that the cost of production is figured upon a basis which recognizes this outlay as permanent, it is plainly conveyed in the statement that the higher cost in the United States for machinery and buildings is a "very important element" in the outlay called for.

LABOR COSTS.

Analyzing the problem of labor costs in the United States and elsewhere for the various products which are taken under consideration, accuracy can be secured only by investigations covering a considerable period of time. The board, however, has obtained either costs, taking them from the books of the mills, for comparatively short periods, or else estimated costs on samples. These methods of working imply that it has not been positively known whether the amount laid out for labor represents approximately a normal percentage of total cost. Very large variations in the costs of different classes of products are found by the board. These are frankly explained on the ground that in some cases the mills were running full time, while in others they were not.

Where they were not running full time, the labor cost was necessarily a different percentage of the total than when the mills were running full time. In the latter case a larger sum of money was paid in wages and a larger number of units of product were manufactured than in the former, yet practically the same sum in each instance was expended in overhead charges, rent, interest, fixed expenses, etc. Thus, the relation between overhead charges and labor cost was materially altered, and the percentage of labor cost to total output was necessarily made to appear different in the two cases. The board states that in order to meet this difficulty it adopted the plan of assuming that mills were running on full time with a normal total output.

Such an assumption is not necessarily correct, and leads to serious errors which could be avoided only by securing costs over a normal period of actual production. In England, where the costs for tops, yarns, and cloths were obtained almost entirely by the sample method, it was, of course, impossible to know anything about the relation between the cost on a basis of full-time production and that on parttime production. On the assumption that mills were running on full time the tendency is to lessen the percentage of labor cost in the product, provided the figures extend over a period long enough to show the actual relationship between labor cost, capital, and material cost. That is to say, if costs were obtained from a mill running full time, other mills working only part time being disregarded, labor cost would undoubtedly be shown as a relatively smaller allowance per unit of output. Where, however, costs are figured on the sample basis, the assumption that the mill ran more time than it actually did, necessarily implies the payment of a larger sum in wages than is actually the case, while outlays for fixed expenses remain the same in the one instance as in the other. The abstract relationship between outlays for fixed capital and outlays for labor, on a basis of full-time production, therefore, tends to increase very materially the percentage going to labor.