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great progress in adjudicating the claims of the common people, but its powers were not adequate to dispose of the still unsettled questions between the King, the chiefs, and the Government, though it must be admitted that it made progress in that direction. Neither was the chiefs ready to submit their claims to its decision.
After earnest efforts between the King and chiefs to reach a settlement of these questions, the rules already referred to were unanimously adopted by the King and chiefs in privy council December 18, 1847. These rules, which were drawn up by Judge Lee, embodied the following points: The King should retain his private lands as his individual property, to descend to his heirs and successors; the remainder of the landed property to be divided equally between the Government, the chiefs, and the common people.
As the land was all held at this time by the King, the chiefs, and their tenants, this division involved the surrender by the chiefs of a third of their lands to the Government, or a payment in lieu thereof in money, as had already been required of the tenant landholders. A committee, of which Dr. Judd was chairman, was appointed to carry out the division authorized by the privy council, and the work was completed in forty days. The division between the King and the chiefs was effected through partition deeds signed by both parties. The chiefs then went before the land commission and received awards for the lands thus partitioned off to them, and afterwards many of them commuted for the remaining one-third interest of the Government by a surrender of a portion.
After the division between the King and the chiefs was finished he again divided the lands which had been surrendered to him between himself and the Government, the former being known thereafter as Crown lands and the latter as Government lands.
This division, with the remaining work of the land commission, completed the great land reform, the first signal of which was announced by Kamehameha III, in his declaration of rights, June 7, 1839. A brief ten years had been sufficient for the Hawaiian nation to break down the hoary traditions and venerable customs of the past, and to climb the difficult path from a selfish feudalism to equal rights, from royal control of all the public domain to peasant proprietorship and fee-simple titles for poor and for rich. It came quickly and without bloodshed because the nation was ready for it. Foreign intercourse, hostile and friendly, and the spirit of a Christian civilization had an educating influence upon the eager nation, united by the genius of Kamehameha I, with its brave and intelligent warrior chiefs resting from the conquest of arms, their exuberant energies free for the conquest of new ideas; with rare wisdom, judgment, and patriotism they proved equal to the demands of the time upon them.
IX. Also the following extract from the report of hon. john quincy adams, chairman of the committee on foreign affairs of the house of representatives.
"It is a subject of cheering contemplation to the friends of human improvement and virtue, that by the mild and gentle influence of Christian charity, dispensed by humble missionaries of the gospel, unarmed with secular power, within the last quarter of a century, the people of this group of islands have been converted from the lowest debasement of idolatry to the blessings of the Christian gospel; united under one balanced government; rallied to the fold of civilization by a written language and constitution, providing security for the rights of persons, property, and mind, and invested with all the elements of
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right and power which can entitle them to be acknowledged by their brethren of the human race as a separate and independent community. To the consummation of their acknowledgment the people of the North American Union are urged by an interest of their own, deeper than that of any other portion of the inhabitants of the earth—by a virtual right of conquest, not over the freedom of their brother man by the brutal arm of physical power, but over the mind and heart by the celestial panoply of the gospel of peace and love."
X. Also the following hawaiian treaty and review of its commercial results.
THE HAWAIIAN TREATY.
A REVIEW OF ITS COMMERCIAL RESULTS.
The Hawaiian treaty was negotiated for the purpose of securing political control of those islands, making them industrially and commercially a part of the United States and preventing any other great power from acquiring a foothold there, which might be adverse to the welfare and safety of our Pacific coast in time of war. They are situated midway on the direct way from Panama to Hongkong and directly on the shortest line from the Columbia River or Puget Sound to Australia. Here the two great lines of future commerce of the Pacific Ocean intersect, and vessels must stop there for refreshment and refuge.
The islands prior to the treaty were declining in population, and owing to the decay of the whale fishery, were declining in wealth. Their soil is, perhaps, the most productive for sugar raising of any known in the world. But the high tariff on sugar and the exceedingly low wages which must be paid in tropical countries for raising sugar to supply the United States rendered the industry difficult. In 1875 a movement arose in the islands for the importation of Hindoo coolies to supply the requisite cheap labor, and the consent of England was promised. The growth of the Australian colonies had gradually developed an improving market for Hawaiian sugar, and, after a trial of it by some of the Hawaiian planters, it was found that better prices could be obtained in the free-trade port of Sydney than in San Francisco, and return cargoes could be bought there much more cheaply. Preparations were making for sending there the entire crops of 1876- '77. These matters came to the knowledge of the State Department. The Hawaiians had been pressing for many years for a commercial treaty with the United States, but without success. It was now felt in the State Department that the question was assuming graver importance, and, as political supremacy in the islands must inevitably follow the commerce, it was recognized that this country must make favorable concessions to them, or else let them follow the inevitable tendency and drift slowly into the status of an English colony. The result was the negotiation of the existing treaty and its ratification by the consent of the Senate. The effect of the treaty was as follows:
It was anticipated that the remission of duties would make the profits of sugar culture very great. But a sugar plantation requires for the most economical work a large amount of capital, $500,000 being very moderate for a single plantation, and $250,000 being about as small as is prudent. The islanders had no capital of any consequence and were obliged to borrow it from the United States (i. e., from or through the mercantile houses of San Francisco who import their sugar and act as agents to the planters for selling it to the refineries). The opening of plantations proceeded rapidly until the output of sugar has now nearly
S. Doc. 231, pt 6----30
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reached the full capacity of the soil, and is seven or eight times greater than in 1874-'75. Our exports to the islands have increased in very nearly the same ratio, being five or six times greater than in 1874-'75, or, if measured in quantity rather than by price, are about seven times as great. A new merchant marine has been created, consisting of vessels built expressly for the service, costing over $3,500,000. Of this total tonnage over 90 per cent is American built, and the rest was bought. These mercantile houses, with their shipping, transact tbe entire commerce both ways, and transport annually about $12,000,000 worth of merchandise at very high rates of freight, commission, and exchange.
In general, the effect of the treaty has been to make the islands a field for very profitable investment of American capital. It has created a demand which would not have existed otherwise for American produce to an amount which may seem small ($23,000,000 in nine years) when viewed in comparison with our total export, but which, when viewed in connection with the fact that the population which has made that demand is less than 80,000, is remarkably large. During the last four years it has averaged about $40 per capita per annum, and, if the transportation charges be added as they properly should be, it will amount to over $50 per capita per annum. This is four or five times as much per capita as England or Canada buys of us. The general results of the trade may be seen in the following tables:
Values delivered by the United States to the Hawaiian Islands for nine years—1876 to 1885.
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Invoice value of United States exports to Hawaii |
$23,686,328 |
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Bills of exchange to pay for all Hawaiian imports from third countries |
9,868,674 |
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Difference between coin exported to and received from Hawaii |
2,222,181 |
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Outstanding liabilities of United States to Hawaii not known |
.... |
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Total values paid by United States |
35,777,183 |
To balance the account:
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Profits already realized on merchandise account |
$18,414,766 |
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Cash debts payable to United States at maturity out of future shipments |
6,500,000 |
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Increased values of productive properties in the islands owned by Americans |
11,680,164 |
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72,372,113 |
Values received and receivable by the United States from the Hawaiian Islands for nine years—1867 to 1885.
| Invoice value of Hawaiian exports to the United States |
$51,294,764 |
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| Add freight and insurance to obtain value in United States ports |
2,897,185 |
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| Value of merchandise received |
$54,191,949 | |
| Liabilities of the islands to the United States for advances on crops |
3,000,000 |
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| Bonded debts payable in United States and secured on island property |
2,500,000 |
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| Hawaiian Government bonds paid for in silver, coined on Hawaiian Government account |
1,000,000 |
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| Total liabilities to United States |
5,500,000 | |
| Increased value of plantation properties owned by United States citizens, as assessed in 1883 |
10,180,164 |
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| Value of other productive properties |
1,500,000 |
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11,680,164 | ||
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| Total values received and receivable |
72,372,113 |
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General distribution of profits.
| To American shipping: | ||
| Freights and insurance on imports from the islands |
$2,897,185 |
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| Freights and insurance on exports |
5,127,964 |
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| Passenger receipts |
1,325,000 |
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$9,350,149 | |
| Commission on purchases for export to the islands |
592,158 |
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| Commission on sales of islands' produce |
2,209,463 |
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2,801,621 | |
| Premium on exchange |
812,839 | |
| Interest on loans and advances |
2,160,000 | |
| Dividends and miscellaneous profits |
3,290,157 | |
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| Total profits already realized |
18,414,766 | |
| Debts receivable held chiefly by the San Francisco banks |
6,500,000 | |
| Increased values of productive properties owned by Americans |
11,735,464 | |
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| Total gross profits |
36,650,230 |
1. In the foregoing table, beginning with values delivered, the first item is the invoice value of our exports to the islands, as shown in the Treasury statistics for the nine years. It is the home value, and, since we are comparing San Francisco values with San Francisco values, freights are not added.
2. The second item represents what we have paid in the form of bills of exchange to settle the balance of trade against us. Since the Hawaiians export almost nothing to third countries, but do import considerable from them, it follows that they must draw upon shipments to the United States to pay for all they import from third countries. They have no other source of credit to draw upon. Hence turning to Hawaiian official statistics we find their total imports in nine years to have been $9,181,522. The freight and insurance must be added, and, as these are known to be about 10 per cent of the value, we get $10,099,674. Deducting $231,000, which is their total export to third countries in nine years, and which liquidated just so much of their indebtedness to third countries, we have $9,868,074 on merchandise accounts, which we must pay in bills of exchange drawn in San Francisco against Hawaiian account and in favor of third countries.
3. In further settlement of the balance of trade are coin remittances. In nine years the excess of coin shipped to Hawaii over coin received from Hawaii amounts to $2,222,181. Of this $1,000,000 was a silver coinage for the Hawaiian Government struck at the San Francisco mint, for which that Government gave its bonds for $1,000,000, which are now held in this country.
If we have given Hawaii any other consideration it must be in the form of obligations of some sort which do not appear in statistics. None such are known, and in a small community like the islands, where everybody's business is known to everybody else, it is hardly possible that if any appreciable amount of them existed it would not be known. As the Hawaiians are deeply in debt to the United States it is not likely that any such obligations of importance exist. This side of the exhibit is therefore as complete as present knowledge can make it. On the other side of the account we have:
(1) Value of Hawaiian exports to the United States, $51,294,764. This is the invoice value at Honolulu. As we are comparing San Francisco values with San Francisco values it is necessary to add freights and insurance. (The American consul at Honolulu requires invoices to state the values delivered, less cost of transportation.) This requirement, being a matter of indifference to shippers, is complied with. If
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the merchandise had to pay an ad valorem duty they would put the invoice value as low as possible in accordance with the actual export costs.
(2) Liabilities of the islands to the United States.—The sugar crop is an enormously expensive one to raise. It requires fifteen to sixteen months to mature, and employs hundreds of laborers to each plantation and sugar mill. The planter must, therefore, borrow large amounts of money to mature it, giving a lien upon the crop as a security to his factor. The factor in turn borrows the necessary amounts from the San Francisco banks. On an average this lien amounts to nearly or quite half the market value of the crop. I have estimated it for safety at about one-third that value, or $3,000,000.
(3) Many plantations have also mortgaged debts held in San Francisco. The amount of these is not fully known; but I am sure of at least $2,500,000, and believe the real amount to be much more than that.
(4) The value of the plantation properties held by Americans was assessed by the Hawaiian Government in 1883 at $10,180,104. This was assumed to be about two-thirds the real value. This value has been created almost wholly since 1876 out of the ground, buildings, and machinery.*
(5) Other productive properties held by Americans are the interisland mercantile marine, two railroads and equipment, a marine railway, warehouses, etc., all of them the creation of the treaty. The estimate of $1,500,000 is a very low one. The value of these properties far exceeds the sum of their mortgages and capital stock indebtedness. No man is rated in this argument as an American citizen unless he has the right to vote in the United States without naturalization and has the right to the protection of our Government under public law.
The most striking feature of this exhibit is the very large profit to the United States—so large that it seems at first unaccountable; but the great discrepancy between the exports and imports will vanish when we take full account of the fact that the whole carrying trade and mercantile business is ours in both directions. All economists regard transportation and mercantile functions in the passage of commodities from the purchaser to the consumer as a part of the production. To the value of our produce at San Francisco must be added all further accessions of value until it finally leaves our hands and passes into those of the Hawaiian. Add, then, to the invoice value of our exports the cost of transportation, commission, and insurance until we have put the produce into the Hawaiian's hands, and the $36,000,000 becomes not far from $44,000,000. It costs the Hawaiian not far from one-sixth of the value of his crop to get it to San Francisco. Deduct that from $54,000,000 and we have $45,000,000. Thus if we reckon Hawaiian values against Hawaiian values the exchange becomes less unequal, as it should, for the real exchange takes place in Hawaii. It is there that
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* This is reckoned as profit for the following reasons: Among the commodities which we send to the islands, and also among those which we buy in Europe and send there on Hawaiian account, are machinery, building materials, etc. These are used in construction. The labor which is employed, the improvements which come from cultivation, and the natural appreciation of land make up together the final value of the property. The cash outlay directly applied to the creation of this value is, of course, small in comparison with that value. Whatever cash value has been so applied is already accounted for and included in the table showing values delivered to Hawaii. The value of the properties thereby acquired should of course appear on the other side of the account, and also in the list of profits, for such it clearly is. It pertains, however, to the capital-stock account and not to simple mercantile profit The figures here given largely understate the value of these properties.
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our own products finally leave our hands, and it is there that Hawaiian values first come into our hands.
The Committee on Ways and Means, seeing that our exports in nine years have shown on invoice value of $23,000,000, while our imports show $54,000,000, have hastily concluded that the apparent balance of trade against us of $31,000,000 had to be liquidated in coin and exchange. In fact, only about $13,000,000 is liquidated in that way, and the $18,000,000 remaining is paid over to our own people and may be reckoned as a gross profit already realized. Over $9,000,000 has gone to American shipping, nearly $3,000,000 to San Francisco commission houses, nearly a million to the banks, over $2,000,000 for interest on loans and advances, and over $3,000,000 as dividends and miscellaneous profits.
In addition to this we hold $6,500,000 of Hawaiian debts which they must liquidate out of future shipments, and have created $15,000,000 worth of magnificent productive properties in the islands out of the soil by the combined action of capital and labor. It would be difficult to find in all the annals of trade and production a result more gratifying.
The Committee on Ways and Means have taken it for granted that the loss of revenue to the Treasury is equal to the computed remission of duty. This is a grave error.
First. The tariff on sugar for more than twenty years has been so graduated as to become more and more forbidding, and, finally, prohibitory as the grade and quality of raw sugar increases. This excludes all eatable raw sugar from the grocery trade and makes it more profitable to the refiner to buy the lowest grades he can get. But if raw sugar is duty free, it is the interest of the refiner to buy the highest grades and the interest of the planter to make them. Accordingly the Hawaiian planter makes the highest grades, not exceeding No. 20, above which grade he must pay duty.
But without the treaty he would do as the Cuban does, i. e., make them of as low grade as possible, so as to pay the minimum duty. The Committee on Ways and Means has computed the remitted duties on Hawaiian sugar as actually imported in the highest grades at $3.18 per cwt. prior to June 30, 1883, and $2.40 per cwt. subsequently; but Hawaiian sugars, which would have been imported had the treaty never existed, would have been in lower grades and paying presumably the same average duty as all imported sugars. This was, prior to 1883, about $3.41 per cwt. and about $1.96 subsequently. Of course we can not reckon a duty we never could have collected as a loss of revenue. Instead, therefore, of losing on sugar $23,000,000 in nine years the loss has not been over $18,000,000.
Second. But this loss must have had very large compensations to the Treasury. Fully five sixths of the Hawaiian crop has been bought and paid for by exports, transportation services, and otherwise, for which the treaty has created a demand, and for which no demand would have existed elsewhere without the treaty. Our exports to third countries could not possibly have been diminished by it. Now, the free entry of Hawaiian sugar has no doubt caused us to purchase from third countries less dutiable sugar. Obviously the exported values withheld from the purchase of dutiable sugar remain available for other purchases. The full value of our exports must come back to us somehow, and if we get less dutiable sugar we must get just so much more of something else. The only question is whether this "more of something else" pays as much duty as the sugar would have paid. Probably it does not; and so far there is a loss, because some of these residual values come
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back in the shape of duty-free articles and because the duty on sugar is higher (computed ad valorem) than the average of our total imports. A part of the California bullion and wheat and wine sent to England pays for Hawaiian sugar, which is duty free. About one sixth of the Hawaiian crop is thus paid for, and to that proportion there is a total loss of revenue. While it is impossible to compute what the real loss is, I think it safe to say that it probably does not exceed one-third, and certainly does not amount to one-half of the $18,000,000 computed as lost on sugar. In any event the duty never leaves the country. It is paid over by the refinery to the consignee of the Hawaiian, and is paid out again, with much more besides, to American shipping, banks, merchants, and stockholders. The gross profit of $36,000,000 throws into insignificance the possible loss of $6,000,000 or $8,000,000 of revenue.
It has been said repeatedly that all the profits of this magnificent trade and industry go to the benefit of Claus Spreckels and a small clique of speculators. What nonsense! If it did, he would richly deserve it, and a vote of thanks by Congress besides.
It will be going to the root of the matter at once to say that the opposition to the treaty has arisen from the systematic and. in some measure successful attempts to saturate the public press and Congress with utterly false ideas about Claus Spreckels and his relation to the islands, to create a bitter personal prejudice against him, and by implication to illogically and unjustly extend that prejudice to the commerce and industries of the Hawaiian Islands. Claus Spreckels certainly has for many years monopolized the manufacture and sale of refined sugars on the Pacific coast, and ruled that market to the extent of his powers with a rod of iron. But the first grand mistake consists in supposing that the Hawaiian treaty has or could have given any assistance to the establishment of his monopoly or to its maintenance or confer upon it any benefit whatever. The second mistake consists in wholly false impressions about the wholly distinct personal relations of Mr. Spreckels to the industry and commerce of raw sugar. In these he is only one of many men, and though individually his relations are large, yet relatively to the whole they are small, and he can no more control the whole than the Cunard Company can control our commerce with England. As a monopolist of refined sugar he can not escape the odium which always attaches to a monopoly. As a planter and stockholder, as a director of an American steamship company, and a banker, his whole career and course of conduct will compare favorably with that of any great and successful merchant in America.
The monopoly of refined sugar in San Francisco is, like all other monopolies, a perfectly legitimate object of attack; and if it can be broken up in any way such an end is devoutly to be wished.
But Claus Spreckels's relations to the island trade and industry are a totally different matter, and when rightly understood will present themselves to the unprejudiced mind in a totally different aspect. In this field his operations are perfectly legitimate. It is my purpose to point out that any attempt to terminate the treaty is simply an attempt to strengthen and fortify his monopoly and to break down commendable enterprises which should be built up and sustained, and in which Claus Spreckels is merely one of many participants. Whatever damage might be inflicted upon him in respect to his island interest would be more than compensated to him out of enlarged profits of his monopoly as a refiner, while the blow would fall with full and disastrous effect upon thousands of innocent third parties, both in Hawaii and California, whose interests should be dear to Congress and to the American people.
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The Hawaiian treaty has become an object of attack by the sugar-refining interest of the Eastern States and of the sugar-planting interests of Louisiana. The motives which have led to this attack are as follows:
During the last few years the sales of sugar imported from Hawaii, Manila, and Central America, and refined in San Francisco, have been extending gradually into the markets of the Mississippi Valley, advancing further eastward every year, thereby displacing the sales of eastern sugars in the States and Territories west of the Mississippi River. The Eastern refiners and the Louisiana planters believe that the possibility of this arises from the free entry of Hawaiian sugars, thus enabling (as they suppose) the San Francisco refiners to purchase raw sugar much more cheaply than they otherwise could. Thus they believe that the treaty discriminates severely against their interests, and is unjust to them.
This position is denied by the San Francisco refiners and importers of sugar and by the owners of Hawaiian sugar properties in California. They contend that the San Francisco refineries get their raw sugar no cheaper by reason of the treaty, but are obliged to pay the same price for it as for equivalent dutiable sugar from Asia; that the ability of the Pacific refiners to compete successfully with the Atlantic refiners is founded upon conditions wholly independent of the treaty, viz: First, because unlimited amounts of Asiatic sugar can be laid down in San Francisco cheaper than raw sugars can be laid down in New York; second, because through eastward freights over the Pacific railways are scantier than westward through freights, and the railroads naturally prefer to carry sugar at low rates to hauling empty cars. They contend that this competition is a natural one; that it is not helped by the treaty and will not be hindered by its abrogation; that it is destined to grow, and would grow if the Hawaiian Islands did not exist.
Since it is also claimed by the opponents of the treaty that it fosters and sustains a monopoly of refined sugars, and that the benefits of the treaty accrue only to that monopoly, and since the whole complaint is founded in a gross misunderstanding of the nature and conditions of the sugar business on the Pacific coast, it seems proper to discuss the facts at some length. From these it will appear that these charges, as well as others, are utterly without foundation.
It is a self-evident proposition that a cargo of Manila sugar delivered in New York must sell at a price just equal to that of so much Cuban sugar of equal grade. It is evident, also, that the price of that cargo at Manila "free on board" must be less than the New York price by an amount equal to the cost of transportation. It is further evident that the price of a similar cargo of Manila sugar delivered in San Francisco must exceed the Manila price by an amount equal to the total cost of transportation. It is, therefore, an easy matter to compute whether Manila sugar in San Francisco ought to be cheaper than Cuban or Manila sugar in New York. The rate of freight from Manila or Hongkong to San Francisco on sugar is very low. A vessel can be chartered to go from San Francisco to Manila in ballast and bring back sugar at $5 or $6 per ton, but during the last eight years Asiatic sugar has largely come as mere ballast. Freights from Manila to New York range from $9 to $12 per ton. Interest, insurance, and shrinkage being proportional to the time of the voyage are evidently in favor of San Francisco as compared with New York. In brief, the San Francisco price of raw sugar is lower than the New York price by three-eighths to five-eighths of a cent per pound.
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Hawaiian sugars are shipped by the agents or factors of the planters in Honolulu to commission merchants and importers in San Francisco, and sold by the latter to the refinery. The terms of purchase after the treaty took effect were known as the "Manila basis." The refinery agreed in substance to take the whole of each planter's crop at a price which should be equal to that of an equivalent quantity and grade of Manila sugar delivered, duty paid, in San Francisco. The price of a certain grade of sugar at Manila known as "extra superior," polarizing 91, and in color No. 10 Dutch standard, was telegraphed daily to San Francisco. To this price was added $6 per ton for freight, 2 per cent insurance, the cost of sixty days' exchange, and a specific allowance for the remitted duty. This constituted the Manila basis for the day of quotation.
Just here is one point of dispute between the sugar men of New York and those of San Francisco and Honolulu. The New Yorkers refuse to believe that Spreckels pays the full normal price and the entire duty to the Hawaiians. If anybody is particularly interested in knowing whether he does not it must be the Hawaiian planter and his Honolulu factor, for an eighth of a cent per pound means to them a profit or loss of hundreds of thousands of dollars. Time and again they have examined this question and put it to the most crucial tests, and the verdict is universal that Spreckels has dealt with them fairly and squarely, and this is the testimony alike of friends and enemies whose bread and butter depends on knowing the truth and abiding by it. Who ought to know best about it, they or people who live 3,500 miles away?
A little over a year ago Spreckels withdrew the tender of the Manila basis and would only offer the Cuban. The result was, a new refinery competing with him. Spreckels has always contended that the Manila basis was higher than it ought to be; that he was overpaying the planters and giving them more than Manila and China sugar would have cost him. A second refinery, C. Adolf Low & Co., which was pooled with Spreckels up to 1885, also seemed to think so, for, while having the option of taking as much Hawaiian sugar as they wanted, they declined taking any on the ground that Manila and Central American sugars were cheaper. My opinion is that Spreckels was in a great measure right.* To show this would require a detailed examination,
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*For the following reasons: Spreckels allows 1/8 cent per pound for the value of every degree of polariscope. The Manila standard polarizes 91°. The average polarization of the whole Hawaiian crop is about 94°, and the allowance, therefore, is, on the average, 3/8 cent above the Manila basis. Suppose, now, the price of Hawaiian sugar delivered is 5 cents per pound for 91°; for 94° it is 53/8 cents. But a 94° sugar contains 3/91 more of pure sugar than a 91° sugar, which at 5 cents is 15/91 cent, or about 1/6 cent. In other words, Spreckels pays 3/8 cent for what is worth to him only 1/6 cent. The lower cost of refining a 94° sugar than a 91° is fully covered by the 1/20 cent allowance for every color above No. 10, Dutch standard. This difference, computed on the last Hawaiian crop, amounts to pver $350,000. If it be asked how Spreckels came to concede too much for quality the answer is that when it was first agreed upon, in 1876, the price of raw sugar was very high, and at that time the allowance was not very excessive. The New York allowance was 1/10 cent per degree of polarization. Moreover, it was at that time anticipated that the run of the Hawaiian crop would not be above 91° or 92°. Once fixed, the allowance became a custom, and custom is a powerful conservative force sometimes in matters of price.
Again, the great bulk of the Hawaiian crop comes to San Francisco in December to March, inclusive, and Spreckels must pay for it on delivery. Hence he must carry an enormous surplus stock, worth $3,000,000 to $4,000,000, during a great part of the year, and the interest on that is no trifle. If he could buy Asiatic sugars as he wanted them, or take advantage of the favorable stages of the market, he would have an advantage he does not now possess. All things considered I have no doubt that the practical working of the Manila basis was to make Spreckels pay more for Hawaiian sugar than Manila sugar would have cost him.
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which no one but a sugar expert would easily understand. At the same time it seems to me that the true price, while lower than the Manila basis, ought, during the extremely low prices of sugar last year, to have been a little better than the Cuban basis. Be this as it may, the vital fact remains in any event that the price on either basis would be considerably lower in San Francisco than in New York. It also remains true that the attempt of Spreckels to better himself in respect to the terms on which he purchases Hawaiian sugar has cost him very dear in the organization of an opposition refinery, and the end is not yet. And this brings to us the next link in the chain.
Mr. Spreckels was obliged to buy the whole Hawaiian crop and pay the full market price for it, including the entire duty, or else subject himself to competition. To understand this it is necessary to look at the nature of this monopoly. A monopoly means the want of effective and full competition. What are the possible sources of competition in the sale of refined sugars in California? There can be none from foreign refined sugars, because the duty upon them is prohibitory. There can be no effective competition from Eastern refined sugars, because their price is established on the Atlantic seaboard, where sugar is dearer and the railway transportation is prohibitory. Why is there no local competition ? Because there is not work enough for two refineries. A single refinery half as large as Havemeyer & Elder's can saturate with sugar the whole country west of Denver. If, then, there are two refineries, as has actually been the case, they must either pool and divide the market, which they did, or else begin a war of extermination, which they are now doing. The causes which have rendered a monopoly easily possible are, therefore, a prohibitory tariff on refined sugar, the isolation of California from other States where sugar is refined, its comparatively small population, and the fact that one ordinary refinery is ample for all needs. Under such circumstances a monopoly, or else a pool, which amounts to the same thing, is inevitable. Nothing on earth can stop it but time and the changes of conditions, which time will ultimately bring.
The Hawaiian treaty has had nothing to do with the establishment of this monopoly; the monopoly was fixed before the treaty, and so far from being helped by it, has been embarrassed and weakened by it, and may be yet more seriously embarrassed by its continuance, for the treaty rendered possible two new sources of competition. The nature of this competition is very instructive and will repay careful examination.
The duty upon raw sugars not only increases with their purity and lightness of color, but increases in a faster ratio than the value of the sugar itself. The result in New York is that it is cheaper and more profitable for the refineries to purchase the impurest sugars they can get, and that raw sugars of fine high quality are, in consequence of this disportionate duty, dearer than refined sugars. In short, the duty on raw sugars which are fit to eat is, to all intents and purposes, prohibitory. This is the reason why raw sugar has entirely disappeared from our grocery stores. In England, the greatest sugar-eating country in the world, where sugar is duty free, a large proportion of the sugar consumed does not go through the refinery at all, but is sold to customers just as it comes from the plantations. If the tariff on sugar were exactly proportioual to its purity vast quantities of raw sugar would be sold in the stores in the place of just so much refined sugar. So it would be in the Eastern States if raw sugars up to 20 Dutch standard were duty free. It is easy to see that in California
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the free entry of Hawaiian sugar up to No. 20 put the refinery into the following difficulty: It must not permit the sugars to go upon the open market. How was it to prevent it? By making it more profitable to the planter to sell to the refinery than the grocery store. How was it to do that? First, by paying a maximum price for the raws, and, second, by keeping down the price of refined sugar to points which should not exceed the price of raws by more than a certain small percentage. The maximum price of the raws was the Manila basis, and if the price of the refined exceeded the Manila basis by more than a certain small percentage the Hawaiian sugar would be tempted into the grocery trade direct.
Congress has been saturated with the idea that Spreckels has bought Hawaiian sugar at his own price, appropriating the remitted duty to himself and at the same time increasing the price of refined sugar. The idea is absurd and impossible. The truth is just the reverse. The command of prices for raw sugar up to the Manila basis rests with the planter, and Spreckels must yield or provoke a competition in which the planter is sure to win. Above, the Manila basis the planter can not go without loss to himself. Spreckels, moreover, has been obliged to sell refined sugar at lower prices than he could command if the Hawaiian crop were out of the way. To restore the duty would crush the planter, leaving him to Spreckels' dictation and give him (Spreckels) the power of exacting a larger price for his output without fear of any competition from the planter. The effect of the treaty upon the monopoly has been to hold up the price of raw sugar to the full normal price and to bring the price of refined nearer to that of raws than it would otherwise have been.
(2) The second source of competition is a new refinery. Mr. Spreckels himself controls, as a majority stockholder, only one plantation on the islands. He has a minority interest in each of four others (unless he has acquired more since 1884). He and his friends together can not control more than a fourth part of the Hawaiian crop except by buying it on terms satisfactory to the planters. Suppose the other planters to become dissatisfied with the terms of purchase he may offer, what is to prevent them from joining hands and starting a new refinery in San Francisco to work their own sugars? Nothing, except the want of an inducement. The question of capital offers no difficulty if there is anything to be gained. What would constitute an inducement? Not the prospect of profit on the sale of refined sugars unless they are prepared to crush Spreckels out completely and set up a new monopoly in place of his. But a genuine inducement would be established at once if Spreckels were to insist upon paying too low a price for their raw sugar. Suppose the cost of Asiatic sugar, duty paid, in San Francisco is 5 cents and Spreckels will only pay the Hawaiians 4| cents. Suppose two-thirds of the planters refuse and start a new refinery. A war of rates instantly follows. How low can Spreckles afford to sell refined sugar? As low as the price of Asiatic sugar plus the cost of refining. How low could the planters afford to sell sugar? As low as the cost of raising raw sugar, shipping it to San Francisco, and refining it. When Spreckels has touched the bottom price the planter is still making the full profit on his raw sugar, but nothing on his refined, and Spreckels is making no profit out of his refinery.
This is precisely what has happened. When Spreckels dropped from the Manila to the Cuban basis some of the California stockholders and some of the keen Yankees in the island thought he was going too low. They clubbed together, and, with the aid of San Francisco capitalists who hold Hawaiian plantation stocks, they started a new refinery. They
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did not expect to make much profit out of refined sugar, but they do expect to get the fullest price of their raws. The ultimate result of this contest will depend upon whether Spreckels is right in his assertion that the Cuban basis is the normal price of sugar.
GENERAL RESULTS OF THE TREATY.
The treaty has developed a trade with the islands which, relatively to the population, is enormous, and of which the profits have been and still are exceedingly large. The profits have not, as generally supposed, accrued to the great sugar monopoly, but chiefly to the American shipping which was evoked by the treaty, to the mercantile houses which have handled the merchandise, and to the investors who have advanced the capital to open and develop the productive properties. These profits have been nearly double the remitted duties and four or five times as great as the probable loss of revenue.
So far has the treaty been from benefiting a monopoly of refined sugars in California that it has restricted its powers and embarrassed it, and may even yet destroy it. The refinery is powerless to obtain the benefit of the remitted duties in any degree whatever. It must pay them in full to the consignee of the planter, who, in turn, pays them, and more besides, over to our shipping, banks, mercantile houses, and investors. The remitted duties never leave the country.
The treaty has brought up a mercantile marine of our own, employing American-built steamers and sailing vessels, and the entire commerce, amounting to $12,00O,000 annually, is in our hands. It is the only foreign commerce to-day which we can call our own. Before the treaty the sugar and rice imported at San Francisco came chietiy from Asia and the East India Islands, where it was bought with London exchange and shipped in foreign vessels.
The treaty has had no assignable effect whatever upon the sales of sugar in the Mississippi Valley. These sales would have been the same and would continue to be the same without the treaty as with it. San Francisco is the natural source of supply of sugar for almost the whole country west of the Kansas Missouri line, and of a considerable territory still further east. The only real competition of San Francisco in that region is the Louisiana planter, who has no more right to complain of it than of the competition of New York. This competition is independent of the treaty. Congress can not prevent it, and ought not to if it could, for it is a normal and healthy one.
XI. Also the following article in the forum for march, 1893, on "hawaii and our future sea-power," and written by capt. a. t. mahan.
[The Forum, March, 1893.]
HAWAII AND OUR FUTURE SEA POWER.*
The suddenness so far, at least, as the general public is concerned, with which the long-existing troubles in Hawaii have come to a head, and the character of the advances reported to be addressed to the United States by the revolutionary government, formally recognized as de facto by our representative on the spot, add another to the many significant instances furnished by history that, as men in the midst
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* Copyright, 1892, by the Forum Publishing Company.
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