Manual of Ship Subsidies / An Historical Summary of the Systems of All Nations

CHAPTER XI

The initial venture resulted in the creation of a steamship monopoly. This was the subsidizing, in 1877, of the pioneer concern, to supply steam communication between various domestic ports, and also with Siberia, China, and Corea. It was founded by a broad-visioned Japanese merchant, Jwasaki Yataro,^[FC] and controlled by him. To break his monopoly the Government in 1882 set up a rival State-supported company.^[FC] After a period of "desperate competition" and warfare, Jwasaki persuaded the new concern to unite with his. So was effected a community of interests after the most approved Western pattern.^[FC] By this union was formed, in 1885, the powerful Nippon Yusen Kaisha (Japan Mail Steamship Company), which remained the most powerful of Japanese steamship establishments, with lines running to the same ports to which the American steamers run.

Coincident with the State-aiding of steamship companies was the granting of liberal postal subvention. Next followed the institution of a general subsidy system, frankly designed to stimulate domestic shipbuilding and to further navigation by Japanese ships.

These laws offered construction and navigation subsidies, and also made provision for a widely extended postal service with increased postal subventions. The construction bounties were available for "any company composed of Japanese subjects exclusively as members and shareholders which shall establish a ship-yard conforming to the requirements of the Minister of State for Communications, and shall build ships." The rates were fixed as follows: for ships of over 1000 tons, twenty yen ($9.96) per gross ton; of over 700 and under 1000 tons, twelve yen; for engines built with ships, or in any other domestic dock-yard, with the consent of the Minister of Communications, five yen per horsepower. Japanese materials only were to be used, unless the Minister of Communications should give permission to use foreign materials. The navigation bounties were granted only for iron and steel ships owned exclusively by Japanese subjects, and plying between Japan and foreign ports. The rates in this class were: twenty-five sen (about 12-1/2 cents) per gross ton per thousand miles run for ships of 1000 tons steaming at ten knots an hour; ten per cent added for every additional 500 tons up to 6000 tons, and twenty per cent for every additional knot up to seventeen. Foreign-built ships less than five years old, owned by Japanese, were admitted to these bounties. The postal routes established were fifteen in number, calling for an annual expenditure of 4,964,404 yen (about $2,482,202) when in full operation. The payments for postal service were to be computed at the mileage rate given for navigation. Previous to this act the postal subventions had amounted annually to nine hundred and forty-five thousand yen in 1890 and 1891, and nine hundred and thirty thousand yen in the subsequent years.^[FD]

The effect of these laws was to stimulate overproduction. The Nippon Yusen Kaisha ordered eighteen large freight steamers aggregating 88,000 tons. Other companies doubled and trebled their fleets.^[FD] One result of the overproduction was the forcing down of freights. This, together with the business depression of 1898-99, brought losses to the shipping companies despite the large subsidies. The rapidly increasing amounts of the subsidies, too, were giving the Government concern. From a total of 1,027,275 yen in 1896 the sum expended annually had grown by 1899 to 5,846,956 yen. The total paid between 1896 and 1899 had amounted to 13,133,440 yen, about $6,566,720.^[FD]

Accordingly, in 1899 (March), a law was enacted modifying the system. The navigation bounties on foreign-built ships were reduced by half, while the subventions to the postal lines were fixed at certain yearly sums. A law of 1900 (February 23) extended the postal services. Under these laws the postal subventions reached a total of about 5,647,811 yen ($2,823,905) a year. Of this total the Nippon Yusen Kaisha's was the lion's share,—4,299,861 yen, about $2,149,930.^[FD]

After the passage of these laws the various companies further increased their tonnage, but the merchant marine grew more wholesomely for a while. In 1902 the total tonnage had reached 934,000 tons, and the Japanese mercantile fleet had risen to the position of eighth in the world in point of tonnage, whereas in 1892 it was only thirteenth.^[FE] In 1907 the United States consul at Yokohama wrote: "The building of ships of over ten thousand tons in Japanese yards is now quite common.... The war [with Russia] has given a great impetus to the shipbuilding and dock-yard industry which has made remarkable progress during the last few years."^[FF]

That year (1907) the Government brought forward several ship-subsidy bills making provision for further Japan sea services.^[FG] In 1908 the amount of State aid to the merchant marine had increased to an equivalent of $6,170,566 and additional amounts were asked for, one for the line to South America.^[FH] The budget for 1908-09 carried the largest amounts yet devoted by Japan to ship subsidizing. At the end of 1908 official statistics placed the number of steamers at 1618, with a gross tonnage of 1,153,340.42. Of these, one hundred and one were steamers of more than three thousand tons.^[FH]

In 1909 a new subsidy system was adopted (the laws of 1896 revised), to go into effect January 1 1910. The fixed navigation bounties granted by the old system on specified routes were abolished, and a general subsidy offered open to all steamships conforming to the provisions of the new law. The subsidized open-sea routes, however, were limited to four—the European, the North American, South American, and Australian;^[FI] and coasting services in the Far East were not affected. Among other conditions imposed on the beneficiaries were the requirements that steamers must carry more than one-half their maximum load; that each must have a wireless telegraph outfit, this, however, instituted at the Government's expense; that the Department of Communications be furnished with information as to freights and passenger rates; and that proper terminal facilities, as piers, warehouses, lighters, be provided by the subsidized companies.^[FJ] The steamers receiving the full subsidy must be home-built, of steel, of over 3000 tons gross, and showing a speed of at least twelve knots per hour. The rate was fixed at fifty sen per gross ton for every thousand nautical miles, and ten per cent of this sum added per additional speed of one nautical mile an hour, according to the conditions of the route. Upon a vessel the age of which exceeds five years the subsidy decreases five per cent each year till the age of fifteen is reached, when it ceases. Foreign-built steamers under five years of age, which may be put in service with the sanction of the Government authorities, are entitled to half of the subsidy. The construction subsidies were arranged in two classes, and each class in four grades.^[FK] The rates were slightly increased over those of the law of 1896, and their benefits were limited to steel vessels of over 1000 tons instead of 700 tons.

The total appropriations for ship subsidies in the budget for 1911-12 amounted, in American money, to $6,845,995, of which $6,294,020 were for navigation, and $551,975 for construction subsidies: an increase of $478,387 in the former class over the appropriation of the previous year, and a decrease in the latter class of $6,835.^[FL]

The total Japanese tonnage in 1910 stood at 1,149,200 tons.^[FM] The Nippon Yusen Kaisha practically owns nine-tenths of the ocean-going steamships flying the Japanese flag.^[FN]

China, too, taking on Western ways, is emulating Japan in establishing a modern merchant marine. The Government is giving State aid to native steamship companies, and subsidizing ship-yards. According to the United States consul-general at Hongkong the Government is now (1911) to furnish half of the amount of an extension of the capital of the Chinese Merchants' Steam Navigation Company to twenty million taels (about $12,600,000 gold), and thirty additional steamers of modern type are to be built for service—ten on foreign routes, including a route to the United States, and twenty on routes between Chinese ports; while a new ship-yard is to be set up at Shanghai under Government auspices, capitalized at five million taels (about $3,200,000 gold).

FOOTNOTES:

CHAPTER XII

Brazil gives subventions from the Federal treasury to several foreign steamship companies, and some of the States of the federation also make similar grants from their treasuries. Besides the subventions to lines to foreign ports, the Government grants State aid to a considerable number of coast lines operating between Rio de Janeiro and other Brazilian ports. The total amount of the subventions in 1910 was equal to $1,437,880.^[FO] The principal beneficiary was the Lloyd Brazileiro, maintaining the line between Brazilian ports and the United States.

Argentina is adopting a policy of giving subsidies to foreign steamship companies which extend her communications with foreign ports. As far back as 1865 a decree was issued offering a subsidy of twenty thousand dollars a year for a line between Argentina and the United States. But it was not taken. In 1911 the Government was prepared to pay a subsidy to a new steamship company promoted to furnish a regular service to South Africa.^[FP] In 1911 there appeared the first steam vessel flying the American flag at Buenos Aires in twenty years.^[FQ]

Chile grants mail subsidies, which have no appreciable effect in the merchant marine.^[FR]

FOOTNOTES:

CHAPTER XIII

While a navigation code founded in 1790 and 1792, and developed in 1816, 1817, and 1820, after the model of the then existing English code,^[FS] has been retained in modified form through enactments in subsequent years, a system of general ship-subsidies, though repeatedly proposed, has never been adopted by the United States. From 1793 to 1866 bounties were given to fishing vessels and men employed in the bank and other deep-sea fisheries,^[FT] but no subsidies to the merchant marine were granted till 1845, and these were only postal subsidies—payments in excess of an equivalent for services to be rendered in ocean mail-carriage. The law enacted that year had for its declared purpose the encouragement of American ocean steamship-building and running. With this act, therefore, the real history of Government aid to domestic shipping in this country begins.

At the time of the adoption of this policy America was still leading the world in ocean sailing-ships with her splendid fleets of fast-sailing packets and "clippers", while England had taken the lead in steamships. The law of 1845 was the culmination of a move begun in Congress in 1841, the year after the first Cunarder had crossed from Liverpool to Halifax and Boston. Its aim was to parry England's bold stroke for maritime supremacy with her State-aided steamship lines, and directly to "protect our merchant shipping from this new and strange menace."^[FU] The first move of 1841 was for an appropriation of a million dollars annually for foreign-mails carriage in American-owned ships.^[FU]

The law of 1845 (March 3) authorized the postmaster-general to contract with American ship-owners exclusively for this service to be performed in American vessels, steamships preferred, and by American citizens, for a period of from four to ten years, with the proviso that Congress by joint resolve might at any time terminate a contract. The subsidy was embodied in the rates of postage thus fixed: upon all letters and packets not exceeding a half-ounce in weight, between any ports of the United States and any foreign ports not less than three thousand miles distant, twenty-four cents, with the inland postage added; upon letters and packets over one half-ounce in weight, and not exceeding one ounce, forty-eight cents, and for every additional half-ounce or fraction of an ounce, fifteen cents; to any of the West India Islands, or islands in the Gulf of Mexico, ten cents, twenty cents, and five cents, respectively; upon each newspaper, pamphlet, and price-current to any of the ports and places above enumerated, three cents: inland postage to be added in all cases. The postmaster-general was to give the preference to such bidder as should propose to carry the mails in a steamship rather than a sailing-ship. Contractors were to turn their ships over to the Government upon demand for conversion into ships of war, the Government to pay therefor the fair full value, as ascertained by appraisers. The postmaster-general was further authorized to make ten-years' contracts for mail carriage from place to place in the United States in steamboats by sea, or on the Gulf of Mexico, or on the Mississippi River up to New Orleans, on the same conditions regarding the transfer of the ships to the Government when required for use as war ships.^[FV]

The next year, 1846, in the annual post-office appropriations act (June 19), provision was made for the application of twenty-five thousand dollars toward the establishment of a line of mail steamers between the United States and Bremen; and early in 1847 (February 3) a contract was duly concluded for a Bremen and Havre service, the first under the law of 1845.

This was a five years' contract entered into with the Ocean Steam Navigation Company, upon the basis of an earlier agreement (February 1846) with Edward Mills of New York, which Mr. Mills had transferred to the new organization. The subsidy was fixed at one hundred thousand dollars a year for each ship going by Cowes to Bremen and back to New York once in two months a year, and seventy-five thousand dollars a year for each ship going by Cowes to Havre and back to New York. The contractors were to build within a year's time four first-class steamships of not less than 1400 tons, nor less than a thousand horsepower; and were to run their line "with greater speed to the distance than is performed by the Cunard Line between Boston and Liverpool and back."^[FW] Provision for the subsidy thus called for was promptly made in this item in the post-office appropriation bill for the ensuing year, approved March 2: "for transportation by steam-ships between New York and Bremen according to the contract with Edward Mills, $258,609."^[FX]

The next step was the enactment of a law which had for its declared objects "to provide efficient mail services, to encourage navigation and commerce, and to build up a powerful fleet in case of war."^[FY] This measure, approved March 3, 1847, entitled "An act to provide for the building and equipment of four naval steamships," made provision for the construction, with Government aid, of merchant mail-steamships under the supervision of the Navy Department that they might be rendered suitable if needed for war service.

The act directed the secretary of the navy to accept on the part of the Government certain proposals that had been made for the carriage of the United States mails to foreign ports in American-built and American-owned steamships. These proposals had been submitted to the postmaster-general (March 6, 1846) by Edward K. Collins and associates (James Brown and Stewart Brown) of New York, and A.G. Sloo of Cincinnati: one for mail transportation by steamship between New York and Liverpool, semimonthly, the other between New York and New Orleans, Havana, and Chagres, twice a month. The secretary was directed to contract with Messrs. Collins and Sloo in accordance with the provisions laid down in this act. These required that the steamers be built under the inspection of naval constructors and be acceptable to the Navy Department; that each ship carry four passed midshipmen of the navy to serve as watch-officers, and a mail agent approved by the postmaster-general. Mr. Sloo's ships for his West India service were to be commanded by officers of the navy not below the grade of lieutenant. The secretary was further directed to contract for mail-carriage beyond the Isthmus,—from Panama up the Pacific coast to some point in the Territory of Oregon, once a month each way; but this service could be performed in either steam or sailing ships, as should be deemed more expedient.^[FZ]

All the contracts thus provided for were concluded the same year. Each was to run for ten years. The first executed was that with Mr. Sloo. It called for five steamships of not less than 1500 tons, and a semi-monthly service. The line was to touch at Charleston, if practicable, and at Savannah. The ships were to have engines by direct action; and each ship was to be sheathed with copper. The subsidy was fixed at two hundred and ninety thousand dollars a year, a rate of $1.83-1/2 per mile, the distance to be sailed out and back being 158,000 miles.^[GA] Mr. Sloo immediately set over his contract to George Law, Marshall O. Roberts, and Bowes McIlvaine, of New York.^[GB] The second contract was for the Pacific service, connecting with the mail by the Sloo line across the Isthmus. This was made with Arnold Harris of Arkansas. It provided for a monthly service between Panama and Astoria, Oregon, calling at San Diego, Monterey, and San Francisco, with a subsidy of one hundred and ninety-nine thousand dollars per annum. Three steamers were to be furnished, two of not less than a thousand tons each. Upon receiving the contract Mr. Harris immediately transferred it to W.H. Aspinwall of New York, representing the newly formed Pacific Mail Steamship Company.^[GC] The third was the Collins contract. This stipulated for a semi-monthly service between New York and Liverpool during the eight open months of the year, and a monthly service through the four winter months, with five steamers, each of not less than 2000 tons and engines of a thousand horsepower. The first ship was to be ready for service in eighteen months after the date of the contract, November 1, 1847. The subsidy was fixed at $19,250 per twenty round trips, or three hundred and eighty-five thousand dollars a year, a rate of $3.11 a mile for sailing about 124,000 miles.^[GD]

By subsequent acts the secretary of the navy was authorized to advance twenty-five thousand dollars a month on each of the ships called for by these several contracts from the time of their launching to their finish; and the date of the completion of the first Collins steamer and the opening of the New York and Liverpool service was extended to June 1, 1850.^[GE]

At the same time that the secretary of the navy was executing these contracts the postmaster-general under the authority of an act "to establish certain Post Routes and for other purposes," also approved March 3, 1847,^[GF] was contracting for a steamship mail-service between Charleston and Havana, with a subsidy of forty-five thousand dollars per annum. This contract was entered into with M.C. Mordecai of Charleston, who agreed to furnish steamships suitable for war purposes, and to perform a monthly service.^[GG] Several other propositions for steamship service to various foreign countries were made to the postmaster-general at this time, but none was accepted.^[GH]

The pioneer Bremen-Havre line began its service on the first day of June 1847, with two steamers. These were the Washington and the Hermann, built in New York, strong and large, of 1640 tons and 1734 tons, respectively, side-wheelers, bark-rigged. At first they made the run to Bremen in from twelve to seventeen days, much better time than the average clipper.^[GI] But up to 1851 they had no regular schedule of sailings, and, their speed being unsatisfactory, few mails were sent by them. The subsidy payments, therefore, were made for each voyage separately.^[GJ] They had also ceased to command the patronage of travellers. Nevertheless, as a committee of the Senate in 1850 reported, they were believed to have been "profitable to their owners as freight vessels, and of essential service in promoting the interests of American commerce."^[GK] The full service, with twelve trips to Bremen and twelve to Havre, was finally begun in 1851, when two more, and larger ships,—the Franklin and the Humboldt, each of 2184 tons, were added to the Havre line. Four years before, the original company, because of financial difficulties, had organized a separate corporation for the Havre service. In 1852 Congress extended the contract to 1857;^[GJ] and Southampton was made the point of shifting the mails.

The New York and Chagres, the Charleston and Havana, and the Pacific line, were all under way before the close of 1848. The Pacific line was the first in operation. The service began with the three steamers called for by the contract, the first sailing from New York on the sixth of October, the other two early in December. They were the California, 1050 tons, the Panama, 1087 tons, the Oregon, 1099 tons, all built in New York. The New York and Chagres line was started also in December with the sailing of the Falcon, 1000 tons, a purchased steamer which the Navy Department accepted temporarily, while the new ships were building, that the service might be immediately begun. The opening of the new territory south of Oregon acquired through the Mexican War, and the beginning of the rush of the "Argonauts" to the newly discovered gold fields of California, had made all concerned anxious to get these connecting steamship lines a-going.

At first the service was halting because of unavoidable circumstances. The Pacific Company were unable at once to meet the demands. Sufficient or competent crews could not be obtained on the California coast during the gold excitement,^[GL] at fever heat in 1849. But it was not long before more ships were put on, and the service improved and prospered. By September, 1849, the Chagres company had their first completed ship in commission. This was the Ohio, 2432 tons, built in New York. By June, 1850, the second, the Georgia (and the third of the line, for the Falcon was retained) was running. Soon afterwards the Illinois was added. At about the same time the Pacific company had added two more to their fleet—the Columbia and the Tennessee. In 1851 the postmaster-general was authorized to increase the Pacific trips to semi-monthly; and the subsidy was increased. An additional contract (March 13) was then made with Mr. Aspinwall, as president of the Pacific Mail.^[GM] This called for the enlargement of the line within a year, to six steamers; and for semi-monthly trips from Panama to Oregon and back, with stops and mail delivery at named points in California; and increased the company's subsidy by one hundred and forty-nine thousand two hundred and fifty dollars per annum. Thus the yearly total became three hundred and forty-eight thousand two hundred and fifty dollars. Before the semi-monthly trips were begun, San Diego and Monterey were dropped for the regular service, to be served by a slower line.^[GN] Also this year (1851) two more steamers were added to the fleet.

By this time on the Atlantic side the Collins Line was in promising operation. The service had auspiciously begun in 1850 with four of the five steamships called for by the contract. These were the Atlantic, 2845 tons, the Arctic, 2856 tons, the Baltic, 2723 tons, and the Pacific, 2707 tons, each some seven hundred tons larger than the measurement stipulated—"at least 2000 tons." All were built in New York ship-yards; were especially designed for fast sailing; and in size, model, finish, and fittings were pronounced to be "such steamers as the world had never seen."^[GO] In all respects they were superior to the Cunarders with which they were aggressively to compete; and it was the boast of the Americans that they would "beat the English in steam navigation, as they had beaten them in fast sailing." All associated with the enterprise were of large experience in maritime affairs. Mr. Collins, a native of Truro, Cape Cod, and long a shipping merchant of New York, had been at the head of fast clipper-ship lines—the New Orleans and Vera Cruz packet line, and the more famous "Dramatic line" (the ships named for plays and players) of transatlantic sailers. The commanders of the steamers were all tried clipper captains.

The Atlantic made the initial voyage, steaming gallantly out of New York harbor on the twenty-seventh of April, a month before the contract time for the beginning of the service. The Pacific followed in June, the Baltic in November, the Arctic in December. They beat the Cunarders' time on the average by a day. Their popularity was immediately established. Their passenger traffic rapidly increased. But the severe condition of the mail contract, with their quick sailings allowing only short stays in port, made it impossible for the company to secure a profitable share of the freight business without a heavy outlay for slower cargo boats. Within a few months after the start of the line the Cunard Company had cut freight rates from seven pounds ten shillings per ton to four pounds. So, while the Collins ships continued steadily to outsail the Cunarders and got the bulk of the passenger traffic, the Cunarders got most of the freighting. Moreover, the Collins ships were far more expensive to run. Indeed, the cost of the rapid service was enormous. Mr. Collins stated before a committee of Congress that to save a day or a day and a half in the run between New York and Liverpool cost the company nearly a million dollars annually.

Accordingly more subsidy was asked for. This was granted in 1852, the act being stimulated by England's move late in 1851 in raising the Cunards' subsidy to £173,340 ($843,000), for forty-four trips a year: about nineteen thousand dollars per voyage. The extra allowance lifted the Collins subsidy to $853,000 for twenty-six trips a year, thirty-three thousand dollars per voyage, a rate of upward of five dollars a mile.^[GP]

The competition now became sharper. Still the Collins Line maintained its record sailings, and continued to beat the English. Then it was sharply checked by a grave disaster. On the twenty-fourth of September, 1854, the Arctic, when forty miles off Cape Race, rushing through a fog, was rammed by a French steamer, and sunk with three hundred and seven souls. This calamity had a depressing effect on the company's affairs. Two years later, in 1856, Congress determined to reduce the subsidy, and notice of the discontinuance of the extra allowance of 1852 was ordered.^[GQ] Only a few weeks after this action another disaster, even more appalling than the first one, befell the company. On September 23 the Pacific sailed from Liverpool for her homeward voyage with a full complement of passengers; passed to sea out of sight; and was never more heard of. She was replaced by the Adriatic, the fifth ship called for by the contract, which was launched the year before, the largest, finest, swiftest, and most luxurious then afloat; and the company struggled on against accumulating odds.

At length, in 1858, Congress abandoned the subsidy system and returned to the method of payment for foreign mail-carriage according to the actual service rendered, with a proviso, however, favoring American ships, such to receive the inland-postage plus the sea postage, while foreign ships were to have the sea postage only.^[GR]

This was the final blow. The last voyage of the Collins Line was made in January, 1859. Then it perished. In April following, the ships were seized by the mortgagees and sold. So closed the career of the pioneer United States ship company in the transatlantic service. The splendid Adriatic passed to English ownership and the American flag gave way to the British. For several years this ship "held the transatlantic record with a passage of five days nineteen hours from Galway to St. John's."^[GS]

Of the other subsidized lines, the ships of the Bremen service were withdrawn and laid up after the subsidy ceased. The Havre line continued a while longer with two ships that had replaced the Humboldt and the Franklin, both of which had been lost,—the Humboldt wrecked at Halifax on December 5, 1853; the Franklin stranded on Montauk Point on July 17, 1854. Then with the charter of the two new steamers by the Government in 1861 for use in the Civil War, the Havre line also disappeared.

The cost to the Government of this first steamship subsidy venture, covering the thirteen years between 1845 and 1858, was approximately fourteen and a half million dollars.^[GT]

Meanwhile, within this period, the American wooden sailing-ships continued to be the glory of the seas, and the American clippers reached their highest development. The appearance of steamships on the North Atlantic and the Pacific had inspired the producers of the "wonderful American sailing-ships" to greater efforts for their perfection; and the clipper, surpassing all other types of sailers in size, sea-qualities, and speed, was the result of the intensified rivalry of canvas and steam.^[GU] The American clipper-ship era fairly opened with the advent of the Collins Steamship Line.^[GV] Between 1850 and 1855 clipper-ships were built for nearly every trade,^[GW] and they were on every sea. Some of the first were employed in the transatlantic packet service. More became engaged particularly in the "booming" trade to California, in the long-voyage traffic to China and India.^[GX] "When John Bull came floating into San Francisco, or Sydney, or Melbourne, he used to find Uncle Sam sitting carelessly, with his legs dangling over the wharf, smoking his pipe, with his cargo sold and his pockets full of money."^[GY] The Crimean War, 1853-56, opened a new and prosperous market for American fast sailing-ships, as transports. To meet the demand American ship-yards produced in 1855 more tonnage than they had ever built before.^[GZ] The sailing-ship interests strenuously opposed the subsidy system. They denounced it as class legislation unjustly favoring the few, and urged its abolishment.^[HA] How strong this influence was in bringing about the change in policy is a mooted question.

No further move for fostering the American merchant marine with State aid directly or indirectly, was made till 1864. Then the steamship-subsidizing policy was revived, first with a proposition for the establishment of an American mail-line to Brazil. A subsidy of two hundred and fifty thousand dollars per year was proposed, one hundred and fifty thousand to be paid by the United States and one hundred thousand by the Brazilian Government. Congress endorsed the scheme. The act embodying it (May 28)^[HB] authorized the postmaster-general to contract for a monthly service between the two countries, touching at St. Thomas, W.I., by first-class American sea-going steamships of not less than 2000 tons. The steamers were to be built under naval inspection, and to be subject to taking for war service. Bids were to be openly advertised for. The contract was to run for ten years. Thus was established the pioneer American line between Philadelphia and Rio de Janeiro, which continued from 1865 to 1876, and was then abandoned.

In the same session of Congress a bill was introduced, authorizing an annual subsidy of five hundred thousand dollars for an ocean mail-steamship service to Japan and China via Hawaii. This also received favorable consideration, and was passed February 17, 1865. The service was to be monthly, performed by American-built ships of not less than 3000 tons, also constructed under naval inspection. Tenders for the contract were to be advertised for, but bids only from United States citizens were to be entertained. The contract was to run for ten years. Only one bidder appeared (as was evidently expected)—the Pacific Mail Steamship Company. The contract went to that company, and under it, in 1867, their prosperous Asiatic service began. At the outset they were released from the obligation of stopping at Hawaii, and Congress voted another subsidy—seventy five thousand dollars per annum—for a distinct Hawaiian service.^[HC] The contract for this service, also advertised for, went to the California, Oregon, and Mexican Line.

Thus far the granting of postal subsidies for the establishment of steamship lines alone had engaged the advocates of State aid to American shipping. Now was agitated the institution of a general subsidy system as a means of fostering the rehabilitation of the merchant marine of all classes in ocean service, sailing-ships as well as steamers. The situation had become acute. Through the great loss of tonnage in the Civil War, and through the steadily advancing change from wood to iron in ship construction and from sail to steam propulsion, the American merchant marine had been brought distressingly low. From 1861, when the United States was standing second in rank among the nations in the extent of her ocean tonnage, to 1866, this tonnage had declined from 2,642,648 to 1,492,926 tons: a loss of more than forty-three per cent; while England, the first in rank and chief competitor, had in the same period gained 986,715 tons, or more than forty per cent. Moreover, of this increase in English tonnage, a large percentage had been in steamers, one ton of which class was estimated to be equal in efficiency to three tons of sailing-ships; while, by substituting largely iron for wood, England had gained a still further advantage in her much larger class of iron vessels, doubly as durable as those of wood.^[HD]

The matter was brought up in Congress by a resolution of the House, March 22, 1869, calling for the appointment of a select committee, "to inquire into and report at the next session of Congress the causes of the great reduction of American tonnage engaged in the foreign carrying trade, and the great depression of the navigation interests of the country; and also to report what measures are necessary to increase our ocean tonnage, revive our navigation interests, and regain for our country the position it once had among the nations as a great maritime power." Of this committee Representative John Lynch of Maine was made chairman.

The committee gave a series of hearings mainly in Atlantic seaboard cities, and submitted their report on February 17, 1870, accompanied by two bills recommended for passage; the one, a bounty bill, the other, relative to tonnage duties. With these measures the history of years of effort to establish the principle of general ship-subsidies in the American economic system properly begins.

The Lynch bounty bill, entitled "An act to revive the navigation and commercial interests of the United States," made provision for the remission of duties upon the raw materials entering into the construction of sailing and steam-ships; for the taking in bond, free of duty, of all stores used in vessels in sailing to foreign ports; and for bounties, or subsidies, to American sailing and steam-ships engaged in foreign commerce, already built as well as to be built: the aid being extended to those already built because they had been sailed during the Civil War and since "at great disadvantage."^[HE] The amount of duties to be remitted was to be equal to the amount per ton collected on the materials required for certain defined classes of ships: on wooden vessels, eight dollars a ton; on iron, twelve dollars a ton; on composite vessels (vessels composed of iron frames and wooden planking), twelve dollars a ton; on iron steamers, fifteen dollars a ton. Where American materials were used in the construction of iron or composite vessels, allowance was to be made of an amount equivalent to the duties imposed on similar articles of foreign manufacture. The bounties were thus classified: to owners of American registered ships engaging for more than six months in a year in the carrying trade between America and foreign ports, or between ports of foreign countries, a dollar and a half per ton upon a sailing-ship each year so engaged, and a dollar and a half upon a steamer running to and from the ports of the British North American provinces; four dollars upon a steamer running to and from any European port; and three dollars to and from all other foreign ports.^[HF]

The intent of the second bill, "imposing tonnage duties and for other purposes," was the readjustment of the existing tax upon tonnage so that it should fall "more equitably upon the different classes of vessels affected thereby."^[HF] It removed all tonnage, harbor, pilotage, and other like taxes imposed upon shipping by State and municipal authority (except wharfage, pierage, and dockage); and imposed a duty of thirty cents per ton on all ships, vessels, or steamers entered in the United States.

The committee's measures were ably advocated, but they finally went down in defeat.

In 1872 the Pacific Mail Steamship Company came forward with an offer to add another monthly mail-steamship service to Japan and China, for an additional subsidy of a half million dollars a year. At the same session a project to establish a subsidized line to Australia was introduced; another, for a subsidized line from New Orleans to Cuba. These failed, while the scheme of the Pacific Mail won. A bill authorizing such contract was enacted June 1, that year, after prolonged and warm debates, and by close votes in House and Senate. Two years afterwards it was discovered that bribery had been employed in securing the passage of that act; the charge being that a million dollars had been spent by a corrupt lobby in pushing the bill through.^[HG] Upon these disclosures, and because the company had failed to fulfil its conditions, Congress, by act of March 3, 1875, abrogated the contract.^[HH] In 1877 the first contract with the Pacific Mail for the Japan and China service, expired. During its ten years' term the company had received from the Government a total of $4,583,333.33.^[HI]

With the Pacific Mail exposure the word subsidy became unsavory to the public taste, and for some years after no subsidy measure, however carefully guarded or respectably backed, could find favor in Congress. A second project for subsidizing a new line to Brazil, proposed by John Roach, the noted American shipbuilder, in 1879, was among those ventured, only to fail.

A decade later, in 1889, when conditions seemed to be growing more propitious, the subject was revived with vigor by the introduction of a navigation subsidy bill proposed by the American Shipping League.^[HJ] From this evolved in 1890 a tonnage bounty bill reported in the House by Representative James M. Farquhar of New York.^[HK] The final outcome, indirectly, of these moves was the reëstablishment of the postal subsidy system, abandoned in 1858, in the enactment March 3, 1891, of what is known as the Postal Aid Law.

This one ship-subsidy law now on the statutes was in its original draft one of two proposed measures, termed respectively the Mail Ship Bill and the Cargo Ship Bill, both reported in the Senate by Senator William P. Frye of Maine. The Cargo Bill provided for navigation bounties to sailing-ships and steamers. The objects of these measures, as stated by the promoters, were "(1) to secure regular and quicker service to countries now reached; (2) to make new and direct commercial exchanges with countries not now reached; (3) to develop new and enlarge old markets in the interest of producers and consumers under the reciprocity treaties completed and under consideration; (4) to assist the promotion of a powerful naval reserve; (S) to establish a training-school for American seamen."^[HL]

Both bills passed the Senate, but the House rejected the Cargo Bill and passed the Mail Bill only after amending it essentially. The subsidy rate was cut one-third on steamers of the first class—the highest class of ocean liners,^[HM]—and was reduced on the second class. The act as finally approved comprises the following features:

Empowering the postmaster-general to contract for terms of from five to ten years with American citizens for carrying the mails on American steamships between ports of the United States and ports in foreign countries, the Dominion of Canada excepted; the service on such lines "to be equitably distributed among the Atlantic, Mexican Gulf, and Pacific ports." Proposals to be invited by public advertisement three months before the letting of a contract; and the contract to go to the lowest responsible bidder. The steamships employed, to be American-built, owned and officered by American citizens; and the following proportion of the crews American citizens, to wit: "during the first two years of each contract, one-fourth thereof; during the next three succeeding years, one-third thereof; and during the remaining time of the continuance of such contract, at least one-half thereof." The subsidized steamships are ranked in four classes: in the first class, iron or steel screw steamships, capable of making a speed of twenty knots an hour at sea of ordinary weather, and of a gross tonnage of not less than 8,000 tons; second class, iron or steel, speed of sixteen knots, 5,000 tons; third class, iron or steel, fourteen knots, 2,500 tons; fourth class, iron or steel, or wooden, twelve knots, 1,500 tons. Only those of the first class eligible to the contract service between the United States and Great Britain. All except the fourth class to be constructed under the supervision of the Navy Department, with particular reference to prompt and economical conversion into auxiliary cruisers, of sufficient strength and stability to carry and sustain at least four effective rifled cannon of a calibre of not less than six inches; and to be of the highest rating known to maritime commerce.

The subsidy, or rate of compensation, as it is termed, for mail-carriage is thus fixed in each class: first class, not exceeding four dollars (in the original draft six dollars) a mile; second class, two dollars a mile, by the shortest practicable route for each outward voyage; third class, one dollar a mile; fourth class, two-thirds of a dollar a mile for the actual number of miles required by the Post Office Department to be travelled on each outward bound voyage. Pro rata deductions from the compensations, and penalties, are imposed for omission of a voyage or voyages, and for delays or irregularities in service. No steamship in the contract service is to receive any other bounty or subsidy from the national treasury. Sanction is given to naval officers to volunteer for service on the contract mail steamships; and, while so employed, they are to receive furlough pay in addition to their steamship pay, provided they are required to perform such duties as appertain to the merchant service. The training-school for seamen is established by a provision requiring that the contract steamers "shall take cadets or apprentices, one American-born boy for each thousand tons gross register, and one for each majority fraction thereof, who shall be educated in the duties of seamanship, rank as petty officers, and receive such pay for their services as may be reasonable."^[HN]

The first advertisements for proposals under this act resulted in contracts with eleven existing lines, of the third and fourth classes. No bids were received for the North Atlantic service calling for American-built steamships in the first class. But an offer was made by the American Line^[HO] to begin the performance of the service with two British-built liners—the City of New York and the City of Paris—acquired from the Inman Line, if these steamers were admitted to American registry, the company agreeing immediately to order two similar ships from American shipyards and add these to their fleet. The proposition was accepted, and a supplementary act was passed (May 10, 1892), legalizing such registry.^[HP] The new American ships were promptly built,—the St. Louis and the St. Paul, launched November, 1894, and April, 1895, respectively,—each 11,600 tons, "larger, swifter, safer, and more luxurious"^[HQ] than the two British-built vessels: a perfection of workmanship deemed a matter for congratulation by patriotic Americans. To this extent at least the subsidy law was declared to have been beneficent.

It had become evident, however, that the law was not fostering the establishment of new American-owned and American-built steamship lines as its promoters had hoped. In 1893 the contract service had been reduced by the discontinuance of three of the routes. In 1894 only three contracts were in operation. Up to 1898 no lines had been established on the Pacific under the law.

In the judgment of the subsidy advocates the law's failure to produce the anticipated results only proved its inadequacy in not providing enough subsidy. Accordingly, further measures were proposed affording a more generous supply.

In December, 1898, Senator Mark Hanna, of Ohio, brought forward a bill providing liberal navigation and speed bounties to all American vessels engaged in the foreign trade. This measure, as defined by its title, proposed "to promote the commerce and increase the foreign trade of the United States, and to promote auxiliary cruisers, transports, and seamen for Government use when necessary." The subsidy was again termed "compensation." It was to be payable on gross tonnage for mileage sailed both outward and homeward bound, according to speed. The rate to steamships showing on trial test a speed above fourteen knots was to increase proportionately; sailing-ships and steamers of less trial speed than fourteen knots, were to receive the lowest rate. This was fixed at one dollar and fifteen cents per gross ton for each hundred of the first fifteen hundred miles sailed both outward and homeward bound, and one cent per gross ton for each hundred miles over one hundred miles both ways. The additional speed bounties ranged from one cent per gross ton for steamers of 1,500 tons and speeding fourteen knots, to 3.2 cents for those over 10,000 tons and showing twenty-three knots. The act was to be in force for a term of twenty years, and no contracts were to be made under it after ten years.

In response Congress by act of April 28, 1904, created the Merchant Marine Commission with power to make the broadest kind of an inquiry. This body was composed of five Senators and five Representatives, two of the Senators and two of the Representatives members of the minority party. Senator Jacob H. Gallinger of New Hampshire was chairman. Eight months between the adjournment and reassembling of Congress was devoted to its appointed task. All the larger ports of the country were visited, its itinerary embracing the principal cities on the North Atlantic seaboard, on the Great Lakes, on the Pacific coast, and on the southern coast and Gulf of Mexico. Hearings were given in all these places to hundreds of citizens: commercial bodies, shipbuilders, shipowners, shipping merchants, merchants in general trade, manufacturers, bankers, lawyers, editors, doctrinaires. So wide indeed was the investigation, and so liberal the "open door" rule, admitting for consideration any "intelligent suggestion offered in good faith," that "alien agents" of foreign steamships were heard with the rest.^[HR] While differences of opinion as to methods and policies naturally were encountered, the commission declared that it found public sentiment, as this was sounded throughout the United States, "practically unanimous not in merely desiring, but in demanding an American ocean fleet, built, owned, officered, and so far as may be, manned by our own people." This sentiment was "just as earnest on the Great Lakes ... as on either ocean."^[HR]

The results of the investigation were embodied in an elaborate report, comprising majority and minority reports of the commission, and the mass of testimony taken at the hearings: the whole filling three large pamphlet volumes, in all of nearly two thousand pages.^[HS]

The majority reported a bill. This was presented as merely an extension of the principles of the Postal Aid Act of 1891, involving "no new departure from the established practice of the Government." Its ocean mail sections were intended "simply to strengthen the existing act on lines where it has happened to prove inadequate." The subsidies which it granted were termed, inoffensively, "subventions," and its promoters protested that these "subventions" were "not in any opprobrious sense a subsidy or bounty." They were "not bounties outright, or mere commercial subsidies such as many of our contemporaries give." They were "granted frankly in compensation for public services rendered and to be rendered."^[HT]

The proposed measure, however, was more than an extension of the act of 1891. Its scope was indicated by its title: "To promote the national defence, to create a force of naval volunteers, to establish American ocean mail lines to foreign markets, to promote commerce, and to provide revenue from tonnage." The subsidies offered comprised mail subventions to steamships; subventions to general cargo carriers and deep-sea fishing-ships, both steam and sail; and retainers to officers and men of American merchant ships and deep-sea fishing vessels enrolling as naval volunteers. It opened with provisions for the establishment of a naval reserve.

The new mail subsidies provided for ten specified lines of "steamships of the United States" of sixteen, fourteen, thirteen, and twelve knots speed, to the greater countries of South America, to Central America, to Africa, and to the Orient, with a total maximum subsidy for the ten lines of $2,665,000 a year. In all contracts it was to be specified that the steamships must carry in their own crews a certain increasing proportion, up to one-fourth, of men enrolled as naval volunteers. The subventions to American general cargo carriers, or the "tramp" type of ships, and deep-sea fishing-vessels, steam or sail, were fixed at these rates: those engaged in the foreign trade for a full year, five dollars per gross ton; so engaged for nine months and less than a year, four dollars; for six months, two dollars. These subsidies were conditioned upon these requirements: the employment in the crews of a certain proportion of naval volunteers; one-sixth of the crews to be citizens of the United States or "men who have declared their intentions to become citizens;" ships to carry the mails when required free of charge; all ordinary repairs to be made in the United States; the ships to be in readiness for Government taking for naval service in time of need. The payments in this class were to be made on contracts for a year at a time, renewable from year to year; and no vessel was to receive them for a longer period than ten years. The retainers to officers and men of the merchant marine and deep-sea fishing-ships as inducements to enroll as naval volunteers, were fixed at rates ranging from a hundred dollars a year for the master or chief engineer of a large steamship to twenty-five dollars for a sailor or fireman, and fifteen dollars for a boy, these retainers being independent of their regular pay. The provisions relating to tonnage revenue increased the tonnage taxes on all vessels, American and foreign, entering American ports, with a rebate of eighty per cent of the tonnage duties allowed to American ships carrying American boys as apprentices and training them in seamanship or engineering for the merchant service and naval reserve.^[HU]

The minority report, signed by three of the four Democratic members of the commission, although outlining measures of relief which, in the judgment of the signers, would "accomplish substantial and permanent good without injustice to any other American interest and without doing violence to any fundamental principle of right or of organic law," proposed no bill. While the minority "saw objections to the entire bill" recommended by the majority, they were disposed to withhold any opposition except to the sections providing for direct subsidies. These they declared to be "so obnoxious to Democratic principles and to the economic sense of the country" that they were compelled to enter their "earnest protest against their enactment into law." Instead of subsidies, the remedial legislation which they outlined included: a return to the discriminating-duty policy; and the putting on the free list of all materials which enter into the construction of ships no matter whether intended for foreign or domestic trade,—thus admitting ships built from foreign materials, in whole or in part, to the coastwise trade, from which they are now excluded. The minority held also that it would probably "be necessary to remove the duties not only for materials but from all materials sold cheaper abroad than at home," meaning steel and iron products. "In this way, and in this way only, will our shipbuilders be enabled to obtain our materials at the prices at which they are sold to foreign shipbuilders."^[HV]

The report of the commission was submitted to the Fifty-eighth Congress, third session, January 4, 1905.^[HW] No action was had on the bill in that Congress. It was referred to the committee on commerce; reported back to the Senate with sundry amendments and a minority report against it;^[HX] was debated tentatively; and finally passed over at the request of its sponsor, Senator Gallinger, who expressed himself as satisfied that the bill could not receive the consideration it deserved at that session. Meanwhile both Houses had directed a continuance of the commission's inquiry. In May the chairman, Senator Gallinger, held conferences in New York with several representatives of the shipping interests who had not been heard; and later sessions were held in Washington, at which other statements were received and considered.

At the opening of the Fifty-ninth Congress, December 4, 1905, Senator Gallinger submitted a supplementary report of the commission, and with it introduced a new bill—the previous bill in a new draft.^[HY] At the same time Representative Charles H. Grosvenor, of Ohio, the first House member of the commission, introduced the bill to the House.

This draft added several new features to the original bill. The most important were provisions for increasing the subsidies payable under the law of 1891 to the single American contract line to Europe, and to the Oceanic Line from San Francisco to Auckland and Sydney. These provisions added two hundred and fifty thousand dollars to the former's subsidy of seven hundred and fifty thousand, and two hundred and seventeen thousand to the latter's of two hundred and eighty-three thousand. The reasons given for these increases were: in the case of the American Line, because this line "meets the fiercest competition of the State-aided corporations of Europe, soon to be intensified by the new subvention of one million one hundred thousand dollars granted to the Cunard Company by the British Government, on terms so liberal as to make it equivalent to one and a half million dollars a year"; and in the case of the Australasia Line, because it "operates in Pacific waters where cost of fuel, labor, etc., is considerably greater than at Atlantic ports; ... is required to maintain a very high speed; ... employs exclusively white crews instead of the Asiatics utilized by many other Pacific companies." Another provision, as a special encouragement for American shipowners to enter the Philippine trade, added a subvention of thirty per cent above the regular rate, or six and a half dollars a ton. The naval volunteer retainers were extended to seamen of the Great Lakes and coastwise trade.^[HZ]