stantially to bring such relief. If, as a result of prohibitory margarine legislation, people consume butter instead of margarine, either the prices or the consumption of butter (or both) may be expected (if there are no other changes in the situation) to rise. However, it is important to note that they cannot rise in Wisconsin or Washington (States with prohibitive legislation) more than they do in other States so long as there is no interference with the interstate movement in butter. Furthermore, we cannot assume that all the purchasing power now going for margarine purchases will be deflected to butter. In fact, students of this problem point out that, if denied margarine, many consumers will not increase their purchases of butter. Thus families of moderate means who use margarine for cooking may now buy cooking compounds and not turn to butter for this purpose. Very poor families may replace margarine with butter, or, on the other hand, they may turn to such cheap substitutes as lard or peanut butter. Obviously without elaborate consumption studies of this subject, we cannot predict with any assurance the exact effect of margarine legislation on consumption or prices of butter.

The fact is that State legislation regarding margarine cannot be expected to give appreciable aid to dairy farmers. In all probability even national legislation of a prohibitive character would be of but little help. A bulletin issued by the Agricultural Adjustment Administration says:

"The government never before has prohibited the use of any safe and non-injurious food product. Even if it should do so now, and if all consumption of oleomargarine were prohibited and persons formerly using this product turned to butter, the maximum increase in the price of butter probably would be less than 2 cents a pound. And since many oleo users might not turn to butter, the actual increase might be less than a cent a pound."

38

Finally, should relief be given to one industry if it hurts another, even though the harmed industry is in another State? Without attempting a categorical answer to this question, we do sub

38 Dairy Adjustment-What and Why, March 31, 1934.

mit that it is worthy of careful consideration. Moreover, if out-of-State interests are hurt, there is always the danger of retaliation.

RETALIATION

Among the unfortunate results of margarine taxes, as of all measures resembling State tariffs, are the ill-feeling and retaliation they are likely to engender in the States whose producers believe themselves hurt by such legislation. Expressions of resentment and threats of reprisal immediately appeared in the cotton-growing States upon the passage of the Wisconsin marga

rine excise of 1935.

The Governor of Alabama and the State commissioner of agriculture of Louisiana issued public protests. In its official publication, the Mid-South Cotton News, the Mid-South Cotton Growers Association, declared:

"We are Wisconsin's best customer for butter, cheese, condensed milk, farm implements, farm light plants, plumbing supplies and road building machinery. Without our patronage she would indeed be in a sad plight. She has invited such a calamity upon herself. She has chosen to wall herself in. Let her see how she likes it.

"The Wisconsin Manufacturers Association has announced that millions of dollars of contracts for Wisconsin agricultural and manufactured products have already been cancelled by business men in sympathy with Southern producers of fats and oils.

"COTTON OIL is to the cotton States what butterfat is to Wisconsin and what hog lard is to the corn-hog States. Any interference with the free movement of cotton oil strikes at the heart of the cotton grower and the South generallyAND CANNOT BE TOLERATED."

The head of a grocery-products distributing company in Georgia declared that Wisconsin products such as beer, paper, plumbing supplies, cheese, and evaporated milk had been hurt in southern markets. The secretary of the Mississippi Wholesale Grocers Association reported plans for reprisals in that State.40

"The New York Journal of Commerce, November 15, 1935. Governor Allred of Texas sent letters of protest to the leading dairy States. The Cotton and Cotton Oil Press, June 18, 1938. 40 New York Journal of Commerce, November 15, 1935.

Even labor added its voice to the protest. At its convention held in June 1938, the Tennessee Federation of Labor protested against margarine taxation, adopting a resolution which reads

in part:

"Whereas, Oleomargarine conforms to all the requirements of the Federal and State Pure Food laws and is sold purely on its own merit as an article of food, and

"Whereas, Oleomargarine is used primarily by labor, its families and low income consumers because of its price economy and adaptability as a table and cooking fat in the house,

"Be it resolved by the Tennessee Federation of Labor in convention assembled that it is opposed to the taxation of this wholesome, nutritious and pure food product by federal and state governments, because such taxation harms both the low-income consumers and the domestic producers of oils and fats; and because there is no social or economic necessity or sound reason for subjecting any food product that conforms to the Federal and State Pure Food laws to additional special and restrictive taxes or license fees or other harmful impositions..."

In March 1938, the Arkansas General Assembly in concurrent resolution protested against

"... proscriptive tax laws against the importation, sale and consumption in their several states of certain wholesome food products from other states under the guise of protecting their own producers of competing products."

The actual extent to which the sale of Wisconsin products in the South was curtailed cannot be determined. At the time the passage of the act was being considered a Senator from an important manufacturing district in Wisconsin declared that Southern States were already beginning to boycott Wisconsin machinery and canned milk. Soon after the act was adopted the Wisconsin Manufacturers Association (strongly opposed to the bill) reported threatened losses in sales of $1,000,000 to Wisconsin paper manufacturers, and $2,500,000 to Milwaukee manufactures of textiles and machinery. One margarine manufacturer was reported to have cancelled his purchases of paper cartons from a firm

Actually, reprisals do not appear to have been adopted to anything like the extent predicted. J. D. Beck, commissioner of the Wisconsin Department of Agriculture and Markets, is reported to have denied that southern retaliation reached serious proportions. 42 Certainly, southern markets are still absorbing large quantities of products from Wisconsin, and southern legislatures have not yet adopted retaliatory taxes on Wisconsin goods.43

On the other hand, much resentment does persist in the South. Apparently, it was partly a recognition of this fact that led to a recent movement in Wisconsin, sponsored jointly by the State and business interests, for a "Wisconsin Good Will Tour" of the Cotton Belt. This proposal did not materialize but its announcement in the South brought a renewed barrage of criticism from southern editors directed at Wisconsin's 15-cent margarine tax. One southern editor advised treatment of the Wisconsin delegation as follows:

"Treat them with courtesy, of course, but the good will tourists may also be reminded that good will is a game that two can play. Why come down to the South and expect to encourage our friendly relations when they have already placed a tax on some Georgia products which will make their use in Wisconsin prohibitive."4

POSSIBILITY OF OTHER PROTECTIVE EXCISE TAXES

Protective legislation, or even the threat of protective action, by one State may lead to similar measures by others. In the case of State protection, moreover, there is the danger that a competition for protective favors will arise within the State itself. Having granted protection against outside competition to one industry, the State may soon find itself under considerable pressure to grant similar favors to other dis

41 The Milwaukee Journal, July 7, 1935.

42 Interview of July 9, 1936. MELDER, F. E., op. cit., p. 104.

43 However, a bill has been introduced in the 1939 session of the Arkansas legislature which proposes a 25 percent ad valorem tax on milk, cream, butter, and apples grown in Washington, Wisconsin, Iowa, and Minnesota, and sold in Arkansas.

44 Lavonia Times, Lavonia, Ga., December 17, 1937, as quoted in the Cotton and Cotton Oil Press, January 8, 1938.

tressed industries. If excise taxes may be used against margarine, what is to bar their effective use against other commodities?

Already a beginning has been made in this direction. Later pages show how State excise taxes have been applied against "foreign" beer and wine. But such protection has also been applied to commodities related more closely to butter. Thus during the last 7 years repeated attempts have been made in Middlewestern States to pass laws designed to protect lard and corn oil against out-of-State substitutes, particularly cottonseed oil. In 1931, South Dakota adopted a law placing an excise of 5 cents a pound on vegetable oils and vegetable cooking compounds, except those made of corn oil. This law was defended as follows in the report of the South Dakota Tax Conference: 45

"The production of pork and pork products is one of South Dakota's greatest farm industries. Lard is one of the leading by-products of the swine raising business. Any so-called substitute for use in place of lard reduces the demand for and consequently the price of pure lard and in turn has a depressing effect on hog prices.

"This tax of five cents per pound on the sale of all lard substitutes will tend to restore the

4 See p. 15, Report of the South Dakota Tax Conference. [8. Dak. Div. of Taxation, Bull. 14.]

Partly, at least, as a result of protests from the South, this law was repealed at the next session of the State legislature.

A similar act proposing an excise of 3 cents per pound on all lard substitutes was urged before the Iowa Legislature in 1934. A leading State official in defending this proposal declared that pork and lard were the State's most important products and that he favored the law as "protection for a home industry." 46 The State of Florida has had a law on its statute books since 1937 that provides for a tax of 1 cent per dozen on all cold-storage eggs sold in the State. This law obviously affords at least some small protection to fresh eggs produced in Florida.

Only a small beginning has been made in the field of exise taxes as barriers to interstate trade outside of beer, wine, and margarine legislation. But, in view of the strides that legislation has made in these fields during the last 8 years, and the general tendency of “protective” legislation to spread from one field to another, it seems not improbable that State excise taxes may soon become an increasingly serious barrier to the free movement of farm products in interstate commerce.

46 Cotton Oil Press, January 1934. Cited by WEBER, GEORGES M., LEGISLATIVE WEAPONS IN INTER-INDUSTRY COMPETITION-OILS AND FATS, Harvard Business Review, vol. 13, p. 79. (October 1934).

LEGAL ASPECTS

STATE REGULATION of the interstate movement of intoxicating beverages is not limited by the commerce clause of the United States Constitution in the same degree as are other commodities with which this publication deals. It was early felt that States wishing to exclude or restrict the consumption of intoxicating beverages should not be hampered in this objective by Federal control over interstate commerce.

To effect this purpose the Wilson Act of 1890 provided that liquor introduced into a State should become immediately subject to the police regulations of that State. Judicial interpretations greatly weakened the effectiveness of the law. But the Webb-Kenyon Act of 1913, and later the twenty-first amendment to the Constitution successfully freed the States from the restrictions of the interstate-commerce clause of the Constitution and gave them the right to prevent shipments in violation of their laws.

The constitutionality of State laws designed to protect in-State liquor manufacturers and dealers or the farmers growing the raw materials used in the manufacture of intoxicating beverages now seems definitely established. In the leading case in this field, State Board of Equalization of California v. Young's Market Co.,1 the court upheld a California statute that placed a $500 license fee on importers of out-of-State beer.2 In a more recent decision, which involved the exclusion of Indiana beer by the State of Michi

1 299 U. 8. 59 (1936).

⚫ California repealed this law in 1937.

Although the purpose of Congress was obviously to give the States the power to protect their citizens as far as they saw fit from the evils believed to be associated with the consumption and sale of intoxicating beverages, the door was now opened for State restrictions on interstate trade for the purpose of protecting local industry. The Wilson Act had provided that, after having moved in interstate commerce, the beverages of other States should be subject to the laws of each State enacted in the exercise of its police powers to the same extent and in the same manner as if they had been produced within the State. No such specific limitation was included in the Webb-Kenyon Act or the constitutional amendment. The result was soon apparent, for a number of States levied taxes that were clearly for economic rather than sumptuary purposes.

Indianapolis Brewing Co., Inc., v. The Liquor Control Commission of the State of Michigan, et al., 59 Sup. Ct. Rep. 254 (1939). See also, Mahoney, Liquor Control Commissioner v. Joseph Triner Corp., 304 U. S. 401 (1938) and Joseph S. Finch and Co., et al., v. Roy McKittrick, Attorney General of the State of Missouri, et al., 59 Sup. Ct. Rep. 256 (1939).

LEGISLATION FAVORABLE TO IN-STATE PRODUCERS AND DISTRIBUTORS OF INTOXICATING LIQUOR

Insofar as State liquor laws raise barriers to interstate trade they appear to be designed to give advantage to two groups: (1) In-State manufacturers and wholesalers of alcoholic beverages, and (2) in-State farmers who produce the crops used in the manufacture of wine and beer. The first of these is the more important and extensive as a barrier to trade, but has only an indirect effect on the movement of farm products. The second has not become of great economic importance, but is worth careful consideration both as an existing barrier to interstate trade in farm products and as an example of the present trend toward State protectionism. State laws that give protection to manufacturers and distributors of alcoholic beverages may be summarized under four heads. Of course, the official purpose of these laws is regulation or the procurement of revenue, but whether or not so designed, they all have protective features.4

(1) Sales taxes may be higher on "foreign" than on "domestic" liquor. From 1933 to 1937, Michigan, in addition to the regular taxes which all must pay, had a tax on out-of-State beer of 25 cents per barrel. Although it was designated an "inspection" fee, its effect was exactly that of an import duty. This impost was repealed in 1937, but similar laws have recently been strongly urged before many State legislatures. Thus a tariff on beer of $3 per barrel has been proposed in Connecticut, $3.10 per barrel in Idaho, and 4 cents per gallon in Iowa. In the last two sessions of the Massachusetts Legislature a bill was considered to tax out-of-State beer $1 per barrel more than in-State beer.

At least two States, Georgia and Arkansas, have an export tax on alcoholic beverages which have been imported from another State, have acquired intrastate character, and are then shipped out of the State.

(2) In-State distributors of "foreign" beer may

4 The following analysis is based in large part upon an article in the Columbia Law Review (Vol. 38, Apr. 1938, pp. 644-69) entitled "Liquor Control: The Latest Phase."

be required to pay special license fees that are higher than for those distributors who sell the domestic product exclusively. Importers of foreign beer find themselves in this situation in at least five States: Pennsylvania, Maryland, Indiana, Nevada, and Washington. Indiana importers pay the highest license fee, $1,500 annually, and submit to a rigorous port-ofentry system.

(3) Nonresident wholesalers and manufacturers must obtain a license before they can ship into certain States. At least eight States have such requirements. Where the license fees are high ($1,000 in Colorado, $500 in New Hampshire, and $750 in Vermont) the small shipper from outside the State may be appreciably burdened.

(4) Miscellaneous other provisions may be even more restrictive than taxes and license fees. Thus, in order to secure a license, a manufacturer may have to qualify to do business in the State as a foreign corporation. This may involve additional taxes and burdens that do not ordinarily fall on the out-of-State shipper dealing in other commodities. Troubles of various kinds may arise in getting the goods into the State. In some cases special stamps must be affixed to containers before shipment. Out-of-State brewers complained in 1935 that in shipping beer into Michigan the necessity of trucking their beer long distances to get it stamped was a greater burden than the 25 cents per barrel inspection fee."

In States maintaining a monopoly of liquor retailing, advantage may be given to in-State producers. In Maine liquor stores, preference must be given to local products. Minnesota prohibits the importation of intoxicating liquor of more than 25-percent alcohol content unless the brands have been duly registered in the United States Patent Office. No such requirement is placed on liquor produced in Minnesota.

LAWS DIRECTLY AFFECTING FARMERS

An appreciable amount of wine legislation restrictive to interstate commerce seems deMaine, New Hampshire, New Mexico, North Carolina, Vermont, Washington, Michigan, and Colorado.

• Brewers Journal-Western Brewer, October 1935, p. 27.