Chapter IV: Part 4

A new period of prosperity followed the preceding events; the growing movement re-appeared, and from $332,000,000 carried the amount of the discounts to $684,000,000 between 1849 and 1857. The panic broke out simultaneously throughout the whole world; but notwithstanding the wrecks it caused, such was the saving already, so healthy was the general situation of business, that, after having thrown out a little scum, the current of affairs resumed its course until 1861, and discounts had already reached the amount of $696,000,000. This amount is greater than that we have noted in 1857, but at that time (whilst the movement continued in Europe up to 1864), despite the shock it received by the declaration of war here, there was complete stoppage until the end of the struggle; we have here come across a political panic, not a business one. Peace re-established, the movement resumed its course under new conditions and with a reorganization of the banks under the name of "National Banks." A change was due, but, as everything was made ready, it was speedy. The first balance sheet of the National Banks dates from 1864. The amount of discounts had already exceeded the sum of $100,000,000 in 1865, and grew to $500,000,000 in 1866. Once started the movement took its own course:

1865 ...... $166,000,000 1870 ...... $725,000,000
1866 ....... 500,000,000 1871 ....... 831,000,000
1867 ....... 609,000,000 1872 ....... 885,000,000
1868 ....... 657,000,000 1873 ....... 944,000,000
1869 ....... 686,000,000

The yearly progression was interrupted as in Europe, and the explosion occurred at the same time. The rise in prices stopped, and incipient liquidation became apparent at the end of the year, and reduced the amount of paper on hand to $846,000,000, but, instead of lasting, as in Europe, a movement of revival, analogous to that which had followed the panic of 1864 in England, occurred. The amount of discounts rose from $856,000,000 to $984,000,000 in 1875, and then, and then only, the real retrograde movement showed itself as in Europe, and reduced the amount of the discounts to $814,000,000 in 1879, simultaneously with the movement in France and in England, when prices had reached the lowest quotations, and when a resumption of business was about to occur. In a word, affairs resumed their course; from the end of the year the amount of paper discounted rose to $933,000,000, and the steady advance as set forth in table No. 3 continued each year, until it reached $1,300,000,000 in 1884. The panic had burst forth in Europe in 1882, and the agitation, so lively was its impulse, lasted during eighteen months; but, as we have stated, the rise in prices ceased in 1882.

Starting from this time, a reaction appeared. The paper on hand lowered to $1,200,000,000 in 1885. This liquidation was scarcely noticeable, because we cover the whole Union, and there is always an upward movement in the new portions of it which have not yet taken part in business movements. If we note what occurred in the Associated Banks of New York, the very place where the greatest amount of business is carried on, the depression of the amount of paper on hand is most noticeable after the inflation observed at the height of the panic, while the decrease that we point out showed itself more slowly with the slackening of business. Thus, in the last period, the greatest amount of paper appears on hand--at the close of 1881, $350,000,000, and the minimum in December, 1884, the very year the panic had burst forth, and when, during the first months, the sum of $351,000,000 reappeared once more; except for a million, exactly the same amount there was in 1881.

This maximum amount was only an accident, under the influence of pressing needs at the time of the difficulty, for since 1881 the yearly reduction of the maximum and minimum amounts ensued. This tendency had occurred suddenly, and disappeared likewise; the resumption dating from 1885, a year sooner than in Europe.

The discounts of the New York Banks, which had been reduced to $287,000,000, rose immediately upon the opening of the new period of prosperity, and a growing activity carried them to $408,000,000 in 1889; after a few more fortunate years we come to the end of the period of prosperity and high prices.

We gather the following about discounts from the balance sheets of the Associated Banks of New York. If we cast our eyes over the balance sheets of the National Banks of the Union, we must note a falling off of $100,000,000 in the paper discounted, that is, from $1,300,000,000 to $1,200,000,000 (1884-1885). After this short period of stoppage, clearly indicating the necessity for liquidation, discounts resumed their steady expansion, and rose to $1,470,000,000 in 1886, to $1,587,000,000 in 1887, and finally to $1,684,000,000 in 1888, when we were in the midst of a period of development and consequently of high prices and of prosperity; and the same is true in France and England.

The study of a single section of the balance sheets, that of discounts and loans, has allowed us to follow the periods of prosperity, of panic, and of liquidation. When we next consider the other sections, we find the confirmation of our anticipations. Among these sections, in the order of importance, we notice first, public deposits in the form of running accounts; they constitute the reverse of the loans and discounts, whose total is immediately credited to the banks' clients, and the increase of paper on hand also follows. From 1865 to 1873 the steady increase was uninterrupted, viz., from $183,000,000 to $656,000,000; the maximum amount shows itself in the first quarter of 1873, eight months before the maximum of discounts and loans; in 1888 they ran down to $622,000,000; there is, say, a difference of $300,000,000 between the two totals, and this difference is the same, we observe, as that between the highest and the lowest of the two sections, as we notice it in the same year, during the liquidation of the panic of 1873. [Footnote: See table of balance sheets of the Banks of the United States.]

In the last period the progression is the same; from $598,000,000 the amount of deposits advanced to $1,350,000,000, whilst discounts and loans reached $1,684,000,000; that is to say, there was still a difference of $334,000,000. The relationship of the two sections was much more marked than in France and in England, where the amounts carried in accounts current vary more.

In the United States we then experienced a market based on credit, which, through discounts or loans by the banks, had reached the amount of the accounts current, and was about to call the clearing house into action to settle debts everywhere.

The office of the circulation of bank notes, subsequent to the severe regulations enacted in 1863 for the organization of National Banks, had varied in the last two periods that we are studying. From 1863 to 1873, after the war troubles, in proportion as greenbacks were withdrawn, the bank notes issued by the National Banks not only took their place, but replaced those of the State Banks, whose position the National Banks had taken.

We observe them rise firstly from $66,000,000 to $341,000,000 (1865-1873) at the sharpest period of the panic. We might even charge them with causing it, if the disproportion alone of the two sums, $341,000,000 bank notes compared with $944,000,000 of bills discounted, did not at once repel this theory. It is only necessary to glance at this idea to see its falsity.

The maximum circulation of bank notes has here coincided with the panic, a thing which had not happened either in France or in England for a long time, and instead of presenting its highest figure during the liquidation of the panic of 1873, it shows us its lowest figure, $290,000,000 in 1877. Far indeed from increasing at this time as happened in Europe, the amount of bank notes in circulation decreased by means of the ebbs of metallic cash into the coffers of the banks: in reality the cause was lacking here; the ebb of specie was hardly felt at all.

With $4,000,000 in 1865, the reserve was poorly provided, increasing to $48,000,000 in 1870. At the end of the bursting forth of the panic of 1873 it became reduced to $10,000,000, at the worst of the panic to $16,000,000; then, under the influence of a slight whirl, it rose to $33,000,000 in 1874, without reaching the highest figure of the preceding period, but soon the flow reappeared and reduced this metallic reserve to $8,000,000 in 1875. It was not until after this depression that the true ebb reappeared, when the circulation of bank notes was at its lowest figure ($290,000,000).

Whilst the $8,000,000 specie reserve grew successively to $54,000,000, $79,000,000; $109,000,000, and finally to $128,000,000 in 1878, 1879, 1880, and 1881; that is to say, upon the approach of the panic, the circulation also expanded from $290,000,000 to its highest figure $323,000,000 in 1882, the year of the European crash and of the stoppage of the rise of prices in the United States. As to the minimum amount of the specie reserve, it is to be noted in 1883, between the critical years 1882 and 1884.

Metallic reserves are too small in the United States for their fluctuations to exhibit the same regular course they offer us in Europe; the least need exhausts them, and the smallest payments fill them to overflowing. The panic soon brought about a default in payment and a need of metallic money to re-establish equilibrium, but this remedy, if it does precede panics, sometimes precedes them by a year, as we have observed in 1883, and the same irregularity is apparent whether we observe the banks of the whole United States, or the Associated Banks of the City of New York.

After the panic of 1882-1884, the ebb of specie into the coffers of the National Banks of the United States and of the Associated Banks of New York resumed its usual course, and raised its level in the case of the National Banks from $97,000,000 to $177,000,000 between 1883 and 1885, and even to $181,000,000 in 1888. This ebb occurred both in England and France at the same time, proving that cash reserves do not increase to the detriment of each other; it is a flood of specie or of bar-gold rendered easily available, through the conclusion of the decline of prices and the slackening of business, extending to the whole world, and in which each one partakes in proportion to its wealth, and above all in proportion to its credit circulation, and of the perfection of the settlements by means of clearing houses.

This regular course in the metallic reserves is no longer to be noted in the circulation of bank notes; instead of increasing and of entering its exchanges during the return of specie into the coffers of the banks, they again took part in the paper-money reserves. From $323,000,000 in 1882 we see the circulation of bank notes decrease each year little by little until it is reduced to $151,000,000 in 1888; and this remarkable fact confronts us in the face of an unheard of expansion of business, almost 50 per cent. greater than in 1873; and of a twofold simultaneous reappearance of $84,000,000 specie and of $172,000,000 bank notes. What then is the role of specie and of bank notes in the course of business in the United States? Much inferior to that which it plays in Europe in the absence of the machinery of a clearing house embracing the whole country, instead of being limited to some large cities.

The multiplicity of banks has strikingly helped the economic progress of the United States. From 1,500 National Banks in 1865 with a capital of $393,000,000, the number rapidly rose to 2,089 in 1876.

The panic of 1873 did not hinder the movement; however, during its liquidation, the number shrank to 2,048, only to rapidly advance to 2,500 by the close of 1882, and 2,664 in 1884, and this movement did not even suffer a slackening as in 1873 during the liquidation of its crisis; it continued steadily, and we enumerate 3,120 banks in 1888.

The increase is a third more than in 1876, but it is far from being thus in the case of the capital, which only rose from $504,000,000 to $588,000,000--that is, only 16 per cent. The small banks in the new centres of population are the factor, then, which annually increases the number.

THE CONDITION OF BUSINESS IN 1888-92.--[Footnote: The facts I state in this _resume_ are based upon statistics printed in the _Commercial and Financial Chronicle_.--DEC. W. THOM.]--The year 1888 was fairly prosperous despite a Presidential election, but securities were heavy, depression was general, and some few stocks shrank amazingly. Excessive issue of new railroad securities and disastrous competition between certain of the Southwestern roads were without prudence. Money was easy, bank-note circulation continued to decrease till it was only $151,000,000, and legal tenders to $81,000,000, but specie reserve rose to $181,000,000, the banking capital to $592,000,000 plus, the exports to $1,350,000,000, and discounts and loans rose to $1,684,000,000.

The sharp speculations in wheat and the formation of the French copper corner caused a certain fluctuation in general business. Large crops, excepting wheat; a flourishing cotton manufacture, a decline in production of petroleum by agreement, a 6 per cent. decline in pig-iron production, a very heavy one in Bessemer iron, and a very small export trade as compared with imports occurred. But in the year 1889, the export movement, consisting largely of cotton, was very great, being the greatest since 1880, and near the maximum, and compared favorably with the immense imports induced by the new tariff of 1890. In fact, the year 1889 surpassed all its predecessors in the volume of trade movements; the bank clearings showing an increase of 13 per cent. over 1888. The cotton, corn, and oats crops were the largest ever raised, and the wheat crop was almost the largest. But cotton brought fair prices, and cotton manufactures and production of iron were also considerably ahead of any previous year, while petroleum played an important part at good prices. Railroad earnings showed a wonderful recovery from 1888, and many reports gave the largest figures ever recorded.

During this year many consolidations and a number of foreclosures occurred. Railroad building fell to 5,000 miles compared to 7,000 in 1888. In general business, manufacturing and trade were extremely active, yielding plenty of work, good wages, and fair profits.

But the wool crop and its manufacture, a decline in the anthracite coal production, farm-mortgage pressure in the middle West, and low rates for corn and oats were untoward circumstances. Speculation on the general exchange was small, indicating a growing congestion, as was proved by the low bank reserves, especially in the last quarter of the year; but there was a heavy absorption of investment securities.

Gold, to the amount of $37,000,000, was exported in the first six months. A small amount of it returned before 1890. Failures exceeded those of 1888 by 203 in number and about 20 per cent. in money. The woollen trade contributed much of this showing.

Importations surpassed all previous years, while exports exceeded them by nearly $20,000,000, and the net export of gold amounted to nearly $40,000,000. Money was easy during the first quarter, and then for a week a 10 per cent. rate occurred.

Thereafter, excepting the usual July 1st hardening, easy rates prevailed till August. Stiffening and fluctuating rates ensued till 30 to 40 per cent. in exceptional cases had been reached in December.

During the year, bank circulation declined to $126,000,000. Specie reserve sank to $164,000,000 and rose to $171,000,000 with the ending of the year; legal tenders to $84,000,000, and the number of banks rose to 3,326; their capital to $617,000,000; their deposits to $1,436,000,000, and their discounts and loans to $1,817,000,000, and surplus and undivided profits to $269,000,000.

Unused deposits, capital, surplus, and undivided profits were growing very small in comparison with loans and discounts at the end of the year.

The banks had to work closely, and the demands of the South and West for currency were severely felt.

PANIC OF 1890.--In this condition the year 1890 opened, and, with ever growing pressure for bank accommodation, displayed great activity throughout all departments of trade and transportation, with an unequalled volume of transactions.

But it was as impossible to grant to the overtrading the money needed,--though the Secretary of the Treasury, in seventy days, threw a million a day into the market by buying Government Bonds,--as it had been for the "Gentleman's Agreement" of 1888--that of the chief railroad presidents--to maintain rates, to permanently sustain prices of railroad securities against an oversupply of them; however, both delayed the inevitable.

The debates on the silver question in Congress, leading to hopes of cheap money, and the higher prices due to this temporary and delusive stimulus; the large gross railroad earnings, demand for structural iron; the Buenos Ayres crisis, leading London to ship us large amounts of our securities; our small wheat, oats, and corn crops, and large cotton crop; the tariff discussion, ending with the McKinley Bill on October 6th, and the low bank reserves and money pressure beginning in August and lasting pretty steadily till December, and an immense shrinking of securities, were the chief features of the year; and failures beginning with that of Decker, Howell, & Co., in New York, on November 11th, and reaching a climax with the embarrassment of Baring Brothers [Footnote: Meanwhile Messrs. Charles M. Whitney & Co., David Richmond, J. C. Walcott & Co., Mills, Roberson, & Smith, Randall & Wierum, Gregory & Ballou, P. Gallaudet & Co., had failed in New York, the North River Bank of that city had been thrown into a receivership, and in Philadelphia the failure of Messrs. Barker Brothers, had been followed by a number of others. This was all bad enough, but sinks into insignificance when we recall the financial terror inspired by the great and historic house of Baring Brothers proving unable to meet its engagements, amounting to about, L28,000,000. The Bank of England received notice of its difficulties on September 7th, and by the 15th had secured from a syndicate, composed of the great London houses, a guaranty that it would be protected from loss to the amount of L4,000,000 if it would liquidate the Barings' business, and from the British Government the right to issue L7,000,000 of notes provided that sum was used to loan the Barings, and it therefore assumed on that date the task of paying the Barings' acceptances of L21,000,000 and L7,500,000 of other liabilities. Thus was averted what would probably have been the greatest panic in the world's history. That which occurred was a mere bagatelle to what was threatened. It is difficult to bestow too much credit upon Mr. William Lidderdale, Governor of the Bank of England, for conceiving and managing this plan. He has saved hundreds of thousands of homes and interests from misery. Under his able administration it is expected to extinguish the Barings' liabilities without calling on the Government, and it is believed something will be saved for the Barings from their former assets in business. This is deeply to be wished, for though the Barings have continued business under form of a stock concern with a million pounds capital, they are wonderfully restricted as compared with their former state. They have performed in banking too many helpful actions in furtherance of civilization to be eclipsed without sincere regret.] in mid-November, which failure itself greatly accelerated the panic, were the chief events of the year. Railroad building had increased to 6,081 miles, and the consequent new securities were poorly absorbed. Manufactures were generally prosperous.

The huge imports to take advantage of old tariff rates absorbed much money, while the Baring liquidation and that of other houses identified with South American enterprises, and the distrust bred by our Silver Bill caused a return of our securities, necessitating such a curtailment of credit that our panic took place. From July through December 31st, money ruled high and fluctuating.

The year shows a decline in circulation to $123,000,000, a decline of specie reserve to $178,000,000 with a subsequent rise to $190,000,000, a decline in legal tenders to $82,000,000, and of deposits to $1,485,000,000, while the banks increased to 3,573 with a capital of $657,000,000, and a surplus and reserve of $316,000,000, and discounts and loans rose to $1,932,000,000.

The year 1891 has exhibited the usual incidents succeeding a time of reorganizations after panics and, after a period of selling and settlement, a rehabilitation of affairs and the consequent advance in prices of securities. The unprecedented abundance of our crops as a whole, coupled with the almost universal shortage in European countries, largely aided the rehabilitation. Bank balances reflected this startlingly. On February 26, 1891, loans and discounts and over-drafts amounted to $1,927,654,559.80. On May 4, 1891, loans and discounts and over-drafts amounted to $1,969,-$46,379.67. On the former date capital, deposits, surplus, and undivided profits amounted to $2,462,456,677.92, and on the latter date to $2,567,288,143.45.

On July 9, 1891, discounts, loans, and over-drafts amounted to $1,963,704,948.07, and capital, deposits, surplus, and undivided profits to $2,522,609,679.78.

Confidence is restored and prices have advanced, and should advance still further. There seem to be only three things that could check the advancing market, and of those the two chief ones seem pretty surely relegated to a fairly distant future. These latter two are, in the order of importance: (1) a free silver law, _i.e._, a law making, say, 67 cents' worth of silver pass for an equivalent of a 100-cent dollar; and (2) a very radical and abrupt change in our tariff law. The remaining and very minor influence is the breaking out of a general European war, which would at first induce a selling of our securities, and so lower prices, but which finally and shortly would benefit us by a subsequent returning flood of money exchanged for our various bread-stuffs, and supplies, and even securities of different sorts.

It would be better for our future if the liquidation of the last panic had been more radical in some cases, notably in land speculation. In this liquidation has not been thorough, and, as far as these cases influence the market, it has remained for a long time unsound, and even now is not fully recovered.

The past twelve months have witnessed a continued settling of old accounts, and the undertaking of new business, in a limited way, despite a somewhat uneasy feeling about silver and the now accomplished Presidential election. But the fact that an analysis of the bank returns to the Comptroller of the Treasury shows that available resources (capital, deposits, surplus, and undivided profits), as compared with demands (loans and discounts), are good and growing, considered in regard to the other signs indicating prosperity (see Introduction), justifies the prediction of the steady development of a prosperous period.

PANIC OF 1893-4.--It was early in 1893 that I wrote the last page of _A Brief History of Panics in the United States_. Two of the three checks to business prosperity to which I then referred, virtually occurred very soon. The determined resolve of the "free silver" members of Congress to continue the heavy monthly utterance of silver dollars redeemable at par in gold kept many business men most disquieted. They saw that the free gold in the Treasury was sinking greatly and steadily. They knew, also, that there was semi-official assertion of the right of the United States to redeem its silver dollars in Government notes. The Free-Coinage Bill had been passed by the Senate in July. The House defeated it. The legal fights against certain great railroad combinations and frequent labor strikes put additional burdens on the market.

In the United States and abroad the doubt of our willingness and ability to redeem our obligations at par in gold on demand grew most rapidly. Accordingly, exports of gold increased and hoarding of it began at home. To all this was added the expectation of a severe downward revision of our tariff laws if the Democratic Party should succeed, as was expected, in the Presidential election in November.

Business was scared and slowing down and, therefore, using less and less of its working capital. The false ease of increasing loanable funds in the custody of the banks lulled many into a specious confidence. But gold was exported in increasing quantities. Should the Government issue bonds in exchange for gold for the purposes of redemption? The Philadelphia & Reading receivership occurred. Easy money led to many consolidations of transportation properties and to very many large commitments. Money tightened. In March, it loaned at 60% per annum. Would President Cleveland call an extra session of Congress in March to repeal the silver law and to issue bonds in order to replenish the free gold in the Treasury? The Stock Market showed a great decline in quotations.

In April, 1894, Secretary of the Treasury Jno. G. Carlisle forbade the further issuance of gold certificates for gold deposited in the Treasury under Act of July 12, 1882, whenever the gold in the Treasury "reserved for the redemption of United States notes falls below $100,000,000." This further alarmed the business world, which was not reassured when on the 20th Carlisle announced that the Treasury would pay gold for all Treasury notes so long as he had "gold lawfully available for that purpose." President Cleveland, that stalwart man, uttered this high and firm pronouncement on April 24th: "The President and his Cabinet are absolutely harmonious in the determination to exercise every power conferred upon them to maintain the public credit, to keep the public faith, and to preserve the parity between gold and silver and between all financial obligations of the Government." Very good, thought business, but how and when will you act accordingly?

Lack of business confidence increased greatly. Money rates advanced. Security values fell; imports greatly exceeded exports. Silver certificates were at 83. Something was about to snap in the general business machine. National Cordage broke from 57 to 15-1/2 on May 1st, receivers were appointed, and the panic of 1894 had declared itself and grew worse on the 4th and 5th. Call money rose to 40%. June witnessed great distress in business circles. On the 27th the Government of India stopped the coinage of silver for individuals and decreed the exchange value of the rupee at 16 pence. This lowered the exchange value of our silver bullion certificates to 62. President Cleveland helped matters somewhat by announcing that Congress would be convened early in September. In early July the panic increased somewhat despite the President's call for Congress to assemble on August 7th. Time loans were hardly obtainable. Conditions in August grew worse. Business was almost at a standstill, and failures were very frequent. From August 7th until the affirmative action on the 28th by the House of Representatives as to the repeal of the Silver Act, there was great concern.

Then hope revived; but hoarding of currency increased. Great banking interests in New York helped the situation mightily by importing over $40,000,000 gold. September was an anxious but more hopeful month as the prompt adoption by the Senate of the Free-Silver Bill was anticipated. However, the weary debate dragged on in the Senate. President Cleveland demanded the unconditional adoption of the House measure. Certain compromisers, led by Senator Arthur P. German of Maryland, suggested that during each of the following fifteen months the Government purchase the minimum amount of 1,000,000 ounces of silver, and then stop all such purchases against which silver certificates had to be issued. This plan for speedy action President Cleveland and the Secretary of the Treasury opposed as worthless unless concurrently there was an issue of $100,000,000 of Government bonds to replenish the gold in the Treasury. They asserted that new legislation must be had before any such bonds could be validated. So the business world continued to suffer.

Let me here state the fact, that without any fresh authorization, Secretary of the Treasury Carlisle did in January, 1895, issue $50,000,000 of Government bonds to replenish the free gold in the Treasury, and that an injunction suit against their sale was dissolved by Judge Cox at Washington on the 30th of that month. Gorman had been right. The credit of the country would not have suffered by the additional issuance of some final $60,000,000 (?) of silver certificates if the gold in the Treasury had concurrently been upbuilt to the extent of $50,000,000 to $100,000,000; but an immensity of business loss would have been averted.

But to resume the orderly recital of those times. October dragged along its weary length, while the Senate debated and business withered. Finally, on the 30th, the Senate accepted unconditional repeal of the Free-Silver Act. On November 1st, it became a law. The fear of repudiation thus escaped, though with fearful loss, the country plunged into all the unsettlement caused by a too sudden and too extensive change in the tariff. These changes were announced by the House Committee on December 27th.

The conditions mentioned in the last paragraph beginning on page 22 of the introduction to this book, were at work. Before the market had recovered from the "Silver panic" of 1893-4, the terror caused to the business world by the proposed very decided changes in the customs dues laid hold upon every trader in the United States and reflectedly upon every one of its citizens. It shook business throughout. Would not such a plan as is set forth in the footnote below [Footnote: "Mr. DeCourcy W. Thorn expressed himself yesterday as heartily indorsing the Democratic celebration to be held in this city January 17 next, to which all the party leaders will be invited and at which subjects of interest to the party will be discussed.

"When asked to give his opinion on some of the questions worthy of discussion at this gathering Mr. Thorn mentioned the tariff and economy in the conduct of national affairs.

"In the coming national Democratic celebration," he said, "I hope suggestions dealing with a rational reformation of the tariff and the need for national economy of every kind will be duly considered, and that on these two subjects alone, to be treated thoroughly but temperately, will this national Democratic gathering advise our party as to its best course to pursue.

"In three successive Presidential canvasses since the Civil War the Democratic party has received a majority vote of the people of the United States, and in my opinion would have gained three thereby, instead of the alternate two, elections to the Presidency if the tariff issue, the major one of the two great issues--namely, tariff and economy--on which they won, had been so sought to be applied as not to threaten unduly to affect general business."

PROTESTS AGAINST EXTRAVAGANCE

"All will agree with me that a reasonable economy, instead of the actual wild extravagance of government, is more than ever a national need. Who will disagree with me, that in addition to the contribution from internal revenue, the tariff should be used merely to contribute towards the due expenses of the Government economically administered, but so applied as not to break down the standard of American citizenship, as exemplified in the working people of our country; and eked out, if it is possible, by contributions into the national treasury of sound inheritance taxes?"

URGES CUT ON NECESSARIES

"Is it not possible to apply that general plan as follows: Divide, say, all of the articles now upon the tariff list into three classes.

"(_a_) All such as are usually found in the typical American homes--I mean the homes of those admirably called by Grover Cleveland the 'plain people,' who are just the same class, I believe, as those indicated by Abraham Lincoln, when he said, 'God must greatly love the common people, for he made so many of them'--and put that list of articles on a free list or a severely tariff-for-revenue-only list.

"(_b_) Create a second division composed of all the articles of luxury. Put upon them the very highest tariff they will stand and yet come into the country, except in the case of articles of antique art. These latter should be admitted free.

"(_c_) Keep upon all other articles now in the tariff list the actual duties for the period of one year, but after that period and the actual imposition of the proposed new tariff I am discussing shall have begun, put all the articles involved in Class _c_ upon a tariff-for-revenue-only basis, so constructed as not to break down the standard of the American workingman's living."

YEAR TO MARKET STOCK

"This period of one year--say, would allow manufacturers to market their stock on hand or already required to be produced on the basis of the market influenced by the quasi-Government protection extended by the existing tax laws of the nation.

"At the end of this period the manufacturer would be obliged to produce at less cost in order to find a market in competition with his foreign competitor, which competition would result in lower prices that he and his foreign competitors would have to offer to the working people and other citizens of our country,"

EFFECT ON WAGES

"Those working people and other citizens would for a year have been enjoying at lesser cost all of the articles used in the typical American home I have referred to and could without loss therefore well afford to submit to a reduction in wages so long as that reduction in wages was contemporaneous with affording them a proportionate or more than proportionate reduction in cost of the articles for whose purchase those wages were sought to be expended. At the same time, the manufacturer at a proportionately lesser cost of production, through this reduction in wage-paying, would be selling as much or more of his old products at their old profit.

"Could we add to the income from the tariff and internal revenue the sums derived from the sound national inheritance tax I have mentioned above it is evident we would have supplied for the period of change from one tax system to another an 'adequate governor' to use a mechanical illustration, to prevent undue oscillation of prices in the business world."

BANK RESOURCES TO PREVENT STRAIN

"The further use of the existing financial agencies for cooperation of the banks in all sections to mass resources and apply them to prevent undue local strain upon credit dispels the fear of any necessary injury to the financial fabric in effecting this change.

"Grover Cleveland, whose character and principles I have long revered, seemed to me in the application of his plan for tariff reform to have endangered at once the success and the permanence of his reform of the tariff--which you recall was confessedly and very properly not a reformation to free trade--by failing to provide in it a method for avoiding or at least minimizing and shortening any incident disturbance to the business world. His plans, further, failed by not reasonably insuring for the transition period from the old tariff to the new one sufficient national income for national expenses."] have virtually prevented all that? When I sent that plan, which I had stated in an interview in the _Baltimore Sun_ of December 24, 1910, to the various members of the Finance Committee of the United States Senate and to the Committee on Ways and Means of the House of Representatives, very many of them wrote me affirmatively on the subject.

To revert, however to the due order of our tale. It was on January 17, 1893, that Secretary of the Treasury John G. Carlisle, without any new legislative authority, offered to sell $50,000,000 Government bonds already mentioned. If issued during the Silver-repeal fight when Gorman proposed his compromise, and if Carlisle had made it clear very early that as many such issues for gold would be made as were needed to keep the trading public safeguarded against any monetary-business cramping caused by the governmental policy affecting the tariff, a minimum rather than something approaching a maximum of disturbance would have followed. In better spirits because of the issuance of the $50,000,000 Government bonds for gold, the business world worked along. The House had passed the Tariff Bill early in February by a big majority. Business soon looked up decidedly. But the Seigniorage Bill was adopted in March. President Cleveland, that sturdy upholder of the Nation's credit, vetoed it. He knew that any new moral obligation to keep at a parity with gold dollars worth in themselves less than one hundred cents in gold would materially shake domestic and foreign credit.

The veto had a deservedly splendid effect upon all our trading interests. This was increased by the failure of the House to override the President's veto of the Seigniorage Bill. But the Senate had not acted on the Tariff Bill. Business dwindled and there occurred strikes and other widespread labor troubles, especially in the bituminous coal trade. In many parts of the country the militia, and in Chicago United States troops, had to be employed to maintain order. Call money was a drug on the market. The net gold in the Treasury was very low. The Tariff Bill dragged its weary length along. President Cleveland and Chairman William L. Wilson of the Ways and Means Committee of the House insisted that the bill would produce sufficient revenue for the expenses of the Government. Senator Gorman and others in the United States Senate insisted to the contrary and demanded that the tariff on sugar should be kept at a high figure. A bitter controversy ensued. Finally, on August 13th, the House accepted the Senate Tariff Bill. It was time for some affirmative action, for among other threatening conditions the net gold in the Treasury had fallen to the lowest figure since resumption of specie payments in 1879.

Business began to revive. The issue of $50,000,000 Government bonds for gold to replenish the Treasury stock was a very stimulating influence. The improvement dated virtually from the agreement in February between the Government and the Morgan-Belmont Syndicate to prevent the export of gold. In June, 1895, the Government gold was thus brought up to a round $100,000,000 for the first time since December, 1894. But notwithstanding the fact that the business outlook was decidedly better, the inevitable disturbances to business following a general change in the tariff, unsettled political conditions in Europe and the selling of American securities owned abroad, the shortage of the American cotton crop, President Cleveland's Venezuela message, which many persons thought might bring on war with England, and another decline in the Treasury free gold, again shook business confidence.

Improvement, however, was stimulated by a remarkable increase in the supply of money in our balance of trade and by the virtual settlement of the Venezuelan question. The business situation was steadily clearing. The ills from the panic of 1893-4 were well behind us. The Spanish-American war proved to be harmless to us financially, while it tended to show that National neighborliness could be exercised in a splendidly unselfish way. By our treaty of peace with Spain on December 10, 1898, an additional emphasis was given to the revival of trade. During 1899 a great rush to speculate brought the pinches in money inevitable in those pre-Reserve Bank days, but could not stop the general broadening of business interests although the industrial situation was unsatisfactory in spots. Indeed, the succeeding year was to witness severe industrial trouble destined to cause a general set-back in business. The situation cleared considerably when the November elections of 1900 showed the country to be safe from the Bryan silver policy.

Big business interests took hold of market conditions. Huge combinations of trade interests became the order of the day. The United States Steel trust was the vastest and was the transcendent achievement of J. Pierpont Morgan. The Stock Exchange was wild with speculation. The collapse came there in the famous decline of the 9th of May, 1901, precipitated by the Northern Pacific corner. In a month the market was tranquil again. The shooting of President McKinley produced great financial nervousness. The over-trading abroad, especially in Germany, was influencing us and all the rest of the world, which had not yet recovered from the vast financial cost of the English Boer War.

The ever increasing closeness of business relations the world over--their virtual solidarity, in fact--was being illustrated again with us. A chief example was trouble in the copper groups following a slackened world demand for their products.

Overtrading was doing its usual work. This induced loss of business courage in many quarters, or shall I say a realization that nowhere in the American business system was there any arrangement empowered so to marshal the competent strength of financial America that large and overwhelming disturbances should become impossible in business generally. Indeed, the Government forces seemed to tend contrariwise to big business practices. They took virtually their first step in "trust-busting" when they tried to break up the Northern Securities Company, which had been concocted to handle the celebrated Northern Pacific case. Labor troubles supervened. Many great speculative stock campaigns collapsed. The banks yielded to the imperative need to reduce credits. The year 1902 had almost experienced a widespread panic: but the marshaling of great private resources had restored confidence temporarily, and it closed in peace.

PANIC OF 1903.--Then came the real beginning of the protracted "trust busting" campaign. Business took fright, for it believed it was to be bullied rather than soundly regulated. Great failures oh the Stock Exchange were its sure indications. Fear and distrust was upon all the American business world. Industries languished. Money was easy because less and less employed in trade. The great captains of industrial finance, however, patched up troubles and differences here and there and, availing themselves of the plentiful supply of money, soon had a notable speculation at work. Gradually the country took heart again and business experienced a revival.

It was thought that President Roosevelt, elected in November, 1904, would help bring about discrimination between "good" trusts and "bad" trusts, and whose "trust" is bad! But "trust busting" became an even more popular and political pursuit. Indeed, the abuses practised by many of them had created a situation regarding which the question was becoming in the popular mind simply this, "Shall trustdom rule the people or the people rule the trusts?" The sound control of both before the Constitution of their country must be the happy solution.

The Bill of May 9th of the House of Representatives, giving the Interstate Commerce Commission power to fix railroad rates, was ominous, and little noticed by the general business world; but some noticed and acted. The Senate had not voted; nor did they realize what rate-regulation implied to railroad balance sheets and so to the Stock Exchange. Some interest was selling securities. The business public was awakening to the fact that legislators, legislation, the people, and the law were hot after the business methods of many organizers. Fear, founded on a tardy awakening to facts, declared itself, but spasmodically, for now and again the great captains of finance and industry were trying to save the situation. They successfully aided whatever of momentum there was in general business. But Congressional activity as to any combinations in restraint of trade was unabated. It called upon the President for such information as the Interstate Commerce Commission might have as to a combination in restraint of trade between the Pennsylvania Railroad and certain lines allied with it.

The battle between the old style and the new style of managing great corporations was fairly on. Labor troubles added to the existing disarrangement of business. San Francisco's vast earthquake and consuming fire sucked much capital away from financial centres in order to replace the $350,000,000 of capital destroyed. The money market was greatly restricted. The stock market showed signs of panic. The Secretary of the Treasury continued to help the situation as best he knew how. Notably, he offered $30,000,000 Panama Canal Bonds, and very successfully sold them. That afforded an additional basis for bank-note issuing. The stock market responded with a fine upward swing. Heavy dividends were declared by certain leading railroad and other corporations. Indeed many high records were made by securities and so distracted attention from that steady tide of keener inspection and stricter regulation by the agents of the people which was destined to unmoor and toss and injure many a financial craft. Railroads asserted that the country needed a great increase in railroad trackage, but that the actual treatment of the roads deterred extensions through frightening capital. So the year 1906 wore away after having sorely tried the nerves of the whole business world which it left in a most justly apprehensive state.

THE PANIC OF 1907.--The panic of 1907 opened with great but feverish activity in business. Driven by necessity the railroads adopted the issuance of short-time notes for new capital, as the market would absorb no long-time obligations except at forbidding interest rates. Any signally untoward happening could promptly precipitate a panic. The United States Treasury withdrawal of Government deposits from the banks, and the collapse of the Knickerbocker Trust Company in New York were such happenings.

On March 14th, the panic declared itself and pandemonium ruled on the New York Stock Exchange,--that prominent barometer of business conditions. In its coming it had exemplified again the characteristic symptoms of a panic which I have set forth on pages 7-16 of the introduction to this book. After the spasm of March 14th and the business cataclysm of the following October, the business world staggered along, but with the strength merely that results from courage and the exercise of reserve power husbanding its resources and lightening its load. The decrescendo movement of another business cycle had begun. Runs on financial institutions were prominent in our country. But throughout all the western world resources were strained. Money had been overused. Money rates were extremely high. Failures were frequent everywhere. In our own country painful disturbances, relaxation, and unrest were everywhere apparent. The radical doctrines of many political leaders tended to further unrest.

The business of the country was halting between the need sanely to regulate "big business" and the fact that "big business" had been obliged to fight for prosperity in the welter of unallowable but very often undeniable conditions. The railroads justly claimed that they were forbidden living rates. Their opponents accused them of carelessness and waste. The railroads and the Interstate Commerce Commission were the protagonists respectively of the conservative and the radical thought of the country, which is so rich in natural wealth and is inhabited by so resourceful a people that though by statutes they be well managed or not, their National wealth increases. So ran the business world away, but with a very slow and steady approach towards a rational rectification of disputed legislation as affecting business. Meanwhile the courageous "captains of industry" were leading in business as best they could and were better appreciating the temper and needs of the American people.

Added to the difficulties resulting from our languishing trade at home, we suffered reflectedly from the constriction of business in Europe, which was acutely aware that the disturbance in the Balkans threatened to destroy the peace of Europe. Conditions were not yet quite ready there for a cataclysmic war. For example, statistics had not quite demonstrated to Germany that the physique of her people and the rate of increase of their families were declining while the expenditures for superpreparedness for war was demanding either retroaction in that regard or else an expenditure from the principal of their property. Germany did make in one year the sacrifice of five per cent. of her principal for yet fuller preparedness for war. Indeed since late in 1908, it is fair to say that consciously or unconsciously the whole world has been in travail. Whatever broad measures statesmen anywhere have promulgated, have been subjected to the unusual stress and strain of world-wide unrest. Like the treacherous undertow that wrenches those who venture in, has been the world unrest upon all phases, incidences, and predicates of business. Some of us have long realized this; some have not.

With November, 1908, came the election of that great constitutionist, Taft, to the American Presidency upon a platform less radical than that of his opponent. This heartened the constructive forces of the country. But very little upbuilding resulted. The coming revision of the tariff was of itself sufficient further to restrict business undertakings, and to cause many great producers of goods to arrange to unload at lowering prices their actual and their future outputs. But the conserving of resources since the panic had helped the superficial situation, and the spasmodic stimulus that so often follows a general heightening of the tariff showed itself after the adoption of the tariff bill in August, 1909.

The illness and after a month or two the death of the great business leader, Harriman, caused in the securities market a great decline. Fundamental conditions were unsettled. The best that could be expected was a see-saw movement until some power should set our country and the business world at large once more securely on their respective bases. The Anti-Trust Law, the Interstate Commerce Law, and such like influences continued to disturb the United States, while Europe was beneath the surface unendingly agitated.

General business marked time while statesmen or pseudo-statesmen planned and promised panaceas. President Taft joined that populous group. The securities market, that barometer of business, fell beneath such assurance of further unsettlement. How can you continue to trade unless reasonably sure that conditions will remain fairly constant! All this militated against a normally quick recovery from a great panic. Little scares were frequently experienced. Influences matured and presented one great political party split into two great factions, while the other chief party endured something of the same development.

A conservative handling of National policies, or a radical one was the question in each case. The November elections indicated a popular revolt against the party in power--the Republican. Unshaken, President Taft followed his convictions and in his Presidential message, of December, 1910, to Congress called for a halt in legislating to regulate corporations, until the effect of the laws on the statute books could be studied. The stock, money, and industrial markets were marking time. Not to go forward in business or elsewhere is in itself to retrograde. Thus opened the year 1911. Under the influence of easy money, better business on some of the western railroads, better dividend declarations here and there, a rosy "prediction as to the early future of the iron market, and the belief that the Interstate Commerce Commission would grant better rates to the railroads, general business felt encouraged and prices advanced somewhat. But in February the Interstate Commerce Commission forbade the railroads any increase whatever in rates. The roads were obliged to institute many cramping economies which to them very often meant the using up of their corpus and to the business world of the United States a permeating retrogressive influence. Reductions in railroad dividends were symptomatic of that. To add to all this there developed additional business unrest predicated in the general tariff change favored by the House of Representatives in April.

The United States Supreme Court decision interpreting the Sherman Anti-Trust Law of 1890 as affecting the Standard Oil Company case and the American Tobacco Company case were delivered late in May and were unexpectedly reassuring to business. This was another evidence that the best thought of the Nation everywhere was seeking to rectify the looseness of the past without killing business initiative and continued endeavor. So matters see-sawed in the business world. It was indeed in a state of unstable equilibrum. Stocks declined now abruptly; then, after some slight recovery, gently; but the slant was decidedly downward.

The Government felt that its duty required it to push forward the investigation of industrial corporations; and that the Nation so demanded. And it was in October that the chief of such corporations--the United States Steel Trust--had a Government suit for dissolution filed against it. The sturdy bell-wether of the corporation flock was attacked by the great United States Government. What would happen to the humbler members of the flock! Certain court decisions were reassuring to corporations in November and business brightened for the time being and during much of December in certain notable instances, for in that month the Interstate Commerce Commission report appeared and seemed less drastic in tone.