The output can be undisturbed when the value of shares is being wiped
out in the market. American stocks do not represent the actual value of
the industrial plants which have been combined to form a trust, but
represent in part certain advantages which it is calculated will accrue
from the consolidation of business—economies of administration and
obviation of competition. The real economic life will not be damaged if
such shares, which for the most part have remained in the strongboxes of
the very rich, decline from their fictitious values. Such fluctuations
have always happened, and may happen in the very height of prosperity,
without doing any harm to industry itself. Thus, for instance, in 1898
an enormous over-speculation commenced in copper shares. Their price was
artificially raised and raised, and in the summer of 1899 this house
built of share certificates collapsed, and great was the fall thereof;
but the price of copper itself was uninfluenced. A pound of copper in
the year 1897 brought only the average price of 11 cents; in 1899 its
average price was 17 cents, although the copper securities were going
down steadily. Not only is industry itself on a sound basis, and the
improvements which it introduced in the last panic are not only still in
force, but also certain needs have now been met at home which formerly
were met only by foreign countries; and at the same time commerce has
been so energetically carried into other countries, that there is now a
readier outlet than ever in case the domestic purchasing power should
again be suspended.
But there are still more important factors. The first of these is the
recent and complete independence of this country from European capital.
Since year after year the exports of the United States to Europe have
exceeded the imports by hundreds of millions of dollars, the debt which
Europe so contracted has been paid for the most part by returning the
industrial and other bonds which Europe owned against America. It was
this which had greatly contributed to the crisis in the early nineties;
Europe withdrew her capital. In 1892 the United States paid back
$500,000,000 of European capital, and to-day very little is left to pay.
In 1893 the United States exported $108,000,000 in gold, but imported
only $22,000,000. In the year 1898 the imports of gold to the United
States were $105,000,000 more than the exports. Last year the balance
was still in favour of the United States; and it would be impossible
to-day, in case of any stringency in the money market of the country,
for the withdrawal of European capital to precipitate a panic.
Another factor is that the political situation is now certain, as it was
not at the time of the last panic. The silver schemes of the West then
filled the country with apprehension, whereas to-day there are no such
political fears. However the Presidential election may turn out, there
will be no dangerous experiments tried with the currency; and even if
both parties should mildly oppose the trusts, the nation nevertheless
knows that just the formation of these trusts has contributed to the
steadiness and security of economic prosperity, that it has done away
with unnecessary competition, has brought about an orderly and uniform
production, and that although the purchasers of watered stocks may have
been bitten, the purchasers of the finished products have suffered
little inconvenience.
Then there are two other factors whose significance for economic
solidity cannot be overestimated. The first of these is the increasing
independence of the agricultural West, and the second is the industrial
revival of the South. The financial condition of the New York Stock
Exchange to-day no more represents the industrial life of the whole
nation, as it did ten years ago. The West, which before the panic of
1893 was up to its ears in debts owned by the East, is now, by reason of
six tremendous harvests, prosperous and independent, and its purchasing
power and business enterprise are no longer affected by the fluctuations
of Wall Street. Even if the shares of all New Jersey corporations should
collapse, the nation could continue to buy and sell, produce,
manufacture, and transport, because the Western agricultural states
would suffer no relapse of prosperity. They have paid off their
mortgages and laid money by; the farmer has bought his daughter a
parlour organ, sent his sons to college, and bent all his energies to
making his West into an economic paradise. Migration has once more set
in from the Eastern to the Western States, while during the poor years
it had almost stopped; and Western economic influence is asserting
itself more and more in the political field.
The same is more or less true of the South. In former times, whenever a
cotton harvest brought prosperity, the South still did not take the
trouble to utilize its ample resources outside of the plantations. It
did not try to mine its coal and iron deposits, nor exploit its forests,
nor grow wheat and corn, nor manufacture cotton into cloth, nor the
cottonseed into oil. It left all this to the North. But during hard
times the South has learned its lesson, and at the time of the last
great revival the whole South developed an almost undreamed-of economic
activity. The exploitation of forests and coal and iron deposits made
great strides, and the factories turned out articles to the value of
$2,000,000,000. Cotton is still the staple article of the South, but the
bales no longer have to be sent to the North to be made into cloth. As
early as 1899 there were 5 million spindles in operation, and the
manufacture of cotton has made the South more independent than any
number of bales produced for export could have made it.
This economic independence of one another of large sections of the
country, and at the same time of European capital, combined with the
large increase of commerce with the whole world, the improvement in
economic appliances, and a surprising growth in technical science and
technical instruction, has created a national economic situation which
is so different from that which prevailed in the beginning of the
nineties, that there is no analogy to justify the pessimist in
predicting another such panic. It had to come at that time. Industrial
forces had suffered a serious disaster and had to go back to camp in
order to recuperate. Since then they have been striding forward,
swerving a little now and then, it may be, to avoid some obstacle, but
they are still marching on as they have marched for seven years with
firm and steady step, and keeping time with the world-power tune which
the national government is playing.
CHAPTER THIRTEEN
_The Economic Problems_
We have aimed to speak of the American as he appears in the economic
world—of the American in his actual economic life and strife—rather than
merely of his inanimate manufactures. That is, we have wished specially
to show what forces have been at work in his soul to keep him thus
busied with progress. And although we have gone somewhat further, in
order to trace the economic uplift of the last decades, nevertheless we
have chiefly aimed merely to show the workings of his mind and heart—not
the economic history of the American, but the American as little by
little he builds that history, has been the point of interest.
Seen from this point of view, everything which stands in the foreground
of the actual conflict becomes of secondary interest. The problems
leading to party grievances which are solved now one way, now another,
and which specially concern different portions of society, different
occupations or geographical sections, contribute very little to reveal
the traits that are common to all sections, and that must, therefore,
belong to the typical American character. If we have given less thought
to the political problems of the day than to the great enduring
principles of democracy, we need still less concern ourselves with the
disputes of the moment in the economic field. The problems of
protection, of industrial organization, of bimetallism, and of labour
unions are not problems for which a solution can be attempted here.
And nevertheless, we must not pass by all the various considerations
which bear on these questions. We might neglect them as problems of
American economy; and purely technical matters, like bank reform or
irrigation, we shall indeed not discuss. But as problems which
profoundly perplex the national mind, exercise its best powers, and
develop its Americanism, silver, trusts, tariff, and labour unions
require minuter consideration. The life and endeavour of the Americans
are not described if their passionate interest in such economic
difficulties is not taken into account; not, once more, as problems
which objectively influence the developing nation, but as problems which
agitate the spirit of the American. An exhaustive treatment is, of
course, out of the question, if for no other reason than that it would
distort our perspective of things. Had we only the objective side of the
problems to consider, we might, perhaps, doubt even whether there were
any problems; whether they were not rather simple events, bringing in
their train certain obvious consequences, whether deplorable or
desirable. These economic problems are, indeed, not in the least
problematical. The silver question will not be brought up again; the
trusts will not be dissolved; the protective tariff will not be taken
off and labour unions will not be gotten rid of. These are all natural
processes, rather than problems; but the fact that these events work
diversely on men’s feelings, are greeted here with delight and there
with consternation, and are accompanied by a general chorus of joy and
pain, gives the impression that they are problems. This impression
seizes the American himself so profoundly that his own reaction comes to
be an objective factor of importance in making history. It is not to be
doubted that the course of these much-discussed economic movements is
considerably influenced by prejudices, sentiments, and hobbies.
_The Silver Question_
Perhaps the power of mere ideas—of those which are clear, and, even
more, those which are confused—is shown in none of these problems more
strongly than in the silver question. If any problem has been really
solved, it is this one; and still no one can say that it has dropped out
of the American mind, although, for strategic reasons, politicians
ignore it. The sparks of the fire still glow under the ashes of two
Presidential campaigns. The silver schemes have too strongly fixed
public attention to be so quickly forgotten, and any day may see them
revive again. Just here the possibility of prejudices which would not
profit by experience has been remarkably large, since the question of
currency involves such complicated conceptions that fallacious arguments
are difficult to refute. And such a situation is just the one where the
battle of opinions can be waged the hottest: the silver question has, in
fact, more excited the nation than any other economic problem of the
last ten years. And there can be no doubt that many valid arguments have
been urged on the wrong side, and some untenable theses on the right
side.
The starting-point of the discussion lay in the law of 1873, which, for
the first time in the United States, excluded silver coin from the
official currency. There had already been differences of opinion before
the passage of this law. The friends of silver say that in 1792 the
United States permitted the coinage of both silver and gold without
limit, and that silver was the actual monetary standard. And, although
by accidents of production the relative value of the precious metals,
which had been 15 to 1, later became 16 to 1, nevertheless the two
metals continued to be regarded equally important until the
surreptitious crime of 1873. It was a secret crime, they say, because
the law was debated and published at a time when the nation could have
no clear idea of what it meant. The Civil War had driven gold coin out
of the country, every one was using paper, and no one stopped to ask
whether this paper would be redeemed in gold or silver, and no one was
accustomed to seeing gold coins in circulation. General Grant, who was
President at that time, signed the bill without any suspicion that it
was anything more than a technical measure, much less that it was a
criminal holdup of the nation on the part of the rich. And great was the
disaster; for the law demonetized silver, brought a stringency of gold,
lowered prices tremendously, depressed the condition of the nation, and
brought the farmers to poverty, so it was said.
The opponents of bimetallism recognize no truth in this story. They say
that in the first third of the nineteenth century the silver dollar was
counted equal to the gold dollar, at the ratio of 15 ounces to 1 ounce
of metal; but since this ratio did not continue to correspond with the
market price, and the gold of the country went to Europe, because it
there brought a better value, the official ratio was changed as early as
1834 to 16 to 1. This rate put a small premium on gold, and virtually
established a gold standard for American currency. The owners of silver
mines no longer had silver coined in the country, because they could get
more money for their silver bars abroad; and so, as a matter of fact,
during the next decade only 8 million silver dollars were coined, and
this denomination virtually went out of circulation. Only the fractional
silver currency could be kept in the country, and that only by resorting
to the trick of making the coins proportionately lighter than the legal
weight of the silver dollar.
The currency became, therefore, to all intents and purposes, a gold one,
and nobody was discontented with it, because silver was then less mined.
From 1851 to 1855, for instance, the average silver production of the
United States was only $375,000, while that of gold was $62,000,000.
Then came the lean years of the Rebellion. The government borrowed from
the banks, in the autumn of 1861, $100,000,000 in gold, and in the
following year issued $150,000,000 of unsecured greenbacks. Thereupon
the natural laws of exchange drove all sound currency out of the
country, and $150,000,000 more greenbacks were soon issued. The premium
on gold went higher and higher, and reached its highest point in 1864,
when the price was 185 per cent. of the normal value. After the war
confidence was restored, the paper dollar rose from 43 to 80 cents; but
the quantity of paper in circulation was so tremendous that metallic
money was never seen, and not until the early seventies did conditions
become solid enough for the treasury to take steps to redeem the
greenbacks.
But this was just the time when all the civilized nations were adopting
the gold standard—a time in which the production of gold had become
incredibly large. The two decades between 1850 and 1870 had brought five
times as much gold bullion into the world as the preceding two decades,
and the leading financiers of all countries were agreed that it was high
time to make gold the universal standard of exchange. The general
movement was begun in the conference of 1867 held in Paris. Germany led
in adopting the gold standard; the United States followed in 1873. The
gold dollar, which since the middle of the century had been the actual
standard of American currency, became now the official standard, and
silver coinage was discontinued. There was nothing of secrecy or
premeditated injustice, for the debates lasted through several sessions
of Congress.
If, nevertheless, the so-called crime remained unnoticed, and so many
Senators failed to know what they were doing, this was not because the
transactions went on in secret, nor because the use of paper money had
made every one forget the problems of metallic currency, but rather
because no one felt at that time that he would be injured by the new
measure, although the attention of everybody had been called to the
discussions. The owners of silver mines themselves had no interest in
having their mineral made into coin, and no one was disturbed to see
silver go out of circulation. All the trouble and all the hue and cry
about a secret plot did not commence until several years later, when,
for entirely independent reasons, circumstances had considerably
changed. The step had been taken, however, and the principle has not
been repudiated. The unlimited coinage of silver has not been permitted
by the United States since 1873.
Nevertheless, silver was destined soon again to become regular currency.
Hard times followed the year 1873, prices fell and the value of silver
fell with them, and bimetallic coinage had been discontinued.
Bimetallists connected these facts, and said that the price of silver
fell because the commercial world had stopped coining it. For this
reason the only other coined metal, which was gold, became dear, which
meant, of course, that prices became cheap, and that the farmer got a
low price for his harvests. And thus the population was driven into a
sort of panic.
A ready expedient was suggested: it was to coin silver once more, since
that would carry off the surplus and raise the price; while on the other
hand, the increased amount of coin in circulation would bring prices up
and restore the prosperity of the farmers and artisans. This is the main
argument which was first heard in 1876, and was cried abroad with
increasing loudness until twenty years later it was not merely preached,
but shouted by frenzied masses, and still in 1900, misled the Democratic
party. But the desire for an increased medium of circulation is by no
means the same as the demand for silver coinage. After the Civil War the
public had demanded more greenbacks just as clamorously as it now
demanded silver. It was also convinced that nothing but currency was
needed to make high values, no matter what the value of the currency
itself.
So far as these main facts are concerned, which have been so unjustly
brought into connection, there can be no doubt that the depreciation of
silver was brought about only in very small part by the coinage laws. To
be sure, the cessation of silver coinage by several large commercial
powers had its effect on the value of silver; but India, China, and
other countries remained ready to absorb large amounts of silver for
coinage; and in fact the consumption of silver increased steadily for a
long time. The real point was that the production of silver increased
tremendously at just the time when the production of gold was falling
off. From 1851 to 1875, $127,000,000 worth of gold on an average was
mined annually, but from 1876 to 1890 the average was only $108,000,000;
while, on the other hand, the average production of silver in those
first twenty-five years was only $51,000,000, but in the following
fifteen years came up to $116,000,000. The output of gold therefore
decreased 15 per cent., while that of silver increased 127 per cent. Of
course, then silver depreciated. Now the future was soon to show that
increased coinage of silver would not raise its price. Above all, it was
an arbitrary misconstruction to ascribe bad times to the lack of
circulating medium. Later times have shown that, under the complicated
credit system of the country, prices do not depend on the amount of
legal tender in circulation in the industrial world. The speed of
circulation is a factor of equal importance with the amount of it; and,
most important of all, is the total credit, which has no relation to the
amount of metallic currency. When more money was coined it remained for
the time being unused, and could not be put in circulation until the
industrial situation recovered from its depression.
Thus the bad times of the seventies were virtually independent of
coinage legislation: but public agitation had set in, and as early as
1878 met with considerable success. In that year the so-called Bland
Bill was passed, over the veto of President Hayes, which required the
treasury of the United States to purchase and coin silver bars to the
value of not less than 2 million, and not more than four million,
dollars every month. This measure satisfied neither the one side nor the
other. The silverites wanted unlimited coinage of silver; for, if a
limit was put, the standard was still gold, even though the price of
silver should be somewhat helped. The other side saw simply that the
currency of the country would be flooded with depreciated metal, and one
which was really an unofficial and illegal circulating medium. It was
known that the silver, after being coined into dollars, would be worth
more than its market value, and it was already predicted that all the
actual gold of the country would be taken abroad and replaced by silver.
The “gold bugs” also saw that this legislation would artificially
stimulate the mining of silver if there should actually be any increase
in its price.
The new law was thus a bad compromise between two parties, although to
many it seemed like a safe middle way between two dangers. Some
recognized in the unlimited coinage of silver the dangers of a
depreciated currency, but believed that the adoption of the gold
standard would be no less dangerous, because gold was too scarce to
satisfy the needs of the commercial world. It was said that free silver
would poison the social organism and free gold would strangle it, and
that limited silver coinage, along with unlimited gold coinage, would
therefore be the only safe thing.
But it soon appeared that such legal provisions would have no effect in
restoring the value of the white metal. Although the government
facilitated in every way the circulation of the new silver coins, they
nevertheless came back to the treasury. No matter how many silver
dollars were distributed as wages, they found their way at once to the
retail shops, then to the banks, and then to Washington. It appeared
that the nation could not keep more than sixty or seventy million
dollars’ worth in circulation, while there were already more than
$400,000,000 lying idle in Washington. The banks boycotted silver at
first; but the more important fact was that the price of silver did not
rise, but kept on falling. It was the amount produced and naturally
consumed, and not the amount coined, which regulated the price of
silver. In the year 1889 the relative values of silver and gold were as
22 to 1; and the true value of the silver dollar coined under the Bland
Bill was only seventy-two cents. Congress now proposed to take a more
serious measure looking toward a higher price for silver.
In July, 1890, a law was passed whereby the treasury was obliged to buy
four and one-half million ounces of silver every month at the market
price, and against this to issue treasury certificates to the
corresponding amount, which should be redeemable either in gold or
silver; since, as that law declared, the United States asserted the
equal status of the two metals. The law did not prescribe the number of
silver certificates which were to be issued, since the weight of silver
to be purchased was fixed and the value of it depended on the market.
Only a few months afterward it became clear that even this energetic
stroke would not much help the price of silver. The silver and gold
dollars would have been really equal to each other if an ounce of silver
had brought a market price of $1.29. In August, 1890, silver came up to
$1.21 an ounce, and fell the next year to $1.00, and in 1892 to $0.85.
But while the price of silver was falling, gold was rapidly leaving the
country.
In April, 1893, the gold reserve of the treasury fell for the first time
below the traditional hundred millions. It was a time of severe economic
depression. The silverites still believed that the rise of silver had
not commenced because its purchase was restricted to monthly
installments, and they clamoured for unlimited purchases of silver. But
the nation opposed this policy energetically. President Cleveland called
an extra session of Congress, and after a bitter fight in the Senate,
the law providing for the purchases of silver and issue of silver
certificates was repealed, in November of 1893. The Democratic party had
split on this measure, and then arose the two divisions, the Gold
Democrats who followed Cleveland, and the Silver Democrats who found a
leader a year later in Bryan, and dictated the policy of the Democratic
party for the following decade.
Looking on American economic history from the early seventies to the
middle nineties without prejudice, one cannot doubt not only that the
entire legislation relative to coinage has had scarcely any influence on
the price of gold and silver—since the price of silver has fallen
steadily in spite of the enormous amounts purchased—but also that the
general industrial situation, the movement of prices, and the volume of
business have been very little affected by these financial measures.