Business became active and foreign commerce revived as soon as the
confidence in the American currency was restored. This result, of
course, contradicted the expectations and wishes of the apostles of
silver. International confidence declined in proportion as a legal
tender standing for a depreciated metal was forced into circulation. It
was not the amount of silver, but the fear of other countries as to what
that amount might become, which most injured American commerce. And the
great achievement of Cleveland’s Administration was to reassure the
world of our solidity.
Otherwise the economic fluctuations depended on events which were very
little related to the actual amount of gold on hand. If, in certain
years, the amount of circulation increased, it was the result rather
than the cause of industrial activity; and when, in other years, a
speculative movement collapsed, less money was used afterward, but the
shortage of money did not cause the collapse. Then, too, harvests were
sometimes good and at other times bad, and foreign commerce changed in
dependence on quite external events in Europe. There were, moreover,
certain technical improvements in agricultural and industrial processes
which rapidly lowered prices and which took effect at independent times
and seasons.
The year 1893 was a time in which a great many factors worked in one
direction. The overbuilding of railways and a too great expansion of
iron industries had been followed by a terrible reaction; a surplus of
commodities on all the markets of the world caused prices to fall, and
the international distrust of silver legislation in the United States
made the situation worse. European capital, on which all undertakings
then depended, was hurriedly withdrawn; thousands of businesses failed,
and small men fell into debt. The actual panic did not last long, and
Cleveland’s successful move of 1893 restored the international
confidence. But the situation of the general public was not so readily
improved. This was the psychological moment in which the silver
question, which had hitherto interested relatively restricted circles,
so suddenly came to excite the entire nation that in 1896 the main issue
of the Presidential campaign was silver or gold currency. The silver
craze spread most rapidly among the farmers, who had suffered more from
overproduction than had the manufacturers. The manufacturer sold his
wares more cheaply, but in greater quantities, because he improved his
methods, and, moreover, he bought his raw materials more cheaply. But
the fall in the prices of wheat and corn and other agricultural products
which affected the farmer was only in small part due to more intensive
cultivation, but rather to the greater area of land which had been
planted. The farmer in one state was not benefited by the fact that
great areas in some other state were now for the first time laid down to
wheat and corn. As prices fell he produced no more, and thus agriculture
suffered more severely than industry. While the farmer was able to get
for two sheaves of wheat only as much as he used to get for one, he
thought, of course, that his patrons had too little money, and was
readily convinced that if more money could only be coined, he would get
good prices again.
There was another argument in addition to this, which could still even
more easily be imposed on the ignorant, and not only on the farmer, but
on all classes that were in debt. Silver was cheaper than gold, and if
debts were paid in it the creditor lost and the debtor won. It was at
this time that the conflict of interests between the great capitalists
and the labouring masses began to arouse political excitement. Distrust
found its way into a good part of the population, and finally a hatred
of capitalists and monopolies, and of the stock market most of all.
This hatred vented itself in a mad clamour for silver. If Congress would
authorize an unlimited silver coinage at the ratio of 16 to 1, while the
market ratio was down to 33 to 1—so that the silver dollar would be
worth hardly fifty cents, and so that the farmer could sell his wheat or
maize for a dollar when it was really worth but half a dollar—then at
last the robbers on the stock exchange would be well come up with. In
reality, these two arguments contradicted each other, for the farmer
would be benefited by more silver money only if the market value of
silver could be brought up to that of gold; while he would be favoured
in the payment of debts only if gold could be brought down to the value
of silver. But once let there be any sort of distress, and any ghost of
relief haunting the general mind, then logic is totally forgotten. A new
faith arises, the power of which lies in suggestion. The call for
free-silver coinage at the old ratio of 16 to 1 fascinated the
agricultural masses as well as the lower classes in cities, just as the
idea of a future state of socialism fascinates German working-men
to-day.
And just as one cannot understand the German people without taking into
account their socialistic delusions, so one cannot understand the
American masses to-day without tracing out the course of the silver
propaganda. It was the organizing power of a watchword which gave the
delusion such significance, and which, for perhaps the first time, gave
voice to the aversion which the masses felt toward the wealthy classes;
and so, like the socialistic movement in Germany, it took effect in far
wider circles than the points over which the discussion started would
have justified.
But the masses could hardly be stirred up to such a powerful agitation
merely on the basis of the specious arguments spread about by ignorant
fanatics, or even with the substantial support of the indebted farmer.
In the middle nineties the literature of the silver question swelled
enormously. A mere appeal to the passions of those who hated capital
would not have been enough, and even the argument that the amount of
money in a country alone regulates prices could have been refuted once
for all. A financial and an intellectual impetus were both necessary to
the agitation, and both were to be had. Distinguished political
economists saw clearly certain unfairnesses and evils in a simple gold
standard, and urged many an argument for bimetallism which the masses
did not wholly follow, but which provided material for general
discussion. And financial aid for the silver side flowed freely from the
pockets of those who owned silver mines. Of course, there was no doubt
that these mine-owners would be tremendously prospered by any radical
legislation for silver. In the days of the Bland Bill even the poorest
silver mines were in active operation, whereas now everything was quiet.
The discussions which ostensibly urged the right of the poor man against
the rich said nothing at all of the deep schemes of the silver-mine
owners. These men did not urge their claims openly, but they paid their
money and played the game shrewdly.
We have already fully compared the political traits of the two parties;
and it will be understood at once that the contest for silver, as a
movement for the rights of the poor man against those of the capitalist,
would have to be officially waged by the Democratic party, while the
Republican party would, of course, take the other side. The nation
fought out the great battle in two heated Presidential campaigns; and in
1896 as well as in 1900, the contest was decided in favour of the gold
currency. The currency legislation of the Republican Congresses has held
to a conservative course. In March, of 1900, the treasury was
instructed, on demand, to redeem all United States notes in gold, so
that all the money in circulation came to have absolutely the same
value. The old silver certificates, of which to-day $450,000,000 are in
circulation, can at any time be exchanged for gold coin, and the
Secretary of the Treasury was entirely right in showing in his last
annual report that it was this wise provision alone which obviated a
panic at the time when stock market quotations dropped so suddenly in
the year 1903. Thus the finances of the country are definitely on a gold
basis.
But, as we have said, we are not interested in the material aspects of
the currency situation, and still less shall we undertake a profound
discussion of bimetallism, as scientific circles are to-day considering
it. The significance of a limited double standard, especially in view of
the commerce with the East, and of the effect it will have in quieting
the international struggle to get the yellow metal, is much discussed by
thoughtful persons. The United States have sent a special commission to
visit other countries in order to persuade them that some international
agreement as to the monetary recognition of silver is desirable.
All this does not interest us. We care for the silver question only as a
social movement. No other problem has so profoundly moved the nation;
even the questions of expansion and imperialism have so far aroused less
general interest. It is only too likely that if hard times return once
more, the old craze will be revived in one form or another. The silver
intoxication is not over to-day, and the western part of the country is
merely for the moment too busy bringing its tremendous crops to harvest,
and carrying its gold back home, to think of anything else.
_The Tariff Question_
The silver question, which was of such great significance yesterday, was
very complicated, and only very few who discussed it knew all the
difficulties which it involved. This is not true of the tariff question,
which may at any time become the main political issue. As the problem of
protective tariff is generally discussed, it involves only the simplest
ideas.
The dispute has come from a conflict of principle and motive, but not
from any difference of opinion as to the effect of protective measures.
Here and there it has been maintained, as it has in other countries,
that the foreigner pays the tariff; and this argument has, indeed,
occasioned keen and complicated discussions. But, for the most part, no
academic questions are involved, rather conditions merely which are
obvious to all, but toward which people feel very differently, according
to their occupation, geographical position, and political convictions.
The struggle is not to be conceived as one between protective tariff and
free trade, but rather as between more or less protective tariff—since,
in spite of variations, the United States have, from the very outset,
enacted a tariff greater than the needs of the public treasury, with the
idea of protecting domestic labour from foreign competition.
Indeed, it can be said that the policy of protection belongs even to the
prehistory of the United States, and that it has contributed measurably
to building up the Union. While America was an English colony, England
took care to suppress American industries; agriculture and trade were to
constitute the business of the colonists. The War for Independence
altered the situation, and native industries began to develop, and they
had made a brave start in many states before the war was ended. But as
soon as the ties with England had been broken, the separate states
manifested diverse interests, and interfered in their trade with one
another by enacting customs regulations. It looked as if a tariff war on
American soil would be the first fruits of freedom from the common
oppressor. There was no central power to represent common interests, to
fix uniform revenues for the general good, and uniform protection for
the industry of the country. And when one state after another was
persuaded to give up its individual rights to the Federation, one of the
main considerations was the annulment of such interstate customs, which
were hindering economic development, and the establishment of a uniform
protection for industry. The tariff law of 1789 contained, first of all,
such provisions as ensured the necessary public revenue, tariff on goods
in whose manufacture the Americans did not compete; and then other
tariffs which were meant to protect American industries.
So, at the outset, the principle of protective tariff was made an
official policy by the United States; and since, through the highly
diversified history of more than eleven decades, the nation has still
held instinctively to this policy, we can hardly doubt that the external
and internal conditions under which the country has stood have been
favourable to such a policy. The tremendous natural resources,
especially of iron, copper, lumber, fur, cotton, wool, and other raw
materials, and the inexhaustible supply of energy in the coal-fields,
oil-wells, and water-falls, have afforded the material conditions
without which an industrial independence would have been impossible. The
optimistic American has found himself in this land of plenty with his
energy, his inventive genius, and his spirit of self-determination. It
was predestined that the nation should not only till the fields, produce
raw materials, and engage in trade, but that it should set stoutly to
work to develop its own industries. Therefore, it seemed natural to pass
laws to help these along, although the non-industrial portions of the
country, and all classes which were not engaged in industry, were for a
time inconvenienced by higher prices.
Once launched, the country drifted further and further in the direction
of protective duties. In 1804 a tariff was enacted on iron and on
glassware, with unquestionably protective intent. It is true that, in
general, the principal increases in the beginning of the century were
planned to accelerate the national income. The War of 1812 especially
caused all tariffs to be doubled. But this war stirred up patriotism and
a general belief in the abilities of the nation. Native industries were
now supported by patriotic enthusiasm, so that in 1816 the duties on
cotton and woollen goods and on manufactured iron were increased for the
sake of protection. And the movement went on. New tariff clauses were
enacted, and new friends won over, often in their own selfish interests,
until the early thirties. The reaction started in the South, which
profited least from the high tariff. Compromises were introduced, and
many of the heaviest duties were taken off. By the early forties, when
the movement lapsed, duties had been reduced by about 20 per cent.
At this time the divided opinions in favour of raising or lowering
duties commenced to play an important part in politics. Protective
tariff and tariff reduction were the watchwords of the two parties. In
1842 the Protectionist party got the reins of government, and at once
put heavy duties on iron, paper, glass, and cotton and woollen goods.
Four years later, tariffs were somewhat reduced, owing to Democratic
influences; but the principle of protection was still asserted, as is
shown by the fact that tea and coffee, which were not grown in the
country, were not taxed, while industrial manufactured articles were
taxed on the average 30 per cent. The Democrats continued to assert
their influence, and won a victory here and there. Wool was admitted
free in 1857. Then came bad times. After a severe commercial crisis,
imports decreased and therewith the customs revenues. The demand for
high tariff then increased, and the Republicans got control of Congress,
and enacted in the year 1861 the Morrill Tariff, which, although
strongly protective, was even more strongly a Republican party measure.
It aimed to discriminate in protecting the industries of those states
which the Republican party desired to win over. Then came the Civil War,
the enormous expense of which required all customs and taxes to be
greatly increased.
The war tariff of 1864 was enacted for the sake of revenue, but its
effect was decidedly protective. And when the war was over, and tariffs
might have been reduced so far as revenue went, industries were so
accustomed to the artificial protection that no one was willing to take
off duties. Some customs, even such as those on woollen and copper, were
considerably increased in the next few years, while those on coffee and
tea were again entirely removed.
In general, it was a time of uncertain fluctuations in the tariff until
the year 1883, when the whole matter was thoroughly revised. In certain
directions, the customs were lowered; in others, increased. Specially
the higher grades of manufactured articles were put under a higher
tariff, while the cheaper articles used by the general public were taxed
more lightly. A short time after this, President Cleveland, as leader of
the Free-Trade Democrats, came out with a famous message against
protection. The unexpected result was, that after the tariff question
had thus once more been brought to the front, the Republicans gained a
complete victory for their side, and enacted a tariff more extreme than
any which had gone before, and which protected not only existing
industries, but also such as it was hoped might spring up. Even sugar
was now put on the free list, because it had been taxed merely for
revenue, and not for protection. While, on the other hand, almost all
manufactured articles which were made in the country were highly
protected. This was specially the case with velvet, silk, woollen, and
metal goods. This was the well-known McKinley Tariff.
The Democrats won the next election, although not on the issue of
industrial legislation, and as soon as they came into power they upset
the high tariffs. Their Wilson Tariff Bill of 1894, the result of long
controversies, showed little internal consistency. Too many compromises
had been found necessary with these or those influential industries in
order to pass the bill at all. Yet, on the whole, customs were
considerably lowered, and for the first time in a long while raw
materials, such as wool, were put on the free list. But Democratic rule
did not last long. McKinley was victorious in 1896, and in the following
year the Dingley Tariff was passed in accordance with Republican ideas
of protection, and it is still in force.
The total revenues derived from this source in the year 1902 were
$251,000,000, and in 1903 were $280,000,000. Let us analyze the first
amount. Its relative importance in the total revenue may be seen from
the fact that the internal duties on liquor, tobacco, etc., amounted to
$271,000,000, and that the postal budget for the year was $121,000,000.
The customs duties of $251,000,000 are officially divided into five
classes. The first is live animals and breadstuffs, with sugar at the
head bringing in $52,000,000. The sugar duty had not existed ten years
before, but the Wilson Tariff of 1894 could not have been enacted if the
beet-sugar Senators from Louisiana had not been tossed a bone. In 1895
the revenue on sugar amounted to $15,000,000, and in 1901 to
$62,000,000. After sugar, in this year of 1903, came fruits and nuts
with 5, vegetables with 3, meat, fish, and rice with only 1 million
dollars each. The second class comprises raw materials. Wool yielded
10.9, skins 2.6, coal 1 million dollars, and every other class still
less. In the third class are the semi-manufactured products, with
chemicals yielding 5.4, tin plate 2.9, wooden-ware 1.8, silk 1.1, and
fur 1 million dollars. The fourth class comprises finished products.
Linen goods yielded 14, woollen goods 13, cotton goods 10, metallic
wares 6, porcelain 5.6, leather goods 3.1, and wooden and paper wares
each 1 million dollars. Articles of luxury make the last class, with
tobacco bringing 18.7, silk goods 16, laces 13, alcoholic drinks 10,
jewelry 2.4, feathers 1.4, and toys 1.3 million dollars. The total
imports for the year were $903,000,000, of which $396,000,000 entered
free of duty; but of these last only 10 per cent. were half or wholly
finished products, 90 per cent. being food or raw materials. The duty
was collected from imports worth $507,000,000, and 64 per cent. came
from manufactured articles. Thus the Dingley Tariff was a complete
victory for protection.
No one now asks to have the duties raised, but the Democratic party is
trying all the time to have them lowered, so that the question is really
whether they shall be lower or remain where they are. Of course, the
Republicans have a capital argument which looks unanswerable—success.
The history of American protection, they say, is the history of American
industrial progress. The years during which native industry has been
protected from foreign competition by means of heavy duties have been
the times of great development, and years of depression, disaster, and
panic have regularly followed whenever free-traders have removed duties.
The tariff has never been higher than under the McKinley and the Dingley
bills, and never has the economic advance been more rapid or forceful.
What is the use, they say, of representing to the working-man that he
could buy a suit so much cheaper if the tax on woollen goods were
removed? For if it were, and free-trade were to be generally adopted, he
would go about without employment, his wife and children would be turned
out into the street, and he would be unable to buy even the cheapest
suit. Whereas to-day, he is well able to pay the price which is asked.
The wealth of fancy with which this sort of argument is constantly
varied, and tricked out with word and phrase suited to every taste, is
almost overpowering. But the alternative between the high wage which can
afford to pay for the expensive suit, and the lower wage which cannot
afford to pay for the cheap suit, becomes still more cogent since the
fanatical protectionist is able to prove that under a high tariff wages
have in fact risen, while the price of the suit has not. Yet the extreme
free-trader can prove, with equal certainty, that under free-trade the
suit would actually be much cheaper, while wages would in the end be
even higher.
It cannot be doubted that a number of industries are to-day very
prosperous which could not have gotten even a foothold except by a
century of protection. And no Democrat denies this. But he doubts
whether the hot-house forcing of such industries has benefited the
country, and he believes that the artificial perpetuation of great
industrial combinations, which have been able, by means of a protective
tariff, to put an artificially high price on the food and other
necessary articles used by the masses, has worked infinitely more harm
than good.
It is undoubtedly true that many industries have not only been
protected, but have actually been created. The tin plate industry is,
perhaps, the best example of this. The United States used to obtain the
tin plates needed in industry from Wales, and at unreasonably high
prices. Twice the Americans tried to introduce the industry at home, but
were at once undersold by the English and “frozen out.” Then the
McKinley Tariff put a duty on tin plate of 70 per cent. ad valorem, and
the American industry was able to make headway. In 1891, 1,036 million
pounds of tin plate were imported, and none was produced at home; two
years later only 628 million pounds were imported, and 100 million
pounds manufactured at home; and ten years later only 117 million pounds
came over the sea, while 894 million pounds were produced in this
country. It has been much the same in the manufacture of watches. The
United States imported all their watches a few years ago. They were then
taxed 10 per cent. for revenue, being accounted articles of luxury, and
could not be profitably made inside the country. But when Congress taxed
them 25 per cent., the industry grew up. It produced at first watches
after European models; but American ingenuity soon came to be extended
to this field, improved machinery for the manufacture of watches was
devised, and now a tremendous industry provides every American
school-boy with a watch which is better and cheaper than the
corresponding European article. Even the silk industry may well be
considered the foster child of protection.