The Americans

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.

The strongest influence which they have had has been a moral one. 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.

The free-traders reply, that all this may have been very well for a period of transition from an agricultural to an industrial state; but that the great change has now been completed, and the burdensome duties which keep our prices high might perfectly well be dropped, since our industries are now strong enough to compete with foreign industries.

But just at this point the Republican comes out less optimistically than before. He says that American industry has indeed developed with fabulous speed, and that the industrial exports of the country, which now amount to 30 per cent. of the total, are a great showing, but this is a symptom which ought not to be overrated. When prices throughout the rest of the world fell, and England was paralyzed for the moment, although the domestic demand had not yet reached its height, conditions combined so favourably, it is true, as to cause the export trade in American manufactured articles to increase rapidly. But this may not be permanent. Industry is still not able to fill all the demands of the home market; on the contrary, at the very time when American iron and steel industries seemed likely to conquer foreign markets, it was found that some sudden increase in domestic requirements necessitated large importations. While the iron and steel exports decreased by $25,000,000 between 1900 and 1903, the imports during the same time increased $31,000,000, and iron and steel include mostly unfinished products.

Thus even the strongest and most powerful industries greatly need protection still against foreign competition. It is, Thomas Reed has said, entirely mistaken to look on protection as a sort of medicine, to be left off as soon as possible. It is not medicine, but nourishment. The high tariff has not only nursed infant industries, but it is to feed them through life. For it is not a happy expedient, but a system which is justified by its results, and of which the final import is that the American market is for the American people. Protection is a wall behind which the American people can carry on their industrial life, and so arrange it that wages shall be not only absolutely but relatively greater than wages in Europe.

At a time when everything looked so prosperous as in the last few years of industrial activity, it is difficult to contest the powerful argument which the Republicans make in appealing to success. Every one is afraid that a change in tariff might turn back this tide. And if there have been reverses in the last few years it has been pointed out that speculators and corporation magnates have been the chief sufferers, and they are the ones who, least of all, would wish the tariffs removed.

It has been an unfavourable time, therefore, for the free-traders, and their really powerful party has been rather faint-hearted in its fight against the Dingley Tariff. Its satisfaction with the Wilson Tariff was not unmixed, and although it could truthfully say that the law as actually passed was not a Democratic measure since it received six hundred and forty amendments in the Senate, nevertheless it realizes that the legislative measures of the last Democratic régime pleased nobody thoroughly and contributed a good deal to the subsequent Republican victory.

Nevertheless, the Democrats feel that the Republican arguments are fallacious. It is not the protective tariff, they say, which has brought about American prosperity, but the natural wealth of the country, together with the energy and intelligence of its inhabitants. The high level of education, the free government, the pioneer ardour of the people, and the blessings of quick and rapid railway connections have made America great and prosperous. If, indeed, any legal expedients have been decisive in producing this happy result, these have been the free-trade measures, since the Republicans quite overlook the fact that the main factor making for our success has been the absolute free-trade prevailing between the forty-five states. What would have become of American industries if the states had enacted tariffs against one another, as the country does against the rest of the world, and as the countries of Europe do against one another? The entire freedom of trade from Maine to California, and from Canada to Mexico, that is, the total absence of all legislative hindrances and the possibility of free exchange of natural products and manufactures without payment of duties, has made American industry what it is; and it is the same idea which the Democrats cherish for the whole world. They desire to get for America the advantages from free-trade which England has derived.

All the well-known free-trade arguments—moral, political, and economic—are then urged; and it is shown, again and again, that every nation will succeed best in the long run by carrying on only such industries as it is able to in free competition with the world. It is true, admittedly, that if our tariff were removed a number of manufactures would have to be discontinued, and that the labourers would for a time be without work, as happens whenever a new machine is discovered, or whenever means of transportation are facilitated. The immediate effect is to take labour from the workman. But in a short time adaptation takes place, and in the end the new conditions automatically provide a much greater number of workmen with profitable employment than before. America would lose a part of the home market if she adopted free-trade, but would be able to open as many more doors to foreign countries as recompense. Her total production would in the end be greater, and all articles of consumption would be cheaper, so that the workmen could buy the same wares with a less amount of labour, and the adjustment of the American scale of wages would better enable the Americans to compete with the labour of other countries.

But no doubt the times do not favour such logic. The Americans are too ready to believe the statement of Harrison, that the man who buys a cheaper coat is the cheaper man. And quite too easily the protectionists reply to all arguments against excluding foreign goods with the opposite showing that, in spite of the high tariff, the imports from abroad are steadily increasing. Under the Dingley Tariff, in the year 1903, not only the raw materials, but also the half and wholly manufactured articles, and articles of luxury, imported increased to a degree which had never been reached in the years of the Wilson Tariff. The raw materials imported under a Democratic tariff reached their high point in 1897, with $207,000,000; when the Dingley Tariff was adopted the figure decreased to $188,000,000, but then rose rapidly and amounted in 1902 to $328,000,000, and in 1903 to $383,000,000. Finished products declined at first from $165,000,000 to $94,000,000, but increased in 1903 to $169,000,000. Articles of luxury sank from $92,000,000 to $74,000,000, but then mounted steadily until in the year 1903 they were at the unprecedented figure of $145,000,000.

In spite of this, the Democratic outlook is improving; not because people incline to free-trade, but because they feel that the tariff must be revised, that certain duties must be decreased, and others, so far as reciprocity can be arranged with other countries, abolished. Everybody sees that the international trade balance of last year shows a movement which cannot keep on. America cannot, in the long run, sell where she does not buy. She will not find it profitable to become the creditor of other nations, and will feel it to be a wiser policy to close commercial treaties with other nations to the advantage of both sides. Reciprocity is not a theory of the Democratic party merely, but is the sub-conscious wish of the entire nation, as may be concluded from the fact that McKinley’s last great speech voiced this new desire.

He had, more than any one else, a fine scent for coming political tendencies; and his greatness always consisted in voicing to-day what the people would be coming to want by to-morrow. On the fifth of September, 1901, at the Buffalo Exposition, he made a memorable speech, in which he said: “We must not repose in fancied security that we can forever sell everything and buy little or nothing. If such a thing were possible, it would not be best for us or for those with whom we deal. We should take from our customers such of their products as we can use without harm to our industries and labour. Reciprocity is the natural outgrowth of our wonderful industrial development under the domestic policy now firmly established. What we produce beyond our domestic consumption must have a vent abroad. The excess must be relieved through a foreign outlet, and we should sell anywhere we can and buy wherever the buying will enlarge our sales and productions, and thereby make a greater demand for home labour. The period of exclusiveness is past. The expansion of our trade and commerce is the pressing problem. Commercial wars are unprofitable. A policy of good will and friendly trade relations will prevent reprisals. Reciprocity treaties are in harmony with the spirit of the times. Measures of retaliation are not.

“If perchance some of our tariffs are no longer needed for revenue or to encourage and protect our industries at home, why should they not be employed to extend and promote our markets abroad?”

This was the same McKinley whose name had been the apprehension of Europe, and who in fact more than any one else was morally responsible for the high-tariff movement in the United States. The unique position which his service of protection had won him in the party, would perhaps have enabled this one man to lead the Republican party down from its high tariff to reciprocity. But McKinley has unhappily passed away, and no one is here to take his place.

His successor has not had, in the first place, a great interest in questions of commerce. He has necessarily lacked, moreover, such strong authority within his party as would enable him to bring opposing interests into line on such a new policy. The young President was too much suspected of looking askance on great industrial companies. If he had placed himself at the head of the Republicans who were hoping to reduce the tariff, he would have been branded as a free-trader, and would not have been credited with that really warm feeling for protected American industries which in the case of McKinley was taken as a matter of course. More than that, the opponents deterred him, and would have deterred any one else who might have come in McKinley’s footsteps, or perhaps even McKinley himself, with the ghost of bad times which are to come whenever a certain feeling of insecurity is spreading through the commercial world.

Everybody felt that, if the question of tariff should be opened up, unforeseen disputes might ensue. On questions of tariff every industry wields a lever in its own favour, and the Wilson Tariff had sufficiently shown how long and how tragi-comic can be the course from the law proposed to the law accomplished. It was felt everywhere that if the country should be brought into unrest by the fact that no industry could know for some years what its future was to be or where Congress might chance to take off protection, that all industry would be greatly injured. There could be no new undertakings for years, and whatever the ultimate result might be, the mere feeling of uncertainty would make a crisis sufficient to turn the tide of prosperity. And American reciprocity was after all only a matter of philanthropy; for the experience with Canada and Hawaii, it was said, only showed that reciprocity meant benevolence on the part of America.

If America is to be philanthropical, there is enough to do in other ways; but if America is to preserve her commercial interests and her prosperous industries, it is absolutely necessary not to stir up trouble and push the country once more into tariff disturbances and expose industry to doubts and misgivings. And this ghost has made its impression. McKinley’s words have aroused only a faint echo in the party. The need, however, which he instinctively felt remains, and public opinion knows it. It is only a question as to when public opinion will be stronger than party opinion.

There is another thing which gives the anti-protectionists a better chance. Democrats say that high tariff has favoured the trusts. This may be true or false, and statistics speak for both views. But here is a watchword for the party which makes a deep impression, for the trusts are popularly hated. This, too, may be right or wrong, and may be still more easily argued for both sides, but the fact remains, and the seductive idea that abolishing high tariff will deal a fatal blow to the hated, extortionate, and tyrannical trusts gets more hold on the masses day by day. In vain the protectionists say that there is not a real monopoly in the whole country; that every instance of extortionate price calls out competition at once, and injures the trust which charges such price; that protection benefits the small and poor companies as much as the large, and that an attempt to injure the large companies by free-trade enactments would kill all small companies on the instant. And, besides, politics ought not to be run in the spirit of hatred. But the embitterment exists, and arguments avail little. It is incontestable that, of all the motives which are to-day felt to work against protection, the one most effective with the masses is their hatred of the trusts. Herewith we are led from the tariff question to this other problem—the trusts.

The Trust Question

“Von der Parteien Hass und Gunst verwirrt”—to be hated and to be favoured by the parties is the fate of the trusts. But the odd thing is that they are not hated by one party and favoured by the other; but both parties alike openly profess their hatred and yet show their favour by refraining after all from any action. And this inconsistency is not due to any intentional deception.

To be sure, a good deal of it is political policy. The evils and dangers of many trust formations are so obvious that no party would like to praise them openly, and no party will dispense with the cheap and easy notoriety of declaring itself for open competition and against all monopolies. On the other hand, the power of the trusts is so great that neither party dares to break with them, and each has its special favourites, which could not be offended without prejudicing its campaign funds. Nevertheless, the deeper reason does not lie in the matter of expediency, but rather in the fact that no relief has been proposed which promises to be satisfactory. Some want to treat the evil superficially, as a quack doctor tries to allay secondary symptoms; and others want, as President Roosevelt has said, to end the disease by killing the patient. The fact that this inventive nation has still not solved its great economic problem, is probably because the trusts have grown necessarily from the organic conditions of American life, and would continue to exist in spite of all legislative hindrances which might be proposed against them.

When Queen Elizabeth, in violation of the spirit of Anglo-Saxon law, distributed in the course of a year nearly fifty industrial monopolies, and caused the price of some commodities to be doubled, the House of Commons protested in 1601, and the Queen solemnly declared that she would revoke all privileges which endangered industrial freedom; and from that time on, monopolies were done away with. The American people are their own sovereign, and the effect of monopolies is now about the same as it was in England three hundred years ago. But the New World sovereign cannot issue a proclamation revoking the monopolies which it has granted, or at least it knows that the monopolies, if taken from one, would be snatched by another. It is true that the present form of trusts could be made illegal for the future, but some other form would appear, to compass the same ends; and if certain economic departments should be liberated by a free-trade legislation, the same forces would gather at other points. We must consider the essence of the matter rather than its outward form.

The essence is certainly not, as the opponents of trusts like to represent, that a few persons are enriched at the expense of many; that the masses are plundered to heap up wealth for a small clique. The essence of the movement does not lie in the distribution of wealth, but in the distribution of power. The significance of the movement is that in recent times the control of economic agencies has had to become more strongly concentrated. It is a mere attendant circumstance that in the formation of the trusts large financiers have pocketed disproportionately large profits, and that the leading trust magnates are the richest men of the country. The significance of their position lies in the confidence which is put in them. But the actual economic endeavour has been for the organized control of larger and larger undertakings. It has been very natural for the necessary consolidation of smaller parts into new and larger units to be accomplished by men who are themselves rich enough to retain a controlling share in the whole business; but this is a secondary factor, and the same result could have been had if mere agents had been appointed by the owners to all the great positions of confidence.

Almost the same movement has gone on in other economic spheres than the industrial. Railroad companies are all the time being consolidated into large companies, controlled by fewer and fewer men, until finally a very few, like Morgan, Vanderbilt, Rockefeller, Harriman, Gould, Hill, and Cassatt, virtually control the whole railroad system. But this economic movement in the railroad world would not really stop if the state were to take over all the railroads, and a single badly paid secretary of railroads should be substituted for the group of millionaires. The main point is that the savings of the whole country are invested in these undertakings, and are looking for the largest possible returns, and get these only when leadership and control are strongly centralized.

The very obvious opulence of the leaders naturally excites popular criticism, but it has been often shown that the wealth of these rich people has not increased relatively to the average prosperity of other classes, and the corporations themselves make it possible to distribute the profits saved by concentration throughout the population. The famous United States Steel Company had last year 69,000 stockholders, and the shares of American railroads are owned by more than a million people. For instance, the Pennsylvania Railroad alone has 34,000 stock and bond holders, who intrust the control to a very few capitalists. In fact, the whole railway system belonging to a million people is controlled by about a dozen men; and the Steel Company with its 69,000 owners is managed by twenty-four directors, who in turn are guided by the two presidents of the administration and finance committees. The chief point is thus not the concentration of ownership, but the concentration of power.

This same movement toward concentration has taken place in the banking business; and here the point is certainly, not that one man or a few men own a main share in the banks, but only that a few men are put in charge of a group of financial institutions for the sake of organized management. In this way the public is more uniformly and systematically served, and the banks are more secure, by reason of their mutual co-operation.

Among the directors of the Bank of Commerce there are, for instance, directors of two life-insurance companies which have a capital of $750,000,000, and of eight trust companies; and the directors of these trust companies are at the same time directors of other banks, so that they all make a complete chain of financial institutions. And they stand more or less under the influence of Morgan. There is, likewise, another system of banks, of which the chief is the National City Bank, which is dominated by Rockefeller; and these personal connections between banks are continued to the industrial enterprises, and then on to the railroad companies. For instance, the Rockefeller influence dominates not only banks and trust companies whose capital is more than $400,000,000, the famous Standard Oil Company with a capital of $100,000,000, the Lackawanna Steel Company worth $60,000,000, and the gas companies of New York worth $147,000,000, but also the St. Paul Railroad, which is capitalized at $230,000,000, the Missouri, Kansas and Texas at $148,000,000, and the Missouri Pacific at $212,000,000.

It is certainly true that such tremendous influence under present conditions can be gotten only by men who actually own a huge capital. And yet the essential economic feature is always the consolidation of control, which is found necessary in every province of industry, and which entirely overtops the question of ownership. It has been estimated that the twenty-four directors of the United States Steel Company exert a controlling influence in two hundred other corporations; that back of them are the largest banks in the whole country, about half the railroads, the largest coal, oil, and electric companies, and the leading telegraph, express, and life-insurance companies, etc. They control corporations with a capital of nine billions of dollars: and such consolidation is not to be undone by any artificial devices of legislation.

If economic life, by reason of the dimensions which it has assumed in the last decades, requires this welding together of interests in every department, then the formation of syndicates and trusts is only a phase in the necessary development; and to prevent the formation of trusts would affect the form, and not the essence of the movement. Indeed, the form has already changed a number of times. The earliest trusts were so organized that a number of stock companies united as such and intrusted their business to a new company, which was the “trust.” That system was successfully abolished; the trust itself seemed unassailable, but the state could revoke the charters of the subsidiary companies, because by the law of most states these latter might continue only so long as they carried on the functions named in their charters; that is, so long as they carried on the transaction of their affairs themselves. A stock company has not the right, possessed by an individual, to intrust its property to another. And if the stock companies which came together into a trust were dissolved, the trust did not exist. In this way the State of New York proceeded against the Sugar Trust, Ohio against the Standard Oil Company, and Illinois against the Chicago Gas Company.

But the course of events has shown that nothing was gained by this. Although it was recognized that corporations could not legally combine to form a trust, nevertheless the stockholders controlling the stock of separate companies could join as individuals and contribute their personal holdings to a new company which was virtually a trust; and in this form the trusts which had been demolished were at once reorganized. Moreover, of course any number of stock companies can simply dissolve and merge into one large company, or they may keep their individuality but make important trade agreements with one another, and so indirectly fulfil the purposes of a trust. In short, the ways of bringing assenting industrial enterprises under one management and so of virtually making a given industry into a monopoly, are manifold.

To promote the development of trusts, there was nothing necessary but success at the outset. If the first trusts were successful, the device would be imitated so long as there was any prospect of profit. It really happened that this imitation went on finally as a sort of mania, where no special saving of profits could be predicted; one trust followed another, and the year 1903 saw 233 purely industrial trusts incorporated, of which 31 had a capital of over $50,000,000 each, and of which the total capitalization was over nine billions.

At first sight it might look as if this movement would be really sympathetic to the American people in general. The love of size generated in the nation by the lavishness of nature must welcome this consolidation of interest, and the strong spirit of self-initiative claiming the right of individuals to unite and work together must surely favour all sorts of co-operation. As a fact now an opposite tendency operates, which after all springs from the same spirit of self-initiative. The freely acting individual must not be prevented by a stronger force from using the strength he has. Everything which excludes free competition and makes the individual economically helpless seems immoral to the American. That is old Anglo-Saxon law.

The common law of England has at all times condemned agreements which tend toward monopoly, and this view dominates the American mind with a force quite surprising to the European who has become accustomed at least to monopolies owned by the state. The laws of almost all the separate states declare agreements tending toward a monopoly to be illegal; and federal legislation, in its anti-trust measures of 1887 and 1890, has seconded this idea without doing more than formulating the national idea of justice. The law of the country forbids, for instance, all agreements looking to the restriction of trade between different states of the country or with foreign nations. Senator Foraker, in February, 1904, called down public displeasure by proposing a law which permitted such agreements restricting commerce so long as the restriction was reasonable. It was feared at once that the courts would think themselves justified in excusing every sort of restraint and monopolistic hindrance. And yet there is no doubt that the interpretation of what should constitute “restriction” to commerce was quite as arbitrary a matter as the interpretation of what should be “reasonable.” Indeed, the economic consolidation of competing organizations by no means necessarily cuts off the beneficent effects of competition. When, for instance, the Northern Securities Company united several parallel railway lines, it asserted justly that the several roads under their separate corps of officials would still compete for public favour. Yet the public and the court objected to the consolidation. The one real hindrance to the propagation of trusts lies in this general dread of every artificial check to free competition.

Many circumstances which have favoured the formation of trusts are obvious. In the first place, the trust can carry on business more cheaply than the component companies individually. The general administration is simplified by doing away with parallel positions, and all expenses incident to business competition are saved. Then, too, it can make larger profits since when competition stops, the fixing of prices lies quite with itself. This is of course not true, in so far as other countries are able to compete; but here comes in the function of the protective tariff, which permits the trust to raise its prices until they equal those of foreign markets plus the tariff.

The good times which America has enjoyed for some years have also favoured the development of trusts. When the harvests are good and the factories all busy, high prices are readily paid. The trusts can do even better than single companies by shutting down unprofitable plants and adapting the various remaining plants for mutual co-operation. Then, too, their great resources enable them to procure the best business intelligence. In addition to all this came a series of favourable external circumstances. First was the rapid growth of American capital which was seeking investment. In the seventies, the best railroad companies had to pay a rate of 7 per cent. in order to attract investors; now they pay 3½ per cent. Capital lies idle in great quantities and accumulates faster than it can find investment. This has necessarily put a premium on the organization of new trusts. Then, too, there was the well-known uniformity of the market, so characteristic of America. The desire to imitate on the one side, and patience and good nature on the other, give to this tremendous region of consumption extending from the Atlantic to the Pacific Ocean a uniformity of demand which greatly favours manufacture on a gigantic scale. This is in sharp contrast with the diversity of requirements in Europe.

It has been, doubtless, also important that the American feels relatively little attached to his special business. Just as he loves his Fatherland really as a conception, as an ideal system, but feels less bound to the special piece of soil where he was born and will leave his own farm if he is a farmer and go westward in search of better land, so the American passionately loves business as a method, without being over attached to his own particular firm. If the opening is favourable, he gives up his business readily to embark on another, just as he gives up an old-fashioned machine in favour of an improved one.

Just this quality of mind is so different from the German that here would be probably the greatest hindrance to the organization of trusts in Germany. The German feels himself to have grown up in his special business, which he may have inherited from his father, just as the peasant has grown up on his farm, and he does not care to become the mere employee of a large trust. Another contributory mental trait has been the friendly confidence which the American business man puts in his neighbour. The name is here appropriate; the trusts in fact repose to a high degree on mutual trust, and trusts like the American could not develop wherever there should be mutual distrust or jealousy in the business world. Finally, the laws themselves have been favourable, in so far as they have favoured the issue of preferred stock in a way very convenient to trusts, but one which would not have been approved in Europe. And, moreover, the trusts have made considerable use of the diversity existing between the laws of different states.

There have been retarding factors, too. We have mentioned the most important of all—the legal discountenance of all business agreements tending to create a monopoly or to restrain trade. There have been others, however. One purpose of the trusts is to put prices up and so to make the necessities of life dearer. It is the people who pay the prices—the same people who elect Congress and determine the tariffs and the laws; so that every trust works in the knowledge that putting up prices tends immediately to work back on business by calling forth tariff revision and anti-trust laws.

One source of great profit to the trusts has been the possibility of restricting output. This method promised gain where natural products were in question, such as oil, tobacco, and sugar, of which the quantity is limited, and further for all technical patents. Where, however, there is no such limitation the most powerful corporation will not be able to avoid competition, and if it tries to buy up competing factories to stop such competition, still more are built at once, solely with the purpose of extorting a high ransom from the trusts; and this game is ruinous. In other departments again consolidation of business means very little economy; Morgan’s marine trust is said not to have succeeded for this reason. In short, not all industries are susceptible of being organized as trusts, and the dazzling profits of certain favoured trusts too easily misled those who were in pursuit of fortune into forgetting the difference between different businesses. Trusts were formed where they could not be profitable. Perhaps the real founders themselves did not overlook the difference; but they counted on the great hungry public to overlook it, until at least most of the shares should have been disposed of.

As a fact, however, the reluctance of the great investing public has been a decidedly restraining factor too. The securities spoiled before the public had absorbed them; everywhere the complaint went up of undigested securities. The public came early to suspect that the promoters were making their profits not out of the legitimate economies to be saved by the trusts, but by enormously overcapitalizing them and taking large blocks of stock for themselves.