citing condition was enhanced by failing confidence in the government to keep its promises to pay, and our paper currency declined in value as other things advanced. A morbid and unhealthy condition of business followed. Meantime, in order to supply the demand for goods, capital flowed into manufacturing and trading industries of all sorts; new inventions were sought out for saving labor, and improved appliances were brought into use; railroad and telegraph lines were constructed, and factories, furnaces, mills, shops, &c., were built and enlarged until the producing capacity became much greater than the consuming capacity of the country. During this period labor found employment at high wages. But the time came (in 1873) when the markets were flooded with manufactured goods, prices began to decline, and, under the pressure of sharp competition, have continued to decline until the present depressed condition of all manufacturing industries has been reached. We cannot expect a full return of prosperity in this direction until population grows up to the level of the manufacturing facilities of the country. But with agriculture the situation was quite different. Here no corresponding development was made as in manufactures. The soldier returning from the war did not go back to the farm. He had formed a love of excitement and adventure that could not be satisfied in following the plow; and so in 1870 but few more acres were culti vated than in 1860. Consequently agricultural products have sold at high prices relatively to manufactured goods, and still bring high prices compared with the wages of common labor. Trading was also overdone, and financial affairs were out of joint, and since the climax in 1873 was reached, the process of leveling down, or leveling up, as the case may be, has been a natural order of things; and we cannot expect a full return of prosperity in all departments of labor until all these great industries have become adjusted to each other and to the wants of society, and the values of things become settled and permanent. The necessities of men here and there, and the working of natural laws, will in time bring this about. The way to make it worse is for men to organize and resist the inevitable decline of wages, encourage lawlessness and vagabondism, burn railroad and other property, declaim against capital and vote for an unlimited issue of greenbacks. Capitalists will then naturally lack confidence and invest their money in four per cents as a measure of safety. But it may be stated in opposition to the theory that war has chiefly occasioned our troubles, that other countries have suffered at the same time similar depression in business where there has recently been no war. This is admitted, but it must be remembered that in every such instance enormous standing armies have been maintained in anticipation, or in fear, of war, which has been almost as burdensome to the people and destructive of confidence as a condition of war itself. A secondary cause of the present disorders in business may be found in the development of machinery and mechanical appliances. The progress of invention, together with the construction and operation of a great variety of labor-saving machinery which within a few years have given us the steam-engine, the printing-press, the reaping-machine, the sewing-machine, and greatly improved a thousand processes, concurrent with the development of our gigantic systems of railroads and telepraphs whereby new channels of communication have been opened and new methods of business instituted, have contributed to revolutionize trade and commerce, crowd the markets with manufactured goods, and turn unskilled or common labor out of employment. Our civilization has taken such strides forward during this period, that society has scarcely had time to adjust itself to the rapidly changing condition of things. These improvements have amounted to innovations upon the slow methods of older times, and the natural result of so many important changes in our business life has been to produce a certain amount of disorder, and to throw things out of balance, relatively, one to another. We are stopping to take breath, look around us, measure our growth, and see where we stand. We must have time to find our places in society, where we shall be able to earn a living. Improvements in machinery, however, can work no permanent injury to the laboring classes; they may create a diversion in labor, but the ultimate effect of all such improvements must be greatly beneficial to society in general. We cannot live too well, nor too luxuriously, providing the means are at hand and we do no injury to ourselves or our neighbor. Various other reasons have been advanced in explanation of the present depression, such as "stock and gold gambling," "excessive railroad building," "useless importaations of finery," "extravagance in living," &c.; but all these were consequences, not causes. They were incidental to the excited condition of business and the inflated condition of property. THE REMEDY. The remedy for this condition of things does not lie to any considerable extent in legislation. Natural laws are sufficient to work out in time a solution of the problem. But wise legislation in respect to certain things might hasten recovery. Thus, Congress should help provide channels of communication with foreign countries, by which the surplus products of our fields, forests, mines, and factories could be exported with economy, and in particular to encourage and foster the exportation of our surplus products by every legitimate and proper means. Agriculture should also be encouraged in all parts of the country. Having been less developed than trade and manufactures, it seems the most promising industry at present for a large class of people; in particticular, the cultivation of those products that bring the largest profits, fruits, poultry, dairy products, &c. Whatever contributes to restore a justifiable confidence in the stability of things, would be of benefit. Laws should be rigorously enforced, criminals punished, public affairs administered faithfully and economically, and the purity of the ballot-box. guarded. The tramp nuisance should be suppressed by uniform legislation, if possible, providing for the forcible employment of all strolling vagabonds in grading and improving the public roads. No legislation is wanted touching the hours of labor, but the right of all men to labor for such a number of hours daily, and for such compensation as they may agree to, should be guaranteed and protected wherever interfered with. Much legislation is disquieting, especially about financial affairs, the tariff, &c. Stability and permanency are what is wanted. Some elements in the present situation are quite encouraging, and some are discouraging. Among the former are our hopeful national temperament; rich agricultural and mineral resources; our growing export trade; our increasing ability to compete with other nations in manufacturing goods, and the restoration of values nearly to a gold basis. Among the discouragements are the great burdens of debt borne by national, State, and municipal governments, corporations, firms, and individuals; an uneasy feeling about the stability of political affairs; too frequent elections; too widely extended an elective franchise, and the needless waste of the whisky and tobacco traffic. Notwithstanding all these, there are promises of a healthier condition of things. But we need not expect the return of former times; nor is it desirable for the welfare of all sections that we should have a recurrence of unusual activity and high prices, any more than for a person in convalescence to wish the return of congestion and fever. Let us have good courage, and "lift up our eyes unto the hills from whence cometh our help; our help cometh from the Lord." Very respectfully, Hon. A. S. HEWITT, Chairman, New York. J. H. STERNBERGH. INDUSTRIAL CRISES-THEIR CAUSES AND REMEDIES. BY H. BOWLBY WILLSON. 49 WEST FORTY-EIGHTH STREET, GENTLEMEN: I avail myself of your kind invitation to "communicate, in writing," my views relative to the subject-matter of your investigations. 1. This, I understand, is to ascertain the causes, as far as possible, of the present depression in the industries of the country, and to receive suggestions on the subject of remedies within the domain of legislation. 2. As a starting point, I admit the premises, namely, that the country has been passing through one of those periodic crises, in nearly all its industries, since the panic of September, 1873. But, at the same time, as a student of economic phenomena, I cannot admit that the causes which led to this panic differ materially from those of other similar experiences, of which a large number of business men and economic authorities, still living, are cognizant, and of others, recorded in the commercial history , of the world, since the commencement of the present century. I also question the assumption of some who have testified before your committee, that the stagnation in business since 1873 has been greater than existed in 1835, 1837, and 1857; to which two latter periods my own personal reminiscences extend. Furthermore, I am of the opinion, founded on my own particular avocations, and a general knowledge of industrial pursuits, more particularly in Ohio, and other Western States, and in Canada, that the present crisis has nearly run its course, and that we are entering on a new era of prosperity. Entertaining these general views on the subject-matter of your inquiries, I feel bound to suggest that any remedies attempted by Congress should be general in their character, and be framed with the view to the prevention of future erises by removing or diminishing the intensity of their causes. 3. I have been engaged for a third of a century in what may be called railway business, as contractor and financier, and shall confine the facts I have to communicate chiefly to my own branch of industry. My first labors in this business were directed to the furthering the construction of railways in Canada and Michigan; and in 1851 I removed to London, where I devoted some years to raising British capital for railway construction, so that my experience has had a wide range. More recently, in 1872, I undertook the construction of a line in Ohio of considerable magnitude, only a small part of which is as yet completed, owing to the panic of 1873, and that part I built last year. 4. At the time I took the contract, in 1872, there prevailed throughout the country vast activity in the railway business. The annual construction of new lines had risen to no less than 7,000 miles. This unwonted and vast expansion of the railway business gave employment, directly and indirectly, in construction and providing rails and other materials and equipment, to not less than one million of men, representing a population of probably not less than four millions, who lived by this vast branch of industry. A superabundant paper currency had inflated all values, the market value of labor included. The capital expended was partly raised in many of the localities where the lines were located, and partly in Eastern cities and in Europe. New York, London, Paris, and Frankfort bankers reaped immense profits by "floating loans" on mortgage bonds for railways sometimes existing only on paper; and many of the "land-grant" projectors simply divided the proceeds among themselves, without building a mile of railway. In North Carolina there were seven lines which had been partly built by State grants, whose managers got the State to appropriate $16,000,000 more of its bonds, under the pretext of "completing the State railways"; and eleven millions of such bonds were brought to New York and were sold or hypothecated at from 30 to 60 per cent., and, with only one or two insignificant exceptions, the whole cash so raised was stolen. What took place in North Carolina was repeated, to a greater or lesser extent, in all the States under carpet-bag rule. According to a statement made by the late Horace Greeley, about one hundred millions of dollars of Southern States bonds were thus put on the market, and every dollar they were sold or pledged for was totally misapplied or stolen by governors, United States Senators, members of Congress, and other Federal and State officials. 5. What materially tended to intensify the general railway inflation were the large sums voted by Congress for subsidized national lines. These were called “Pacifie railways," whether they ran North or South, East or West; and, as the government stood in the position of second-mortgage bondholder, the first-mortgage bonds were, in most cases, as good as government securities. Thus it happened that government furnished, in nearly all cases, the entire capital expended in the construction of some thousands of miles of railway, while the speculators, by means of Credit Mobiliers a:s! other devices, realized out of the company's bonds and stock a clear profit exceeding the entire cost of these so-called "Pacific railways." It is easy to perceive how these vast national and State grants stimulated the building of other "unsubsidized" lines, and how the total expenditures inflated all other branches of industry. So long as prices, whether for labor, or materials, or food and clothing, lands and tenements, and securities continued to rise, everybody fancied they were growing rich. In 182 I published in Washington, and circulated in Congressional circles, a pamphlet entitled The Science of Money," in which I pointed out, concisely and clearly, what the inflation of the currency was leading to. I pointed out how the market value of labor and goods first felt the delusive influences of such a currency, and how lands and houses followed, and how their value would subside when the bubble burst; but no one then heeded such information. I allude to this brochure, because the remedies for future crises must be founded on a radical change in our system of banking and the methods of issuing currency, wherein the incipient causes of crises have their origin. 6. Though railways stood most prominently forward in the list of canses leading to the panic of 1873, and the stagnation that has since existed, all other industries partook of the intoxicating draughts administered by the national and other banks, and the government itself, and the "carpet-bag" State administrations. To illustrate the effect on the cost of railways and the wages of railway "navvies," I must return to my efforts to construct the line in Ohio in 1872. Prior to the overissue of nationalbank notes, after the establishment of that system in 1864, the rate paid for skilled labor, on railways, was about $1 a day, or $26 a month; and the price of iron rails, in Ohio, was about $40 a ton. The price of laborers' board, before the war, was about $2 a week. In 1872 similar labor was $2 to $2.25 a day; board, $4 to $5 a week; iron rails, $80 a ton; and all other materials, including engines, cars, &c., in proportion. I now come down to present prices. Last year I paid $1 to $1.15 for "navvy" laber: for board, $3 to $3.50 a week; $35 a ton for iron rails at mills; and now I have offers of labor at 80 cents to $1 a day, or $20 to $26 a month; board at $2.50 to $3 a week. and boots and clothing at ante-war prices; and iron rails, for cash, at mills in Ohio, per ton of 2,240 pounds, $33. 7. The cost of railways, like the cost of houses in cities, was more than double, during the period of inflation, what they can now be built for. Leaving the "watering" process out of sight, a standard-gauge line cost about $25,000 a mile in Ohio to build and equip during those days of greatest inflation; and the speculators, bankers, managers, and promoters added $25,000 per mile more, and, in some cases, $35,000, for their profits. Now, I can build an average standard-gauge line in Ohio, or almost any Western State, for from $8,000 to $10,000 a mile cash, including all materials, but ex equipment. But it is more difficult to raise $10,000 a mile now than it was then to raise $25,000. Good substantial narrow-gauge lines over an average of Ohio country, laid with 35-pound iron rails, can at present be built, ballasted, and fenced for from $6,000 to $7,500 per mile. 8. These facts are both interesting and instructive, as bearing on one of the largest branches of our industry. Our railway system is less than half completed. The people perceive that by putting their own means into cheap narrow-gauge railroads, they can make them pay. Hence there is in the West quite a revival in the construction of these cheap lines, hereafter destined to take the place of common highways, to a large extent, which will serve as feeders to the old standard-gauge, highly-watered trunk lines. Let ine here suggest to your committee the desirability of constituting a national railway department after the model of the British Board of Trade, but with more comprehensive powers. If there is no warrant for such a board in the organic laws of the nation, then let Congress take measures to amend those laws. The civilization and prosperity of nations are in the ratio of their facilities for transporting persons and property. The National Legislature is less likely to abuse such powers than State legislatures, whose members are "bought and sold like sheep in the shambles," by speculators and capitalists, for money and interests in public undertakings. We know from unquestioned testimony, before a Senate committee in this State, that over one and a half million dollars were expended by two great railway companies to influence legislation in a single session. Members of Congress will hardly again become members of Credit Mobilier companies. But it is quite easy to so construct the suggested railway department as to keep it “like Caesar's wife-above suspicion.” 9. It will be recognized as a great, if not a self-evident truth, that when we have been able to state authoritatively the canses and effects of our financial crisis, with its long chain of disasters, the wreck of industries, and the general social ruin attendant thereon, we have only been illustrating a class of evils resulting either from bad legislation or the imperfections of human society. But here I raise the question, are not these imperfections the result of laws made to override the natural laws? Those who have read the debates in the British Houses of Parliament, and of Congress, since the consideration of the famous Bullion Report, in 1810, on the recurrence of each of the great industrial crises, must have arrived at the conclusion I have, that each and all of them have had a common origin. It may be laid down as an immutable law of nature that "like causes produce like effects." Let those who have not the time to wade through immense volumes of Parliamentary and Congressional debates, at least read the writings and speeches of Jefferson and Madison, Hamilton, Calhoun, Webster, and Benton, the master minds of past generations, and especially of the three last, between 1815 and 1838, and they will perceive most clearly that these crises are due to banks of issue and discount. This conclusion will greatly narrow the limits of investigation on the part of your committee. 10. I lay it down as a fundamental principle that a theory or a fact demonstrated by mathematics or by the science of logic is more reliable, more to be depended on, as the basis of legislation, or, if you like, as an accepted doctrine in political science, than the assumptions of empiricism. Empirical reasoning is generally drawn from each man's personal experiences. The statesinan or the legislator who frames his laws on the theories of practical men," is pretty certain to find himself in the position of the old man with his boy and the ass, in the fable-of trying to please everybody. But no better illustration can be given than that presented by the numerous nostrums recommended by a large number of "labor reforiners" and others, to your committee, for remedying the present stagnation in business. No two agree; and it is not doing violence to truth to say that four-fifths of these nostrums are the veriest nonsense. 11. Statistical facts are valuable only so far as they serve to establish logical deductions from known causes, or to illustrate fundamental principles. I have felt it necessary to lay down these general propositions, because I wish to bring this question to the test of close logical reasoning. Turning to the great panic of 1837, we find that " on Jannary 1, 1837” (I quote Mr. Spaulding's Centennial address to the Bankers' Association), "the bank circulation of the country, according to the Treasury reports, was $149,000,000. By January 1, 1843, it was reduced to $58,000,000; a ruinous fall of prices was the consequence." Going back, Mr. Spaulding tells us, "in the seven years, from 1830 to 1837, no less than 304 new banks sprang into existence, with a nominal capital of $145,000,000, and $59,000,000 of additional circulation. * The loans increased from $200,000,000 to $525,000,000." * 12. Then came the great collapse in a time of profound peace. There had been no de vastating civil war, no waste of labor or capital applied to destruction instead of production, and not until the lapse of five years did the country show signs of recovery from its agony. In 1843, Charles Dickens, writing from Ohio to his friend John Forster, says, "There is no money, absolutely no money in the country." He found the newspapers filled with advertisements offering goods in exchange in the manner supposed to have been done in the ruder periods of society. Trade was once more conducted by barter. Men gave their labor for boots, shoes, clothing, and food. At the present time men are to be had by tens of thousands, payable in food, clothing, and lodging, because there is no capital, not money, for there is plenty of that, to pay them, or, at least, none that is available. Mr. Spaulding observes of the panic of 1857. “This crisis. like the revulsion of 1837, was caused by too great an expansion of credit. Debt in all forms became excessive. The railway system had become largely extended upon borrowed capital. There had been excessive importations of foreign goods. The banks loaned too much of their funds on stocks, bonds, and other securities that could not be readily converted into money to meet checks of depositors." 13. When we read the descriptions of things as they existed just prior to 1837 and 1857, and compare them with that of 1873, it sounds "like an oft-told tale." The national government, after filling all the channels of circulation with an irredeemable paper issue, added during the closing year of the war, by the creation of the nationalbank system, about $150,000,000 to the then existing bank and Treasury circulations, and based the whole bank issue on public securities instead of metal. To cap the climax of folly, after Mr. McCulloch had taken out of circulation $44,000,000 of national notes issued direct to the public, instead of those loaned to the banks, a new issue of $54,000,000 was authorized to be made to and through the banks, in 1871, under the absurd pretext of "equalizing the currency." 14. Thus it will be seen Congress, by a law for which there is no warrant in the Constitution, authorizes the lending of the national credit in the form of “national currency," at 1 per cent. per annum, to banks, which again lend it to the public at 7, 8, 9, or 10 per cent., according to the rate allowed and prevailing in the several States. The issue of paper money on government securities, as in the case of the Bank of England, as to £15,000,000, and of the national banks, or on no securities at all, is a fundamental error in monetary economy. Paper money, scientifically regarded, is simply a substitute for, and a more convenient tool than metallic money, on which it should always rest, and like metallic money, most clearly, should be issued by a department of state, and its volume can only be regulated by supply and demand. * 15. When left to the discretion of banks, governed by the strong motive of selfinterest and profit, there is ever a tendency to overissues and inflation. Lord Overstone, an able writer and close and accurate observer, says: "It is now discovered there is a liability to overissues of paper money, while that money is convertible at will." Mr. J. B. McCulloch, in his notes to the "Wealth of Nations," says: "The widest experience proves that no man or set of men ever had the power to make inconvertible issues of paper money without abusing it--that is, without issuing it in inordinate quantities. The re-enactment of the restriction on cash payments at the Bank of England, and the rendering it perpetual, would have no perceptible effect on the value of bank notes, provided their quantity were not at the same time increased. But there cannot be a doubt that under such circumstances it would be increased.” 16. Daniel Webster, like Lord Overstone, said: “Even convertibility is no guarantee against overissues." He was speaking of banks and the causes of crises when he made this remark. The New York Times, the most inflexible advocate of the present time of banks of issue, in its leader of the 20th September, fully concedes this historical fact.* As I have before observed, the true scientific method of regarding paper money is in the light of a more convenient tool than metallic money, and, as the public has to pay the full face value for the notes theg require, its issue should be removed wholly from being the subject matter of profit to private or public issuers. Except as to the issue of the Bank of England of, at present, £15,000,000 sterling on securities, the issue of the bank is a state issue, and the notes are all bought and paid for by the public or bankers for use in their business at and for their face value in gold coin or bullion. The issue on securities is a violation of the highest fundamental principle of monetary science, which demands a paper currency founded on the metal most stable in its market value in comparison with other suitable metals. *The Times remarks as follows: "One fact which goes further than any other in explaining the present situation is that there has never been any long time within the last half century when the whole country had a sound currency, that is, a currency of coin, or of paper convertible and habitually converted into coin. For the last seventeen years there has been no such currency whatever. Pr ceding the outbreak of the war by only between three and four years came the crash of 1857, which was accompanied by a suspension of specie payments, and which had been caused by an enormous inflation of credit, including that most insiduous and dangerous form of credit, bank-notos. And before this period, back to the recovery of the country from the war of 1812, there was scarcely a year whet banking was not, on the whole, irregular, when a large quantity of notes were not in circulation with out the specie to back them, or when the country was favored with a thoroughly sound and prudent management of its money affairs." |