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Mr. Austix. I have been in business in the city of New York in the sale of foodproducts since 1860. I would say first that I do not think that the question whether à pound of tea is worth as much as it was in 1860 reaches the point that this committee ought to try to reach, but my observation is that, aside from internal and external taxation, every article of food that I know of, save coffee and rice, is as cheap now as it was in 1860. I think that clothing is cheaper. I think that meats are as cheap. I think butter is a little cheaper; cheese is a little higher; but I think on the whole that the average prices of food and clothing to-day, and for the past twelve months, have been as cheap as they were in 1860.

The CHAIRMAN. Then if the laborer were getting the same rate of wages that he got in 1860 the purchasing power of wages would be as great as in 1860.

Mr. AUSTIN. Yes. The CHAIRMAN. And the laborer would be as well off. Mr. Austin. Yes, I think he would, and I do not know but he is. There is one other cause that I want to put on record here why business men like myself, in a small way and others in a large way, are troubled in these times. The citizens of the country cannot be expected to rise above the honesty of their legislators.

The CHAIRMAN. Put it the other way. Can the legislators rise above their constituents? That is the point.

Mr. Austin. I simply say this, that unless there is a better feeling brought about between capital and labor we shall not have an end of this depression; unless men with large means stop conspiring to get advantages that their fellow-citizens cannot get, and unless the people generally show more friendliness to capital which is fairly invested, we shall not find relief.' When men stand up and publicly advocate the repudiation of public debts, it will not be a great while before private citizens will take the same ground as their legislators and repudiate their private debts. I believe that the cure of our difficulties depends more on the restoration of confidence between man and man, upon the return to the old-fashioned integrity in meeting all obligations even if it is not pleasant or easy to meet them, than upon anything else. There is a demoralization among our people so that they will not struggle as they used to struggle to meet an honest obligation. This very day I received a letter from a man who not more than three weeks ago told me that if I would forbear with him in regard to the payment of a debt, I need not have the least trouble or risk about it; I did so, and now he turns round and writes me that if I will take 20 cents on the dollar he will pay me, bat if not, I will not get anything. That, I think, is proper subject to be brought before this committee, for you represent the authors of the bankrupt law.

The CHAIRMAN. No; so far as this Congress is concerned we are the authors of the repeal of that law.

Mr. Austin. I believe that the demoralization growing out of that law, which enables men to obtain the property of other men without paying for it, has had more to do with the stoppage of our factories and the general depression of business than any other cause. Mr. Rice. Well, the bankrupt law has only five days more to live.

Mr. Austin. Yes, but you cannot let down a gate and create demoralization on a large scale and then suddenly stop it all at once. Some of the effects will remain after the cause is removed. I would say to every poor man (and I am not a very rich man), that in my judgment we must have a feeling of mutual confidence between the business interests and the laboring interests of the country; workingmen must feel that capital is entitled to a return for its use, and capital must feel that labor is entitled to its due share of compensation, and every man must feel that if he goes to another man and buys from him a coat or hat, he has no moral right to wear it unless he pays for it.

The CHAIRMAN. Those are moral propositions which I suppose we all appreciate.

Mr. Austin. Yes, I suppose so; but I want to get before the people the fact that we are bound indissolubly together for weal or woe, and the only relief that can come to us must come through the integrity of men in their dealings with each other, and I tell you that with the reckless spirit of speculation and adventure that is abroad in this country we have not got so many of the old-fashioned men who would stand right up and pay their debts while they had a dollar to pay with.

The CHAIRMAN. I must say that I think there is a great deal of exaggeration on that point. It has been put in evidence here that the number of failures in the United States was 38,000, which makes quite a small percentage of the whole number of persons in business. In the business which I have conducted since 1845 I find that only two per cent. of all the people that we have ever dealt with (and I apply this statement to the last five years particularly) have failed either through misfortune or through fraud. That is, we have found about 98 per cent. of those old-fashioned" men that you speak of.

Mr. Austin. Why should you have even that two per cent. of failures ?

The CHAIRMAN. Ah! the misfortunes of life, bad judgment—a great many causes; in some few cases rascality, but the rascals would not be one per cent. or one-half of one per cent. and I believe that the standard of human honor, although, of course, not the same in all circles, is as high to-day as it has ever been at any period.

Mr. AUSTIN. Well, it won't be as high as it has been if the present state of things continues. I do not charge that the masses of men are dishonest, but speculation first and then the hard times have led people to take advantage of that law.

The CHAIRMAN. But the Constitution of the United States contemplated a bankrupt act. It was passed in good faith on the demand of the great mass of the people. It worked badly, and it has been repealed. That shows that the public judgment goes in the right direction as a rule.


NEW YORK, August 26, 1878. Mr. WALKER appeared before the committee on its invitation.

The CHAIRMAN. Please state your residence and business, Mr. Walker, and what has been your business experience.

Mr. WALKER. I have been a resident of the city of New York for the last nine years. I formerly resided in Springfield, Mass., and was for eight years president of a bank there. At one time I was vice-president of the Western Union Telegraph Company, and I am now vice-president and manager of the Gold and Stock Telegraph Company.

The CHAIRMAN. You were also, I believe, before you came to New York, one of the bank commissioners of the State of Massachusetts.

Mr. WALKER. I was for nearly four years.

The CHAIRMAN. I think you have given very diligent attention for many years to questions pertaining to finance and industry, and have been rather an extensive writer on those subjects.

Mr. WALKER. I have for twenty years taken a good deal of interest in questions of currency and banking, and I have written somewhat frequently on those subjects.

The CHAIRMAN. So that your experience consists of both the study of the theory and the practice. You have had a large experience in practical business?

Mr. WALKER I have had considerable experience in practical business. Beginning as a lawyer for 15 years, I have been connected with banking and telegraphing for the last 15 years.

The CHAIRMAN. Have you given attention to the state of business which has prevailed in this country prior to and since 1873, the condition of depression which has existed for some time, and the question of a remedy, and how capital and labor can be made mutually remunerative?

Mr. WALKER. I have not made the question of the relations of capital and labor a special study, but I have been a close observer of the condition of things, particularly with reference to the bearing of the currency upon the present attitude of affairs.

The CHAIRMAN. The resolution under which this committee is acting directs us to inquire into the causes of the depression of business and the inadequate remuneration for labor, and to suggest remedies, if we can, in the way of legislation. Be good enough to state your views on these questions, proceeding in that order.

Mr. WALKER. I should apologize to the committee for appearing before them without special preparation. Although I had received a printed invitation from the committee, I did not suppose that it was intended to be a personal invitation, and so I gave no thought to it until three or four days ago, when, on the special invitation of the committee, I began to give a little attention to the subject in the short intervals of business.

There is a depression of industry coexisting through most of the civilized countries of Europe as well as in the United States, and I think there is a spirit of too ready generalization on the part of the witnesses who have appeared here in assuming that the causes of this widespread depression are the same everywhere. It does not appear to me that this is the case. Although the industries of all these countries are measurably influenced by the same cause, yet I think that each country has peculiar circumstances of its own which have caused its greater or less degree of depression. I should say that the present depression of industry in the United States is the result of a commercial crisis, not differing essentially in kind but greater in degree than those which have existed at any time within my knowledge in the history of this country.

One gentleman who has heretofore testified before this committee, Mr. White, of Chicago, who has given more attention to the study of commercial crises than any other financial or economical student in America, so far as I am aware, expressed the opinion that there was nothing essentially different in this crisis from the crises which exist elsewhere in other countries, and which have existed at other times in this country. I think I should differ with him in that regard. I think there have been exceptional causes which have greatly aggravated and prolonged the crisis in the United States. Unquestionably the war, with its vast destruction of property and its exaggerated volume of irredeemable paper money, which for a time served to conceal the measure of that destruction, was the most potent of the agencies at work in bringing this crisis abont. A less influential but still important local cause was the destruction of property by the Chicago and Boston fires. Public debt making and the excessive taxation resulting from it, and private debt making, the result partly of necessity but largely of extravagance in living, have influenced the crisis more than at any other period in the history of this country. But after making due allowance for these exceptional causes, our cri. sis was the result of speculation and an overabsorption of capital in fixed property. If the committee will permit me for a moment, as laying the foundation for what I have to say with reference to this particular crisis, I should like to state what I consider to be the law of all commercial crises. There are ups and downs in business (to use the popular expression), and they are to a certain extent periodical. After a period of great depression there begins gradually a period of activity, which grows as it goes on until at last it becomes uncontrollable, and a crisis is inevitable. The reasons seem to me to be these: The crisis is caused (to begin at the end of the cycle, in order to lay the foundation for starting again) by an overabsorption into fixed capital of that ready capital which is necessary in order to do business. There is a certain amount of ready capital which is necessary to the carrying on of the business of any country, differing according to the wealth of the country and the expansion of its industries. The source of this ready capital is past profits made in business; that is, the source to a very great degree. There is a small amount of capital in all countries coming from monetary institutions. Banks provide a certain portion of capital, which is retained in the floating form for the purpose of loaning, but that is a small amount comparatively. The capital of a bank is small as compared with the means of a bank, and the means are small as compared with the amount from all sources of a general character from which bank deposits are derived. Now, the source from which this ready capital comes is past profits which have not yet been invested. After a man has made money in his business he does not immediately reinvest it; he waits for a while to see what will be the best investment, but in the mean time he does not let his capital remain idle ; he puts it into bank deposits or loans it to some one on short time, so as to have it within his control during a limited period. By and by he makes up his mind what to do with it, and he puts it into some fixed investment; railways, land, ships, or whatever he may choose.

Now after a crisis, the quantity of floating capital which is necessary to do business with is very much diminished, and for a time people cannot get money enough for business purposes. Every merchant is familiar with the fact that the amount of business he does far transcends the amount of his capital. In other words, he does business on credit. If he did not, if he dealt on a cash basis only, if as a manufacturer, for example, he had to wait every time he sold goods until he got his pay, his mills would stop; but instead of that he sells on credit, gets paper, which he has discounted, gets the cash back with a profit, and goes on. In that way the floating capital of business is always kept supplied, but, as I have said, after a crisis this is very much reduced in quantity. Not only that, but the persons who have got it are extremely timid abont using it. Therefore there are coexistent these phenomena, a great deal of cheap money at a low rate of interest, and yet great difficulty in obtaining it. Anybody who wants to-day to float a railroad bond I would recommend to go into Wall street. He will find plenty of men there who have got money (money is at 1 per cent., but even if it were 2 per cent., or 3 per cent., or 4 per cent., that is a very low rate for America), but he cannot get money loaned to him for any fixed investment, and it is with extreme difficulty that he can get it for any regular business. Confidence is resumed slowly, and it takes some time to fill up the absolute vacuum caused by past overinvestment. Now, from what source does that profit come? It first comes froin the land, because the land is all the time yielding a profit. Nature is never niggardly in respect to her bounties, whether the times are bad or good. Crops may not sell as well this year as they did last year or as they will next year, but crops will be raised irrespective of the money market. So it is that the first profits in an agricultural country are likely to come from the land, and so it is that the money that is now in the market ready to be invested has come out of the crops which have been made in this country since 1873 and which fortunately have been sold for large prices. Business gradually revives under the impulse of new money. People begin to get tired of 3 per cent, and they begin to spread out a little. It is painful to live without an income, and if your income at 3 per cent. is not sufficient to live on, you naturally seek investments a little less safe at 4, or 5, or 6, or 7 per cent. With the revival of business profits are gradually made in a legitimate way in the ordinary channels of trade, and by and by there comes to be an excess of loanable capital and there is competition between the lenders. At first the competition is between the borrowers, but after the culminating point is reached the competition comes to be between the lenders, and the more desirable investments being exhausted, less desirable investments come into de mand, and finally investors stretch out until they put their money into investments which are very undesirable and remote.

During the war, in spite of the great destruction of property and creation of public

debts, a great deal of money was made by individuals, and there being an excess of loanable capital above the wants of legitimate enterprises, it necessarily songht enterprises which were illegitimate. Railroads were built not in the country but in Wall street, for the sake of the profits which might be made out of them here. People of the speculative class bid against each other for the capital that was available, and capitalists having no legitimate opening for their money lent it freely for enterprises of that character. In almost every case the cost of the enterprise far transcended the amount supposed at first to be adequate for its completion, so that the money which was at first intended to be all that the capitalist would put in proved to be but a small part of what he had to put in in order to save his original investment, and he went on lending more and more until finally he was short of ready means. In this emergency, the oversupply of floating capital having now been used up, he applied to his bank, and the bank was compelled, because he was a large stockholder or customer, to lend him money on the bonds of the railroad company (which was contrary to all the rules of good banking), and the final result was that all the ready capital of the country got locked up in these enterprises without any immediate fruition. In that way legitimate borrowers were cut off from their proper field of supply. A man depending on his own capital could go but a very short way, and when he found this supply of loanable capital cut off he had to fail. He could not even get money to meet his liabilities. That is to say, the country had so much overinvested its funds in fixed investments that there was nothing left to do business with. Now why did not the crisis come earlier? The last preceding crisis was in 1857, and we have generally had crises at intervals of about ten years. We had one in 1847, one in 1837, and they had one in England in 1925 and in 1866. Why did not the crisis of 1873 come sooner? It was because we had paper money, which put off the day of reckoning and prevented the disease from showing itself for a time, but made it infinitely worso when it did come.

The CHAIRMAN. Please tell us why paper money put off the time of collapse-how it operated.

Mr. WALKER. It put it off because there was no obligation to redeem the money that was issued, and it was never brought to the test of specie payment, and no power therefore to reduce its volume, so of course the day of reckoning could be postponed.

The CHAIRMAN. Inasmuch as there was no necessity for redemption, do you mean by that that the temptation to take and grant credits was increased by paper money?

Mr. WALKER. Unquestionably. I think the speculative tendency was greatly increased, for the reason that there was a large amount of so-called money in the country to loan, and an amount which could not be reduced, and that larger amount of money to loan postponed the day when a settlement must be made,

The CHAIRMAN. There was more money than would have circulated in the ordinary channels of business if it had been subject to redemption ?

The CHAIRMAN. And the temptation was to loan it upon inferior security?

Mr. WALKER. Yes. Let us take this case. The banks of New York paid interest on deposits. The country banks were receiving a great deal of money on deposit, and they sent it to New York. The New York banks found it difficult to employ the money in the regular channels of banking business, discounting paper, and they therefore lent it to outside parties engaged in speculation, which they would not have done if there had been less money in their hands, and there would have been less money if it had been redeemable.

The CHAIRMAN. The banks lent the money to people carrying on speculative enterprises-floating investments ?

Mr. WALKER. To speculators.

The CHAIRMAN. Yes; and to persons carrying on railway enterprises; and that was the transfer of floating into fixed capital.

Mr. WALKER. Undoubtedly. And in that way it took a much longer time to digest this amount of money than it would have taken under other circumstances.

The CHAIRMAN. But inasmuch as our paper money was not subjected to the test of redemption in 1873, why did the collapse take place ?

Mr. WALKER. I don't know that I can express that any better than it was expressed by Governor Tilden in his first message, in which he said that there is a point in the diffusion of paper money when people lose confidence in it, and when its power of expanding prices stops.

The CHAIRMAN. You mean, then, that when paper money is not subjected to the test of redemption in gold, there is a point where people begin to say that it is not worth anything?

Mr. WALKER. A place where they begin to distrust it.
The CHAIRMAN. Because they cannot get a gold dollar for a paper dollar ?

Mr. WALKER. Yes. But in this case there was not only distrust of the paper itself, but also of the enterprises to which the paper money had given rise. Six months before the crisis, I wrote to my partners in Paris that I thought that sooner or later the Northern Pacific Railroad must come to grief. I instanced that as one of those great enterprises.

The CHAIRMAN. You say that the people distrusted first the currency itself, and secondly the enterprises to which it had given rise ?

Mr. Walker. I do not think people generally stopped to reason that the paper itself was insecure. It was the pledge of the government, and I do not think they distrusted the government; but they distrusted the enterprises which were carried on by paper money; and those of them who went further, and reasoned about the money itself, distrusted it also. Not the security of the money, but the money itself as a measure of values and a medium of exchange.

The CHAIRMAN. They hoarded the money. That confirms your idea that they believed in it.

Mr. WALKER. They believed in the money because it was a government debt, but they distrusted it as money, and the enterprises to which it gave birth. That is my view in regard to the way that this crisis came on. I think it would have come on much sooner if our currency had been on a sound basis. I think there is no condition of the currency that will prevent crises. They have occurred in other countries having hard money. They have occurred in Holland, in France, and in England. The erisis of 1866 in England was a very severe one.

The CHAIRMAN. And we avoided it.

Mr. WALKER. We avoided it. What caused that crisis in England in 1866! It was caused by the immense expansion of new enterprises. There was a law passed in 1862, called the “companies act," by which, for the first time in England, capital could be aggregated in what we call a corporate form, with limited liability. There might have been some such limited liability before, but there was no general law of that kind until the companies act was passed in 1862. I was in London in 1865, and, in a conversation with the editor of the Economist, one of the wisest financiers of his time, the late Mr. Bagehot, I said to him, “Don't you feel uneasy about the state of things?” This was in the summer of 1865, a year before the crisis, and interest had been 7 per cent. all the year before. I asked him, “Don't you feel uneasy?" "No," said he; " because I do not believe that those people have got much capital. I do not find that they have made any head at all in my neighborhood.” (Mr. Bagehot was one of the directors of Stuckey's bank in Somersetshire, one of the largest commercial banks in England.) The result showed that Mr. Bagehot was entirely mistaken. Within a year from that time, on Black Friday (May, 1866), there was a crisis in London, which showed a more rotten condition of things in England than we have ever had in this country. Crises will come, no matter what currency you have-redeemable or irredeemable.

The CHAIRMAN. But does the crisis endure longer in consequence of an irredeemable currency?

Mr. WALKER. It does. I think the prolongation of our crisis has been caused largely by the want of a fixed policy for a return to specie payments. If we had returned to specie payment in 1865, whether this crisis would have occurred or not, it would not have been referable to paper money. In 1865 (if the committee will pardon me a personal reminiscence) I was in Europe, as the agent of the Treasury Department of the United States, and I met there a gentleman who had been for a long time in China, and had had very great experience in financial transactions. I was in active correspondence with the Secretary of the Treasury, and this gentleman said to me, "Say to the Secretary that he must resume specie payments within 12 months, or he won't resume within 12 years.” It seemed to me rather an extravagant proposition, but it has been fully justified by events. What were his reasons! Said he, "If the Secretary resume specie payments now, when there is little or no indebtedness in the country, the fall in prices which will result will be on property in the hands of its owners.

.” To illustrate: It makes no sort of difference whether the value of that bookcase is estimated at $50 or $25, if the owner has paid for it; but if, on the contrary, he bought it for $50, and still owes $25, and the value falls to $25, he has no longer any property in it at all. In 1865 the people of the United States owned the property in their possession. The disturbance in the country had been so great that there was no confidence in anybody or anything, and if you will look back to that time you will see that there never was a time before when there was so small an amount of personal liability in the country as there was then. Therefore, if the fall had occurred at that time by the contraction of the currency to its old amount, though each man would have felt so much the poorer, he would not have been so, because the prices of commodities would have been reduced in the same proportion, and his condition, relatively to his neighbors and the rest of the world, would have remained precisely the same. But when new debts were created upon a scale of prices caused by a redundant currency, then the reduction fell upon the debtor. The margin shrank until it was absolutely destroyed. That is the state of things that occurred under the expansion of debt that occurred after 1865. One cause of the crisis of 1873 was universal debtmaking. There never was in this country, and I doubt if there has been anywhere

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