Mr. SUMNER. Yes; which we have not yet reached. Then we went off on a kite-flying period.

The CHAIRMAN. The reaction from that legislation was a speculative era? Mr. SUMNER. Yes; it started on after that period. I know men who have said, “Why, in 1867 I thought that we were going to pay up, and I settled my business and property accordingly. I had building materials on hand, but I thought I would not build until that was over, and I let my capital lie idle till the next year, and then I found out that I had been a great fool in letting my capital lie idle, and afterwards I went to work immediately and began to expend my capital." In 1868, and from that time people went on, and it has been the hardest work in the world to persuade anybody that they ever ought to take the back-track until the panic overtook them, and they had to do so.

The CHAIRMAN. Was the suffering, which was inevitable as the result of the destruction of property during the war, intensified by this departure from the policy of paying the debt? Was it intensified by the speculative era, or was it made less? Mr. SUMNER. It must have been vastly intensified.

The CHAIRMAN. In other words, could we have arrived at a sound basis at that time with much less calamity and suffering than we have been subjected to since ?

Mr. SUMNER. Infinitely less. Indeed we have gone through all the suffering and have not settled up the debt yet. We have gone through all the misery of retiring this irredeemable paper and have not yet done it.

The CHAIRMAN. Have we in fact retired any more than we had retired in 1868 ? Mr. SUMNER. Very little.

Mr. THOMPSON. You say that when Congress doubled on its track in 1868, that fact originated the speculative era. Did I understand you correctly?

Mr. SUMNER. Yes.

Mr. THOMPSON. Now, how could Congress, by simply continuing the condition of affairs as they existed previously to 1867, have produced that effect, which the same condition of affairs did not have before 1867?

Mr. SUMNER. Because Congress simply turned around and changed its policy. The policy for seventeen or eighteen months had been to pay the non-interest-bearing debt, and to retire the obligations of it; and everybody in the country who knew that that was the policy of the government adjusted his affairs accordingly. He knew that there must be a period of restraint and self-denial and endurance in order to pay up. But when Congress reversed that policy and said that it was not going to pay up any more, and that it had no policy at all in regard to the matter, then everybody was free to enter into speculation and inflation.

Mr. THOMPSON. From the close of the war in 1865 up to 1867, why did not the same policy induce this speculative era?

Mr. SUMNER. Because the people of the country were satisfied that that must be the course of things. This action of Congress was taken as soon as the obligations of the war could be collected and liquidated and reduced to shape so that the governinent might know what it had got to pay. Then Congress went to work immediately to manage it and fund the debt in a permanent form.

Mr. THOMPSON. In other words, the people were anticipating the action of Congress iu 1867 ?

Mr. SUMNER. I think so. I think that that was the universal sense and feeling of the people. I do not know of any documentary evidence one way or the other in regard to that. Now, the effect of this vast amount of paper circulating as currency was, necessarily, to produce an era of speculation. When everything was advancing in price, the great way to get rich was to buy something, hold it a little while, and sell it again, and keep all the time pocketing the differences; and this naturally forced the trade of the country into that form. The redundant currency, of course, became the basis to expand bank loans and discounts; and these again became the basis for a large superstructure of bonds and mortgages and all other forms of credit, and everybody got into debt, because the only way to get rich was to get into debt.

The CHAIRMAN. It was a rising market, and everybody who bought anything was sure of selling it at a profit ?

Mr. SUMNER. Yes; and if a man could borrow $100,000 to get possession of some commodities and hold them for a little while and sell them for $105,000, he pocketed the $5,000 profit; and, of course, if he could borrow $200,000, he pocketed $10,000 profit, and so on.

The CHAIRMAN. Did it actually act in that way ?

Mr. SUMNER. Yes.

The CHAIRMAN. What brought it to an end?
Mr. SUMNER. Of course it had to come to an end.

A piece of land may be bought

at $1,000 and it may go to $5,000, $10,000, $50,000, or $100,000, but it has got to stop somewhere, and I think it is within the experience and observation of everybody that this whole period was one in which credit was steadily inflated and expanded to the very last limits possible, so that everybody was in debt.

The CHAIRMAN. Were not the indications made very clear by the steady rise in the rate of interest until the rate of interest got so high that nobody could pay it; and then the collapse came?

Mr. SUMNER. Precisely. That is precisely the indicator that showed the movement. The rate of interest advanced steadily until 1870; and, in 1870, all the loose capital of the country began to flow into the great money centers, particularly New York. Money was very easy in 1870. Then it began to get dearer and dearer. In 1871, 1872, and 1873, until 1874, all the loanable capital of the country which could be used here was absorbed and swallowed up; and then, once more, the rate of interest ran to a point which could not be endured, and there was no further supply to draw upon, and then we came to the breakdown.

The CHAIRMAN. And where a breakdown occurs it usually begins by some great banking-house collapsing?

Mr. SUMNER. Yes, sir; and you cannot tell where it is coming from. We used to think that over in 1872-73. I often discussed it with gentlemen, more or less occupied in studying this subject. We were satisfied that there was going to be a smash some time, and the question would be where would it come from, and what would be the particular form in which it would break out. When it comes it must come in some definite form. It has a specific entry. That was a very difficult question. I think the general feeling was that it must come from the exaggerated railroad building, or something in that connection; but I do not know anybody who predicted very definitely what the exact form of the outbreak would be. Now, if we were in a period of inflation, and if there had to come after that period the collapse, we do not need to go very much farther to know what the matter is with us. There is where we are. We have collapsed, and have not yet got up again. I think that if anybody thinks that we are going to get up again to the old kite-flying he is mistaken, and that he had better dismiss that idea.

Mr. RICE. Might not the homeopathic remedy of "like cures like " be applied? Might not a little more money now give a little more inflation, and would that not be some improvement to business to-day?

Mr. SUMNER. Like would cure like in this way: If you go on to inflate some more, and some more, and so on until you burst up the whole thing, it might cure itself in that way by our going through a national bankruptcy.

The CHAIRMAN. But, can you avoid, by any process, the inevitable result?

It

Mr. SUMNER. In no way in the world. We can postpone it, but if we do it will be so much heavier when it comes again, and it will have to be paid with interest. must be met some time; and, the longer it is put off, the more likely it is to end in bankruptcy.

Mr. RICE. Would repudiation or national bankruptcy be anything but a payment, only in a different way?

Mr. SUMNER. It would only be a payment that would fall with frightful inequality.

The CHAIRMAN. Who would suffer most from such a state of things?

Mr. SUMNER. The non-capitalists.

The CHAIRMAN. Explain how.

Mr. RICE. Assuming that we are going to pay a debt by not paying.

The CHAIRMAN. Yes; by repudiation. What would be the effect?

Mr. SUMNER. You mean by going through continual inflation until the whole thing bursts up in national bankruptcy.

Mr. RICE. Whenever it comes, and the debt is wiped out (by repudiation or bankruptcy), what would be the effect?

Mr. SUMNER. The effect would be, in the first place, that the capital that could be moved would be all moved out of the country. That is, that everybody who had anything would try to save it. That withdrawal of capital, in the next place, would cause a diminution of wages and a reduction in the employment of labor throughout the whole country. That would go on until there was not any more capital exportable. When we get so far as that, the laboring class (I do not like to use that term, but I mean the non-capitalist class) would find that the chances of accumulating something out of wages were totally destroyed.

Mr. RICE. Would they have any work to do for wages?

Mr. SUMNER. Nothing but the very minimum to keep up the absolute necessities of the community. The community, of course, would have to go on. We should need to have our three meals a day, I suppose, even though they might consist of bacon and hominy; and somebody would have to get them ready. There would have to be some service performed, and I suppose some wages would be paid.

Mr. RICE. Consider in that connection what would be the effect of retiring this debt, not by that form, but by the issue of inconvertible currency by the government in payment of the bonds.

Mr. SUMNER. There is no such thing conceivable; I cannot imagine how any such thing could possibly take place.

Mr. RICE. You have heard of such a proposition?

Mr. SUMNER. I have heard some people talk such things; but if I had a thousanddollar bond, and if there was notice published that I should bring it to the Treasury and get a thousand-dollar greenback for it, I would save myself the trouble by just locking up the bond.

The CHAIRMAN. But, suppose you owed that thousand dollars to somebody, you could pay it off with the thousand-dollar greenback.

Mr. SUMNER. Yes, sir,

The CHAIRMAN. There are some people in debt; would they not be willing to take in their bonds and get greenbacks for them?

Mr. SUMNER. What would they gain by it?

The CHAIRMAN. They would be able to pay their debts.

Mr. SUMNER. If I owe a thousand dollars and have a thousand-dollar bond, I can pay the debt with it.

The CHAIRMAN. But, finding that that process was going to be carried out, the holders of the bonds would be very desirous to get rid of them, and to get money to pay their debts or to buy property. The man who has a thousand-dollar bond would take a thousand-dollar greenback for it, and pay his debt.

Mr. SUMNER. I do not see how he would make anything at all by it.

The CHAIRMAN. If he paid his debt and had tangible property left he would make something by it.

Mr. SUMNER. But he would have had that property left before.

The CHAIRMAN. Suppose he has property mortgaged for $5,000, which is all that he can sell it for; and then suppose this proposition is made to retire bonds by the issue of new greenbacks-legal-tenders. Another man has $5,000 in bonds and the man whose farm is mortgaged says to him, "Let me have your bonds, and I will go and get greenbacks for them and pay my debt, and I will give you half of my farm and keep the other half myself." A bondholder, finding that his bond is worthless, says to himself, "I had better have half that man's farm than have nothing." Would not that be, in your belief, one of the effects of such legislation?

Mr. SUMNER. I cannot deny that it might be done in that way, perhaps, in individnal cases. As for any widespread movement of that kind I cannot conceive of it at all, because, in the first place, it is necessary for your hypothesis to imagine that the price of that farm must advance over $5,000, which is done when you talk about taking onehalf of it. The value of the farm is raised to $10,000.

The CHAIRMAN. But my point is this: You and I agree that the bonds would be worthless the moment they were to be paid in that way, and we would try to save ourselves. But, if I find a man who says he will give me half of his farm for my bond, I will sell my bond and take half of the farm.

Mr. SUMNER. You would not get my bond for that purpose.

The CHAIRMAN. What would you do with yours?

Mr. SUMNER. I would lock mine up in my desk, because I would know that before such a state of things had been running six months there would be one universal howl over the whole country to have that law repealed, and I would wait for its repeal. The idea is wild and preposterous; and I cannot conceive any practical way of getting at it at all. If anybody should try it I would wait and see what the result was. And when he tried it a little while I should be sure that he would convert all the public to the other side.

The CHAIRMAN. But you are aware that national and State debts have been repu diated, and have not been paid?

Mr. SUMNER. Certainly.

The CHAIRMAN. And that the man who had the advantage of foreknowledge, and sold his bond and got the farm for it, had the farm instead of nothing?

Mr. SUMNER. You can repudiate a debt, but we are talking about trying to pay it off in greenbacks.

The CHAIRMAN. You and I will agree that that is only one way of repudiation. Mr. RICE. The object of my inquiry was to ascertain from you whether that would not be another form of repudiation?

Mr. SUMNER. O, certainly.

Mr. RICE. And whether the additional effect of it would not be to help the brightest and quickest to cheat everybody else?

Mr. SUMNER. Yes; I was going to say that there is another element in Mr. Hewitt's hypothesis; and that is, that some one is going to know this legislation beforehand. Some one would certainly know it beforehand; and those who would know it would be generally the craftiest and wiliest and least respectable persons in the community. The CHAIRMAN. What would be the result as to placing the property of the country in fewer hands than it is now?

Mr. SUMNER. Very few would have anything left; and they would be these few who, by fraud and corruption and underhand means, had obtained this previous information which we speak of, and who would adjust themselves accordingly.

The CHAIRMAN. Would the laboring classes or non-capitalists get any benefit out of that procedure?

Mr. SUMNER. No, sir; I do not see that they would get anything but a longer period of more absolute stagnation than now exists.

The CHAIRMAN. That is to say they would suffer even more than they are suffering now?

Mr. SUMNER. Yes.

The CHAIRMAN. And the suffering would be more widespread?

Mr. SUMNER. I should say that it would surpass imagination to conceive the results of such a state of things as that.

Mr. RICE. In regard to your expression of surprise at the bare imagination of such an act, let me ask you whether you are not aware that just such a thing has been proposed publicly by some of the professed friends of labor and the laboring classes? Mr. SUMNER. I never can bring their expressions down to anything that I can

understand.

Mr. THOMPSON. If the government gave its notes to-morrow to redeem a thousanddollar bond by issuing a thousand-dollar greenback-legal tender-what would you lose, and what would the government gain, if there would be either loss or gain? Mr. SUMNER. Nothing at all.

Mr. THOMPSON. Then why would you lock your bond up?

Mr. SUMNER. I would not take the trouble to walk across the street to make an exchange of the bond for greenbacks.

Mr. THOMPSON. The greenbacks would be as much a debt of the government as the bond is?

Mr. SUMNER. Except that it would be a non-interest debt, and of course if there were to be such legislation I should understand by it that the government did not propose to pay interest on my bond any longer, and I would lock it up.

Mr. THOMPSON. Then it would not hurt you or help the government?

Mr. SUMNER. I do not see that it would in that shape. I speak of a thousand-dollar greenback for a thousand-dollar bond; but I suppose that what they want to do is to get out greenbacks in small denominations so as to try to inflate prices and get things kiting once more. I do not believe, however, that that can be done in this country again by any conceivable device, and the reason why I do not believe so is because everybody can understand the trick now. It has been so thoroughly talked over and debated and canvassed within the last four or five years that everybody understands the trick of inflation, and everybody would be wanting to get on the winning side, and you could not get anybody to go on the other side.

The CHAIRMAN. This brings up a question of some importance in this process: Would not the only persons who could gain by this procedure be the debtors?

Mr. SUMNER. Yes; if anybody.

The CHAIRMAN. Now what proportion of the people of the United States may be regarded as the debtor class, that is to say, people who are in debt without the immediate means of payment?

Mr. SUMNER. You mean how many solvent debtors there are in the country? The CHAIRMAN. I want to exclude from the estimate the class of people with means immediately available to pay their debts-what you call quick assets.

Mr. SUMNER. I do not see how I can make any estimate of them at all. Solvent debtors, excluding those who are not only solvent but who can pay down, are nearly all of us. We are all solvent debtors who can pay our debts at maturity.

The CHAIRMAN. Have the solvent debtors an interest to have such a procedure carried into effect?

Mr. SUMNER. No, sir; the solvent debtors have no interest in it.

The CHAIRMAN. Then who have an interest in carrying that process into effect? Mr. SUMNER. The insolvent debtors.

The CHAIRMAN. Do you suppose that the class of insolvent debtors at present (considering all the bankruptcies that have recently taken place) is very large?

Mr. SUMNER. No, sir; it is a very small class now. Of course, we have been having liquidations, and the insolvent debtors have been dropping out.

The CHAIRMAN. Then the proportion of such persons in the community is very small now?

Mr. SUMNER. It is very limited, indeed.

The CHAIRMAN. In other words, those who would be benefited by such a procedure have been squeezed out already?

Mr. SUMNER. Yes.

The CHAIRMAN. Therefore there is no object for anybody in having such legislation? Mr. SUMNER. I do not think so. That brings right on another point which I want to speak about. Up to the time that the crisis of 1873 came, the general opinion of all persons acquainted with business here at that time would be this: that nobody wanted to pay and wind up; nobody wanted to liquidate; everybody wanted to renew his obligations, to extend his operations, because he expected a rise in the market still

further. Everybody's confidence in the market was such that he did not want to pay his debt. He thought he was sure to be able to pay his interest on it, and he wanted to make every transaction, as far as possible, the basis for another transaction, so as to extend his operations and get profit on his larger capital. When the crisis of 1873 came, it just shook that confidence, and everybody turned around and began to ask himself whether his inventory figures were good or not-whether the figures at which he had rated his property were correct. He knew that he had debts, and then he had to ask himself whether he was solvent, if he did not pay his debts very soon. He found that prices began to fall, and he found that it was all in vain for him to inventory his property at so much, and then his debts at so much, and his margin at so much. By and by the question was, whether his margin was not wiped out. Everybody, I think, set to work immediately, with the natural good sense of every individual, to discharge his obligations and to reduce his debts, and to pay up and bring his affairs into close order again just as fast and steadily as he could; and the whole people of this country, I think, have been occupied ever since 1873 in trying to establish and solidify the credit transactions which had been opened up to that time. A great many people found themselves insolvent, and have failed and have gone out of the account. But the natural good sense of every man simply showed him what he ought to do. Every individual had to reduce his expenditures, to economize as much as he could, and to turn in his capital as rapidly as he could to the liquidation of his obligations. In other words, the people of the United States have been, within the last five years, accumulating capital with great rapidity, in order to turn it in to pay their debts. But they have been saving money. Every man has reduced his expenditures, and has contracted his obligations in that way. That, of course, is one great reason for the slackness in trade. When people are not buying goods, if they can possibly help it, of course, trade is dull. That runs through everything. It runs through manufactures and everything else. When people are all avoiding expenses as much as possible, a dullness in trade is produced.

The CHAIRMAN. And all that leads necessarily to a slack demand for labor?
Mr. SUMNER. Of course.

The CHAIRMAN. And the laborer suffers?

Mr. SUMNER. Certainly.

The CHAIRMAN. I do not know whether you are ready to take up the question of remedies. Do you think that there is any remedy that may be applied by legislation or otherwise to relieve labor from the consequences of this speculative era ?

Mr. SUMNER. There is nothing that legislation can do about it at all. We have all got to work through it, and every one must do the best he can.

The CHAIRMAN. Can legislation do anything toward relieving this accumulation of labor by transferring it to some other place where labor is in request or can be utilized?

Mr. SUMNER. Legislation might do a great deal of mischief, but nothing else. There is one other point which I would like to bring on in this connection because it bears on that point. I have not said as much as I want to yet about the protective tariff. The CHAIRMAN. Do you want to go on with it at this point?

Mr. SUMNER. Yes. Of course we have had to put up with very heavy taxation since the war. That could not be helped, and taxation is nothing but a burden. We have got to carry it and to make the best of it. It is one of the inevitable hardships of life. But, then, there is the entirely different question of paying in taxes for protection; that is, taxes that are paid by the people, not for the government, but for the protection of manufacturers. In the first place, any taxes of that kind (and we have had frightful ones laid on in this country, unexampled ones) that are laid on for that purpose are a dead burden to the people, coming out of the war with all their other difficulties upon them. In the second place, if you protect anybody, you have got to undertake to decide what things ought to be done in this country. As you [to Mr. Rice] suggested a while ago, some people think it necessary that we should work iron in this country, whether it is profitable or not; that is to say whether it is as profitable as something else that could be done or not (for that is the real question). Now, if the legislature makes up its mind that there are some things that ought to be done here, and sets to work to lay protective duties, in order to force those things to be done, there will be some other consequences which we must take into account. One of them will be, right away, that you will force the industry of the country into disproportionate development.

We have heard a good deal within a few years past about over-production. I do not know what in the world over-production can mean. You cannot give any intelligible definition of it. The only thing that is possible in that direction is not over-production in any sense at all, but disproportionate production. To illustrate that: If you want to build houses, you have got to have wood and brick and lime and nails, &c. (the component materials), to go into the building. If you have wood and nails and lime enough to build 1,000 houses, and you have brick enough to build 2,000 houses, you have a disproportionate production; and the bricks for 1,000 houses have got to lie idle until