The dishonest manipulation of the issues and sales of railroad stocks is a practice that was not confined solely to the twenty-five years after the Civil War, but the numerous examples of it which occurred during that period aggravated the exasperation which has already been mentioned. Daniel Drew, the treasurer of the Erie Railway in 1866, furnished an excellent illustration of this type of activity. Drew had in his possession a large amount of Erie stock which had been secretly issued to him in return for a loan to the company. The stock in the market was selling near par and still rising. Drew instructed his agents to make contracts for the future delivery of stock at prices current at the time when the contracts were made. When the time came for fulfilling his contracts, Drew suddenly threw the secret stock on the market, drove general market prices on Erie stock down from ninety-five to fifty, bought at the low figure, and sold at the high price which was called for in the contracts made by his agents. The effect of such sharp dealing on investors, the railroad or the public seems not to have entered into the calculation. Indeed, the Erie and many another road was looked upon by its owners merely as a convenient piece of machinery for producing fortunes.

Gould, Drew and other railroad men of their time were also expert in the practice of "stock-watering." This consists in expanding the nominal capitalization of an enterprise without an equivalent addition to the actual capital. The rates which the railway has to charge the public tend to increase by approximately whatever dividends are paid on the water.[1] Then, as later, when a road was prospering greatly it would sometimes declare a "stock dividend," that is, give its stockholders additional stock in proportion to what they already owned. The addition would frequently be water. Its purpose might be to cover up the great profits made by the company. If, on a million dollars' worth of stock, it was paying ten per cent. dividends, the public might demand lower freight and passenger rates; but if the stock were doubled and earnings remained stationary, then the dividends would appear as five per cent.—an amount to which there could be no objection. H.V. Poor, the railroad expert, declared before a commission of investigation in 1885 that the New York Central Railroad was carrying $48,000,000 of water, on which it had paid eight per cent. dividends for fifteen years. He also estimated that of the seven and a half billions of indebtedness which the roads of the country were carrying in 1883, two billions represented water. Others thought that the proportion of water was greater. In any case the unnecessary burden upon business to provide dividends for the watered stock was an item of some magnitude. The investor, however, looked upon stock-watering with other eyes. The building of a new road was a speculation; the profits might be large, to be sure, but there might in many cases be a loss. In order to tempt money into railroad enterprises, therefore, inducements in the form of generous stock bonuses were necessary.

The rate wars of the seventies gave wide advertisement to another aspect of railroad history. The most famous of these contests had their origin in the grain-carrying trade from the Lakes to the sea-board. The entry of the Baltimore and Ohio and the Grand Trunk into Chicago in 1874, stimulated a four-cornered competition among these roads and the Pennsylvania and New York Central for the traffic between the upper Mississippi Valley and the coast. Rates on grain and other products were cut, and cut again; freight charges dropped to a figure which wiped out profits; yet it was impossible for any line to drop out of the competition until exhaustion forced all to do so. A railroad can not suspend business when profits disappear, for fixed expenses continue and the depreciation of the value of the property, especially of the stations, tracks and rolling stock, is extreme. Since the rate wars were clearly bringing ruin in their train, rate agreements and pooling arrangements were devised. The latter took several forms. Sometimes a group of competing roads agreed to divide the business among the competitors on the basis of an agreed-upon percentage. Another plan was to pool earnings at the close of a period and divide according to a prearranged ratio. Sometimes destructive competition was prevented by a division of the territory, each company being allowed a free hand in its own field. In general, pooling agreements were likely to break down, although a southern pool organized by Albert Fink on a very extensive scale lasted for many years and was thought to have had a vital influence in eliminating rate-wars. Their efficacy depended mainly on good faith, and good faith was a rarity among railroad officials in the seventies and eighties. In the eyes of the public, rate agreements and pools were vicious conspiracies which left the rights and well-being of the private shipper completely out of the calculation.

Still another indictment of the railways resulted from their participation in politics. It was inevitable, of course, that the roads should be drawn into the field of legislation—the grants of public land, for example, helped bring about the result. It early seemed advantageous to attempt to influence state legislatures to pass favorable laws, and it seemed a necessity to bring pressure to bear in order to protect the roads from hostile acts. The methods used by the railway agents in their political activity naturally varied all the way from legitimate agitation to crude and subtle forms of bribery. An insidious method of influencing both law-making and litigation was the pass system. Under it the roads were accustomed to give free transportation to a long list of federal and state judges, legislators and politicians. For a judge to accept such favors from a corporation which might at any time be haled before his court, and for a legislator to receive a gift from a body that was constantly in need of legislative attention is now held to be improper in the extreme. But in those days a less sensitive public opinion felt hardly a qualm. That the practice was likely to arouse an unconscious bias in the minds of public officials is hardly debatable. The more crude forms of bribery, too, were not uncommon. It was testified before a committee of investigation that the Erie Railway Company in one year expended $700,000 as a corruption fund and for legal expenses, carrying the amount on the books in the "India-rubber account." The manipulation of the courts of New York by the Erie and the New York Central during the late sixties was nothing short of a scandal. Alliances between political rings and railroad officials for the purpose of caring for their mutual interests were so common that reformers questioned whether the American people could be said to possess self-government in actuality. Immediately after the Civil War, Charles Francis Adams, an acute student of transportation, declared that it was scarcely an exaggeration to say that the state legislatures were becoming a species of irregular boards of railroad direction. The evils of the alliance between the roads and politics were not, of course, due entirely to the former. The receiver of a pass shared with the giver the evil of the system. Many a legislator was corrupt; more shared in practices which were little removed from dishonorable. Adams, for example, gives an account of his experiences, as a director of the Union Pacific, in dealing with a United States senator in 1884. The congressman was ready to take excellent care of railroad corporations which retained him as counsel, but was a corrupt and ill-mannered bully toward the Union Pacific, which had not employed him.[2]

The most constant grievance was discrimination—that the roads varied their rates for the benefit or detriment of especial types of freight, of individuals and of entire localities. Through business between competing points was carried at a low figure, while the roads recouped themselves by charging heavily in towns where competition was absent. Shippers complained that rates between St. Paul and Chicago, for example, where competition existed were hardly more than half the charges to places at a similar distance where a single road was in a position to demand what it pleased. Manufacturers in Rochester could send goods to New York City and reship them to Cincinnati, back through Rochester, for less than the rate direct to their destination. Yet the direct haul was seven hundred miles shorter than the indirect. Secret arrangements were commonly made with favored shippers by which they secured lower rates than their competitors. When it became evident that transportation cost entered into the price of substantially everything which the ordinary citizen consumed, and when it was considered that a slight rise in railroad rates might easily amount to a heavy tax on a shipper or an entire region, it was seen that uniformity of rates was a matter of the utmost concern.

In brief, then, it was complained that the growth of the transportation system had placed enormous power in the hands of a small group of men, many of whom had indicated by their selfishness, arrogance and questionable practices that they ought not to be entrusted with so great a measure of authority.

The best example of the American railroad president after the war was Commodore Cornelius Vanderbilt. Vanderbilt began his career by ferrying passengers and freight between Staten Island and New York City. Later he turned his attention to shipping, in which he made a fortune, and planned the operation of steamships on a large scale. Becoming interested in railroading, he clearly perceived the importance of the western trade and the necessity of consolidation. Vanderbilt was a man of vision, a man who combined magnitude of plan with the vigorous grasp of the practical details necessary for the realization of his ambitions. He was buoyant, energetic, confident, ambitious, determined, despotic. Unhampered by modern conceptions of public duty, undeterred by the hostility of powerful opponents, with eyes fixed upon the combination and control of a great transportation system, Vanderbilt entered courageously upon bitter struggles for supremacy which involved the misuse of the courts, the control of the New York state legislature and a thousand charges of corrupt influence and bribery, but he welded railroads together, replaced wood and iron with steel, and constructed tracks and terminals. At his death in 1877 he left a huge fortune and bequeathed to his successors a great, consolidated railroad enterprise, skillfully and successfully administered. The great weakness of Commodore Vanderbilt and his associates, and of those who later imitated his work was their fundamental conception of the railroad as a private venture. Success consisted in bigness, great profits, crushing or buying out competitors, and administering the business for the best good of the few owners, regardless of the interests of the region through which the railway passed. Vanderbilt and many of his contemporaries were men of business sagacity and foresight, but their ethical outlook was restricted and their sense of public responsibility not well developed.

So considerable a list of grievances naturally bestirred the people to seek relief at the hands of their legislators. Two lines of action were followed. In Massachusetts, as early as 1869, a state commission was formed with purely advisory powers. Under the able leadership of Charles Francis Adams it attained great influence and worked effectively for the elimination of railroad abuses through conference and the weight of public opinion. In Illinois, on the other hand, reliance was placed upon compulsory action. The state constitution of 1870 declared the railroads to be public highways and required the legislature to fix rates for the carriage of freight and passengers, and to pass laws to correct abuses connected with the railways and grain warehouses. In compliance with the constitution the state passed the necessary legislation and placed their execution in the hands of a commission with considerable power. Other western states followed the Illinois model.

On the national scale the agitation for government action began with the minor parties. In 1872 the Labor Reformers demanded fair rates and no discrimination; in 1876 the Prohibitionists called for lower rates; in 1880 the Greenbackers stood for fair and uniform rates; four years later they urged laws which would put an end to pooling, stock-watering and discrimination, and in the same year the Republicans promised an act to regulate commerce if they were elected. The most effective force behind the demand for railroad regulation was the Patrons of Husbandry, better known as the "Grange." This society was founded by O.H. Kelley, a government clerk in Washington, in 1867. Its initial purpose was the organization of the agricultural classes for social and intellectual improvement, but later it engaged in the effort to correct transportation abuses and to arouse cooperation among the farmers in other ways. The movement grew astonishingly, especially in the Middle West, where its membership reached nearly 759,000 in 1875.

Transportation conditions in the West had not reached the relatively stable situation which characterized those of the East. In the West much new work was being done, with the attendant evils of construction companies and unnecessary and speculative undertakings. Much of the railroad stock was in the hands of eastern investors whom the western farmers pictured as living in idle ease on swollen incomes, careless of the high rates and unfair discriminations under which the farmer groaned. The constantly falling prices, which influenced the West in so many other ways, served to heighten the discontent with any abuse which increased the farmer's burden. Moreover, the western states had contributed huge amounts of land to help build the railways and they were not minded to give up the hold which their generosity had justified.

Impelled, then, by such force as the Grange and similar organizations supplied, the western states proceeded to the adoption of laws whose purposes ordinarily included railroad rate-making by the legislature or by a commission, the doing away with such abuses as discrimination, and the prohibition of free passes. The railroads promptly opposed the laws and carried the battle to the courts. The so-called "Granger Cases" resulted. Three of these were representative of the general trend of the decisions.

The famous case Munn v. Illinois, which was decided by the Supreme Court in 1876 was possibly the most vital case in the history of the regulation of public service corporations after the Civil War. The legislature of Illinois, in conformity with the state constitution of 1870, had passed a law fixing maximum charges for the storage of grain in warehouses. The owners of a certain warehouse refused compliance with the law on the ground that it was contrary to the Constitution and hence null and void. They argued that when the state fixed rates it deprived the owners of the right to set higher charges and so, in effect, deprived them of their property, in defiance of that portion of the Fourteenth Amendment forbidding a state to "deprive any person of life, liberty, or property, without due process of law."

On examination of the history of the control of such enterprises, the Court found that it had been customary in England for many centuries and in this country from the beginning, to regulate rates on ferries, charges at inns, and similar public enterprises, and that it had never been thought that such action deprived persons of property without due process of law. In other words, the established common law, at the time of the passage of the Fourteenth Amendment, did not look upon rate regulation as a deprivation of property. The Court, therefore, declared the Illinois warehouse law constitutional, and in doing so made the following statement:

Property does become clothed with a public interest when used in a manner to make it of public consequence, and affect the community at large. When, therefore, one devotes his property to a use in which the public has an interest, he, in effect, grants to the public an interest in that use, and must submit to be controlled by the public for the common good, to the extent of the interest he has thus created.

While the Munn case was before the Court, the case Peik v. the Chicago and Northwestern Railway Company was raising a question which struck at the heart of the chief practical impediment in the way of state control of transportation. The central question in the litigation was whether the legislature of Wisconsin could lawfully regulate rates on railroads inside the state. Since the bulk of the traffic on most roads crosses state borders at one time or another in its transit, the regulation of rates within a state normally affects interstate commerce. But the regulation of interstate commerce is vested in Congress by the terms of the Constitution. The railroad was quick to take advantage of the division of power between the states and the nation. Indeed, when fighting state legislation, the roads earnestly emphasized the exclusive power of Congress over interstate commerce; but when fighting national regulation, they equally deprecated any interference with the reserved rights of the states. Acting in accordance with its established practice, the Court decided that the state was authorized to regulate rates within its borders, even though such regulation indirectly affected persons outside, until Congress passed legislation concerning interstate commerce. Obviously this decision allowed the states to work out their railroad problems unhampered, and constituted one of the chief victories for the Grangers.

In 1886, however, the Court overturned some of the principles which had been established in the Munn and Peik cases. The new development came about in connection with the Wabash railroad. It appeared that the road had been carrying freight from Peoria, Illinois, to New York for smaller rates than were charged from Gilman to New York, despite the fact that Peoria was eighty-six miles farther away. Since Illinois law forbade a road to levy a greater charge for a short haul than for a long one, a suit was instituted and carried to the Supreme Court. The company held that the Illinois legislation affected interstate commerce and hence trenched upon the constitutional power of Congress. This time the Court upheld the road. It decided that the transportation of goods from Illinois to New York was commerce among the states, that such commerce was subject to regulation by Congress exclusively, and that the Illinois statute was void. It seemed, then, that state regulation was a broken reed on which nobody could safely lean, and attention thereupon turned to the federal government.

Congress had already been discussing federal regulation intermittently for some years. The so-called "Windom Report" of 1874 had advised federal construction and improvement of transportation facilities in order to lower rates through competition, but no action had resulted. In 1878 the "Reagan bill" had proposed government regulation, and from that time the subject had been almost continuously before Congress. In 1885 the Senate had appointed a select committee of five to investigate and report upon the regulation of freight and passenger transportation. The committee was headed by Shelby M. Cullom, who had been a member of the legislature of Illinois and later governor, in the years when the railroad and warehouse laws were being put into effect. It endeavored to discover all shades of opinion by visiting the leading commercial centers, and by consulting business men, state commissioners of railroads, Granger officials and others. After a somewhat thorough investigation, the committee expressed its conviction that no general question of governmental policy occupied so prominent a place in the attention of the public as that of controlling the growth and influence of corporations. The needed relief might be obtained, the committee thought, through any one of four methods: private ownership and management, with a greater or less degree of government oversight; government ownership and management; government ownership with private management under public regulations; partial state ownership and management in competition with private companies. The widespread opposition to state ownership of railroads, the commission thought, seemed to point to some form of government regulation and control of the existing situation.

Impressed with the magnitude of the abuses involved, and the hopelessness of regulation through state laws, the committee presented a bill designed to bring about regulation on a national scale through a federal agency. The resulting law was the Interstate Commerce Act of February 4, 1887. It provided that all railway charges should be reasonable and just; forbade the roads to grant rebates, or to give preferences to any person, locality or class of freight, or to charge more for a short haul than for a long one except with the consent of the proper authorities; it made pooling unlawful; and it ordered the companies to post printed copies of their rates, which were not to be altered except after ten days' public notice. The act also created an Interstate Commerce Commission of five members to serve six-year terms, into whose hands the administration of the measure was placed. Persons who claimed that the railways were violating the provisions of the law could make complaint to the Commission, or bring suit in a United States Court. In order that the Commission might know the condition of the roads, it was given power to call upon the carriers for information, to demand annual reports from them, and to require the attendance of witnesses. If the railroads refused to carry out the orders of the Commission, they could be brought before a United States district court.

In forbidding pools, the Act committed the railroads to the policy of enforced competition, a policy which was commonly accepted at the time as the best one for the public interest. Such experts, however, as Professor A.T. Hadley and Charles Francis Adams, Jr., raised important objections. They cited the rate wars to indicate the results of competition and declared that railroads ought to be monopolies. If two grocery stores are established where trade enough exists for only one, they asserted, the weaker competitor can close his doors and the public loss is not heavy; but in the case of the railways a weak competitor must continue business even at disastrously low rates because all his interest charges continue and the depreciation on his property is extreme. The construction of an unnecessary road and its subsequent operation at a loss, its failure or its abandonment, constitute a great drain upon the public. Such objectors contended that pooling combinations did away with many of the evils of cut-throat competition, and they accordingly urged that the carriers be permitted to make such arrangements, under whatever government regulation might be needed to prevent unreasonable charges. By such means the available business of a region might be fairly divided among the roads entering it, without resort to competitive rate-cutting and its consequent evils.

The passage of the law was looked upon with much hostility on the part of the railroad interests. James J. Hill thought that the railroads might survive, although the country would be ruined, and he predicted that Congress would shortly be called in special session to repeal the act. More important than mere hostility was the constant opposition and evasion which characterized the attitude of the carriers toward the operation of the law. Discriminations were commonly practiced and hidden away in accounts under false or misleading headings. Rebates were given and received, a fact which was due in no small degree to the shippers themselves. A large shipper might demand advantageous rates and threaten to turn his trade over to a rival road. As the arrangement would be secret, and the likelihood of discovery small, the temptation to break the law was correspondingly great.

The good results of the passage of the law were disappointingly slight. To be sure, the Commission was gaining experience, administrative precedents were being established and injustice was somewhat less common than before. The first chairman was Judge T.M. Cooley, a noted lawyer whose appointment was considered an admirable one. Most important of all, the principle of government regulation was established. Nevertheless, progress was so slow as to be almost invisible. The courts hampered the activities of the Commission. When cases arose involving its decisions, they allowed a retrial of the entire case from the beginning, permitting the introduction of facts which had been designedly withheld by the carriers in order to undermine the influence of the Commission, and sometimes they reversed its findings and so dulled the effectiveness of its labors. Eleven years after the Act was passed the Commission declared that abuses were so constant that the situation was intolerable; a prominent railroad president made the charge that "good faith had departed from the railway world"; and an important authority on railroad affairs declared that the Commission had become an impotent bureau of statistics.

BIBLIOGRAPHICAL NOTE

More study has been made of railroad regulation and the technical side of railroading than of the history of transportation and the effects of the roads on the political and economic life of the people. An excellent single volume is John Moody, The Railroad Builders (1919), which devotes attention to the important personages of railroad history, discusses the growth of large systems and contains valuable maps; the best concise account of the history of the railways is W.Z. Ripley, Railroads: Rates and Regulation (1912). Chap. I; W.Z. Ripley, Railway Problems (rev. ed., 1913), is reliable; E.R. Johnson and T.W. Van Metre, Principles of Railroad Transportation (1916), has some excellent chapters and several informing maps; C.F. Carter, When Railroads were New, (1909), is a popular account; C.F. Adams, Chapters of Erie (1886), exposes early railroad practices; H.G. Pearson, An American Railroad Builder (1911), presents the career of J.M. Forbes as a railroad president; A.T. Hadley, Railroad Transportation (1886), is a classic, early account. Consult also E.R. Johnson, American Railway Transportation (1903); Frank Parsons, Heart of the Railroad Problem (1906); C.F. Adams, Jr., Railroads: Their Origin and Problems (1878, rev. ed., 1893); "A Decade of Federal Railway Regulation," in Atlantic Monthly (Apr., 1898). On the personal side, the following are valuable: E.P. Oberholtzer, Jay Cooke, Financier of the Civil War (2 vols., 1907); J.G. Pyle, Life of J.J. Hill (2 vols., 1917); Memoirs of Henry Villard (1909). On the subject of land grants and regulation: L.H. Haney, Congressional History of Railways (2 vols., 1910); S.J. Buck, The Granger Movement (1913), and the same author's The Agrarian Crusade (1920), are best on the relation of unrest among the agricultural classes to the railroad problem. The "Cullom Report" is in Senate Reports, 49th Congress, 1st session (Serial Number 2356), in 2 vols., and is a mine of information on early abuses. The most important Granger cases are in United States Reports, vol. 94, p. 113 (Munn v. Ill.), and vol. 118, p. 557 (Wabash case).

* * * * *

[1] For example, an investor might contribute $100 in cash to an enterprise. The "paid in capital" or "actual" capital would, then be $100. He might receive in return $100 in stock and $100 in bonds, in which case the "nominal capital" would be $200; the additional $100 would be "water." If the enterprise paid interest on the bonds, and dividends on the stock, it would, of course, be paying a return on the water. The practice of stock-watering did not end with the days of Gould and Drew.

[2] In this connection Professor Farrand mentions the statement of a railroad magnate that "in Republican counties he was a Republican, and in Democratic counties he was a Democrat, but that everywhere he was for the railroad." Development of the United States, p. 290.



CHAPTER X

EXTREME REPUBLICANISM

That the election of 1888 differed from its predecessors since 1865 was due chiefly to the independence, courage and political insight of President Cleveland. Hitherto campaigns had been contested with as little reference to real issues as conditions rendered possible. Neither party had possessed leaders with sufficient understanding of the needs of the nation to force a genuine settlement of an important issue. That 1888 saw a clear contest made it a memorable year in recent politics.

It will be remembered that the tariff act of 1883 had been satisfactory only to a minority in Congress, because it retained the high level of customs duties that had been established during the Civil War. The congressional election of 1882 had resulted in the choice of a Democratic House of Representatives and had offered another opportunity for downward revision. Early in 1884, therefore, William R. Morrison presented a bill making considerable additions to the free list and providing for a "horizontal" reduction of about twenty per cent. on all other duties as levied under the act of 1883. The measure was defeated by four votes. Opposed to it were substantially all the Republicans and forty-one Democrats, most of them from the industrial states of New York, New Jersey, Pennsylvania and Ohio. The Democratic tariff plank of 1884, as has been seen, was practically meaningless, but the election of Cleveland, and the choice of a Democratic House gave another opportunity for revision. Again Morrison attempted a reduction, and again he was defeated by Samuel J. Randall and the other protectionist Democrats.

The entire matter, however, was about to receive a new and important development at the hands of President Cleveland and John G. Carlisle, who was the Speaker of the House during the four years from 1885 to 1889. Carlisle was a Kentuckian, a man of grave bearing, unflagging industry and substantial attainments. His tariff principles were in accord with those of the President, and his position as Speaker enabled him to determine the make-up of the Committee on Ways and Means, which would frame any tariff legislation. Cleveland had expressed his belief in the desirability of tariff reduction in his messages to Congress of 1885 and 1886, basing his recommendations on the same facts that had earlier actuated President Arthur in making similar suggestions. His recommendations, however, had received the same slight consideration that had been accorded those of his Republican predecessor. He therefore determined to challenge the attention of the country and of Congress by means of a novel expedient.

Previous presidential messages had covered a wide variety of subjects—foreign relations, domestic affairs, and recommendations of all kinds. Departing from this custom, the President made up his mind to devote an entire message to tariff reform. His project was startling from the political point of view, for his party was far from being a unit in its attitude toward reduction, a presidential campaign was at hand, and the Independents, who had had a strong influence in bringing about his success in 1884, sent word to him that a reform message would imperil his chances of re-election. This type of argument had little weight with Cleveland, however, and his reply was brief: "Do you not think that the people of the United States are entitled to some instruction on this subject?"

On December 6, 1887, therefore, he sent to Congress his famous message urging the downward revision of the tariff. The immediate occasion of his recommendation, he declared, was the surplus of income over expenditure, which was piling up in the treasury at a rapid rate and which was a constant invitation to reckless appropriations. The portion of the public debt which was payable had already been redeemed, so that whatever surplus was not expended would be stored in the vaults, thus reducing the amount of currency in circulation, and making likely a financial crisis. The simplest remedy for the situation seemed to Cleveland to lie in a reduction of the income, and the most desirable means of reduction seemed to be the downward revision of the tariff, a system of "unnecessary taxation" which he denominated "vicious, inequitable, and illogical." Disclaiming any wish to advocate free trade, he expressed the hope that Congress would turn its attention to the practical problem before it:

Our progress toward a wise conclusion will not be improved by dwelling upon the theories of protection and free trade. This savors too much of bandying epithets. It is a condition which confronts us, not a theory.

The effect of the message was immediate. Men began at once to take sides as if everybody had been waiting for a leader to speak his mind; and the parties adopted the definite principles to which they adhered for many years afterwards. The Democrats very generally rallied to the support of their champion; gaps in the ranks were closed up; and doubtless the usual pressure was applied to obstinate members who were disinclined to follow the leader. The Republican attitude was well expressed in the phrase of one of the politicians: "It is free-trade, and we have 'em!" The most prominent Republican, James G. Blaine, was in Paris, but true to his instinctive recognition of a good political opportunity he gave an interview which was immediately cabled to America. In it Blaine maintained that tariff reduction would harm the entire country, and especially the South and the farmers, and urged the reduction of the surplus by the abolition of the tax on tobacco, which he termed the poor man's luxury. The "Paris Message" was generally looked upon as the Republican answer to Cleveland, and as pointing to Blaine as the inevitable candidate for the ensuing campaign. On one point, most men of both parties were agreed—that the President had displayed great courage. "The presidential chair," declared James Russell Lowell, "has a MAN in it, and this means that every word he says is weighted with what he is."

The chairman of the Ways and Means Committee in the House of Representatives, Roger Q. Mills, promptly presented a bill which conformed to the principles for which the President had argued. The discussion of the Mills bill was long known as the "Great Tariff Debate of 1888." The House seethed with it for more than a month. Mills and Carlisle on one side and William McKinley and Thomas B. Reed on the other typified the new leadership and the new positions which the parties were taking. Senator Morrill's idea that the war tariff was a temporary one, President Arthur's advice that the tariff be revised, the recommendations of the Tariff Commission of 1882 that reductions were necessary,—all these were no longer heard. Instead, the Republicans upheld the protective system as the cause of the unexampled prosperity of the nation. It is not to be supposed that protectionist or reductionist converts were made by the endless discussion, but the initial prejudices of each side were undoubtedly deepened. Each telling blow on either side was applauded by the partisans of each particular speaker, so that "applause" fairly dots the dull pages of the Congressional Record. McKinley enlivened his colleagues by pulling from his desk and exhibiting a suit of clothes which he had purchased for $10.00, a figure, he asserted, which proved that the tariff did not raise prices beyond the reach of the laboring man. Mills tracked down the cost of the suit and the tariff on the materials composing it, and further entertained the House by an exhibit showing that it cost $4.98 to manufacture the suit and that the remainder of the price which the laborer paid was due to the tariff. In the end, the Mills bill passed the House with but four Democrats voting against it. Randall was so ill that he was unable to be present when the final vote was taken, but a letter from him declaring his opposition to the bill was greeted with great applause on the Republican side. Randall's day was past, however, and leadership was passing to new men.

Meanwhile the Republicans in the Senate, where they were in control, had prepared a tariff bill which was designed to give evidence of the sort of act which would be passed if they were successful in the campaign. Senator Allison and Senator Aldrich were influential in this connection. The passage of leadership in tariff matters to Senator Aldrich and men of his type was as significant as the transition in the House. Aldrich was from Rhode Island, an able man who had had experience in state affairs, had served in the federal House of Representatives and had been in the Senate since 1881. He had already laid the foundations of the great financial and industrial connections which gave him an intimate, personal interest in protection and which later made him an important figure in American industry and politics. Since neither party controlled both branches of Congress, it was impossible to pass either the Mills bill or the Senate measure; but the proposed legislation indicated what might be expected to result from the election. Each side had thoroughly committed itself on the tariff question.

In the meanwhile, great interest attached to the question of leaders for the campaign. Opposition to Cleveland was not lacking. His efforts in behalf of civil service reform had not endeared him to the office-seekers, and the hostility of the Democrats in the Senate was shown by their feeble support of him. The West did not relish his opposition to silver coinage, while his vetoes of pension legislation were productive of some hostility, even in his own party. Nor was the personality of the President such as to allay ill-feeling. Indeed, Cleveland was in a position comparable to that of Hayes eight years before. He was the titular party leader, but the most prominent Democratic politicians were not in agreement with his principles, and any step taken by him was likely to arouse as much hostility in some Democratic quarters as among the Republicans. Opposition to his nomination focused upon David B. Hill, Governor of New York, a man who was looked upon as better disposed towards the claims of party workers for office. Other leaders like Bayard, Thurman and Carlisle aroused little enthusiasm, and the gradual drift of sentiment toward Cleveland became unmistakable. If the politicians did not accept him with joy, they at least accepted him; for he was master of the party for the moment at least, and his hold on a large body of the rank and file was not to be doubted. When the Democratic convention met in St. Louis in June, 1888, his nomination was made without the formality of a ballot.[1]

The platform was devoted, for the most part, to the question of revenue reform, indorsing the President's tariff message and urging that the party be given control of Congress in order that Democratic principles might be put into effect. Resolutions were also adopted recommending the passage of the Mills bill, which was still under discussion when the convention met.

Among the Republicans the choice of a candidate was a far more difficult matter. The probable choice of the party was Blaine, but his letter from Italy, where he was travelling early in the convention year, forbade the use of his name and opened the contest to a great number of less well-known leaders. Publicly it was stated that Blaine refused for reasons which were "entirely personal," but intimate friends knew that he would accept a nomination if it came without solicitation and as the result of a unanimous party call. Although the demand for him still continued, there were smaller "booms" for various favorite sons, and as his ill health continued he made known his irrevocable decision to withdraw. Except for Blaine, the most prominent contender was Senator Sherman, whose candidacy reached larger proportions than ever before. The Ohio delegation was unitedly in his favor and considerable numbers of southern delegates were expected to vote for him. On the other hand, his lack of personal magnetism was against him and his career had been connected with technical matters which did not make a popular appeal. On the first ballot in the nominating convention his lead was considerable, although not decisive, but no fewer than thirteen other leaders also received votes. One of these was Senator Benjamin Harrison of Indiana whom Blaine had suggested as an available man and whom the New York delegation considered a strong candidate because he was poor, a reputable senator, a distinguished volunteer officer in the war and a grandson of William H. Harrison of Tippecanoe fame. Further voting only emphasized the lack of unanimity until the eighth ballot, when the delegates suddenly turned to Harrison and nominated him.

The platform was long and verbose. It devoted much attention to the protective tariff which, in imitation of Henry Clay, it entitled the "American system"; it advocated the reduction of internal revenue duties, if necessary to cut down the surplus; and it urged civil service reform, liberal pensions and laws to control oppressive corporations.

Two factions of the Labor party, as well as the Prohibitionists, nominated candidates and urged programs to which no attention was paid, but which were later taken up by both the great parties, such as arbitration in labor disputes, an income tax, the popular election of senators, woman suffrage and the prohibition of the manufacture of alcoholic beverages.

The campaign deserves attention because of the unusual elements that entered into it. A spectacular feature which, although not new, was developed on a large scale, was the formation of thousands of political clubs, which paraded evenings with flaming torches. In this type of organization the Republicans were more successful than the Democrats and thus steered many young men into the party at a time when they were looking forward to casting their first ballot. The most unwholesome feature was, as before, the methods used to finance the campaign. In this connection both parties were guilty, but the Republicans were able to tap a new source of supply. The campaign was in the hands of Matthew S. Quay, a Pennsylvania senator whose career as a public official left much to be desired. Quay's political methods were vividly described at a later time by his friend and admirer Thomas C. Platt, whose account lost none of its delightfulness in view of the fact that Platt obviously felt that he was complimenting his friend in telling the story. Believing in the "rights" of business men in politics, Platt declared, Quay was always able to raise any amount of money needed, although when funds were raised by business interests against him, he lifted the "fiery cross" and virtuously exposed his opponents before the people. Having calculated with skill the number of votes needed for victory, he found out where he could get them—"and then he got them."

That Quay was able to tap a new source of supply was due to a combination of circumstances. It will be remembered that the Pendleton civil service act of 1883 had forbidden the assessment of office-holders in political campaigns, and had made it necessary to procure funds elsewhere. In the campaign of 1888, business men who believed that the success of Cleveland would hurt their interests, and manufacturers who profited directly by the protective tariff rallied to the defence of Harrison and contributed heavily to his campaign fund.[2]

The use to which the funds thus contributed were put was revealed in a letter written apparently by W.W. Dudley, treasurer of the National Republican Committee, and sent to party leaders in Indiana. The latter were directed to find out who had the "Democratic boodle" and force them, presumably by competition, to pay big prices for their own men. The leaders were also instructed to "divide the floaters into blocks of five and put a trusted man with the necessary funds in charge of these five, and make him responsible that none get away, and that all vote our ticket."

On the other hand the most wholesome feature of the campaign was its educational aspect. Hundreds of societies, tons of "literature," thousands of stump speeches attacked and defended the tariff. Schoolboys glibly retailed the standard arguments on one side or the other. Attention was centered, as it had not been since the war, on an important issue.

At the close of the campaign the Republicans played a trick which was reminiscent of the Morey letter of Garfield's day. A letter purporting to be from a Charles F. Murchison, a naturalized American of English birth, was sent to the British minister in Washington, Lord Sackville-West. Murchison requested the minister's opinion as to whether President Cleveland's hostile policy in a recent controversy with Canada had been adopted for campaign purposes and whether after election the President would be more friendly toward England. Lord Sackville indiscreetly replied that he believed President Cleveland would show a conciliatory spirit toward Great Britain. The correspondence was held back until shortly before the election and was then published in the newspapers and on hand bills. Republicans triumphantly declared that Cleveland was the "British candidate." The President was at first inclined to overlook the incident but eventually gave way to pressure and dismissed the minister, whereupon the English government refused to fill the vacancy until there was a change of administration.

In the ensuing election the vote cast was unusually heavy; the protectionists felt that a supreme effort must be made to preserve the tariff system, and the Democrats, having experienced the joys of power, were determined not to loosen their grip on authority; the Prohibitionists increased their vote over that of 1884 by 100,000, while the Labor party cast 147,000, almost as many ballots as the Prohibitionists had numbered in the earlier year. Cleveland received somewhat over 100,000 more votes than Harrison, but his support was so placed that his electoral vote was sixty-five less than his opponent's.

From the standpoint of political history the result was unfortunate. The tariff question had been sadly in need of a definite answer, the people had been educated upon it and had given a decision, but the electoral system placed in power the party pledged to the theories of the minority. Aside from the unusual effect of our machinery of election, many small elements entered into the Republican victory. Some of the Independents had become disaffected since 1884 and had returned to the Republican fold. Disgruntled office-seekers opposed a President who did not reward his workers. In New York, which was the decisive factor, Hill was a candidate for re-election as governor and was elected by a small majority, while Cleveland lost the state by 7,000 votes. This gave color to charges that the enemies of the President had made a bargain with the Republicans by which the latter voted for Hill as governor and the Democrats for Harrison as President.

Benjamin Harrison, veteran of the Civil War in which he had attained the rank of brevet brigadier-general, and senator from Indiana for a single term, was hardly a party leader when he was nominated for the presidency. Although he was by no means unknown, he had been sufficiently obscure to be unconnected with factional party quarrels, and his career and character were without blemish. At the time of his accession to the executive chair he was fifty-six years of age, a short man with bearded face, and with head set well down between his shoulders. Accounts of his characteristics, drawn by his party associates, did not differ in any essential detail. As a public speaker, the new President was a man of unusual charm—felicitous in his remarks, versatile, tactful. In a famous trip through the South and West in 1891, he made speech after speech at a wide variety of places and occasions, and created a genuine enthusiasm. His remarks were widely read and highly regarded. Nevertheless there seems to have been some truth in the remark of one of his contemporaries that he could charm ten thousand men in a public speech but meet them individually and send every one away his enemy. His manner, even to senators and representatives of his own party, was reserved to the point of frigidity. When he granted requests for patronage he was so ungracious as to anger the recipients of favor. Although his personal character and integrity were as unquestioned as those of Hayes, and although he was a man of cultured tastes, well-informed, thoughtful and conscientious, it must be admitted that he lacked robust leadership and breadth of vision, and that he did not understand the real purposes of the policies which his party associates were embarking upon, or if he did that he tamely acquiesced in them. The party leaders were soon engaged in initiating practices and passing legislation which would strengthen the organization with certain groups of interested persons. Harrison, conscientious but aloof, provided no compelling force to turn attention toward wider and deeper needs.

Two appointments to the cabinet were important. Since Blaine was the foremost leader of the party and had done much to bring about the election of Harrison, it was well-nigh impossible for the latter to fail to offer him the position of Secretary of State. The appointment was so natural that popular opinion looked upon it as the only possibility, yet the natures of the two men were so diverse and their positions in the party so different that friction seemed likely to result. Even before the administration began it was freely predicted that Blaine would "dominate" the cabinet, a prophecy that might well create a feeling of restraint between the two. The invitation to John Wanamaker to become Postmaster-General was regarded as significant. Wanamaker was a wealthy merchant of Philadelphia, who had organized an advisory campaign committee of business men which contributed and expended large sums of money during the canvass. Critical reformers like the editor of The Nation were not slow to connect Wanamaker's large contribution to the campaign fund with his elevation to the cabinet, and to suggest that the business interests were being brought into close relations with the administration. T.C. Platt, expectant of a return for his campaign assistance, in the form of a cabinet position, and in fact understanding that a pledge had been made that he would be appointed, found himself superseded by William Windom of Minnesota in the Treasury and became a bitter opponent of the President.[3]

It was an odd turn of the fortune of politics that brought Benjamin Harrison face to face with the responsibility for furthering the cause of civil service reform—the same Harrison who, as a senator, had sneered at Cleveland for surrendering to difficulties. The party platform had urged the continuation of reform, which had been "auspiciously begun under the Republican administration" and had declared that the party promises would not be broken as Democratic pledges had been; and Harrison had announced his adherence to the party statement. In some respects real progress was made. Secretary of the Navy Tracy introduced reform methods in his department. The appointment of Theodore Roosevelt to the Civil Service Commission was productive of good results. The work of reform was defended forcefully and successfully; its opponents were challenged to substantiate their charges. When Senator Gorman declared that in an examination for letter carriers in Baltimore the candidates were asked to tell the most direct route from Baltimore to China, Roosevelt at once wrote asking him to state the time and place of the examination himself or to send somebody to look over the papers, copies of which were in the commission's office. The senator did not reply.

The removal of office holders, however, proceeded with amazing rapidity. The First Assistant Postmaster-General was J.S. Clarkson, who had been vice-chairman of the Republican National Campaign Committee. The speed with which he cleared the service of Democrats earned him the title "headsman" and is indicated by the estimate that he removed one every three minutes for the first year. When the force of clerks was increased for the taking of the census of 1890, the superintendent of the census office found himself "waist deep in congressmen" trying to get places for friends. The Republican postmaster of New York who had been continued by Cleveland was not re-appointed. It was soon discovered, also, that the President was placing his own and his wife's relatives in office and giving positions to large numbers of newspaper editors, thus indirectly subsidizing the press. The Commissioner of Pensions, Corporal James Tanner, distributed pensions so freely as to arouse wide-spread comment and was soon relieved of his position.[4]

Curtis, addressing the National Civil Service Reform League, flayed the President because he had despoiled the service. A Republican newspaper, he declared, had said that the administration whistled reform down the wind "as remorselessly as it would dismiss an objectionable tramp." Prominent members of the party went to the President in person to urge on him the redemption of the platform promises.

Although progress was not general, nevertheless there were particular reforms that commended themselves. The offensive Clarkson gave way to hostile criticism and retired. During the last half of the administration, the civil service rules were amended so as to add a considerable number of employees to the classified service, especially in the post office department. Quay and Dudley found their methods condemned by public opinion and resigned their positions on the National Republican Committee.[5]

Aside from his choice of subordinates, Harrison contributed little to the political history of his administration, for the leadership was seized by a small coterie of extreme Republicans in the House of Representatives, of whom the chief figure was the Speaker, Thomas B. Reed. The House which had been elected with Harrison contained 159 Democrats and 166 Republicans. The Republican majority was too slight for safety, for the questions which were coming before Congress were such as to arouse party feeling to a high pitch. The Republicans felt themselves commissioned, by a successful election, to put the party program into force, but so powerful a minority could readily block any legislation under the existing parliamentary rules. Only Reed knew what expedient would be resorted to in the attempt to put through the party program, and not even he could guarantee that the adventure would be successful.

Thomas B. Reed had long represented Maine in the House of Representatives. He was a man of huge bulk, bland in appearance, imperturbable in his serenity, caustic, concise and witty of tongue, rough, sharp, strong, droll. In the cut-and-thrust of parliamentary debate and manoeuvre, as well as in his knowledge of the intricacies of procedure, Reed was a past master. He worsted his adversaries by turning the laugh on them, and his stinging retorts, which swept the House "like grapeshot," made him a powerful factor in partisan contests.[6]

The political and economic philosophy of Reed and his associates was unusually important, because it controlled their action during the time when they dominated the House and determined the character of the legislation passed during Harrison's time. When President Cleveland's tariff message welded the Democrats together to demand reduction, it likewise influenced the Republicans to adopt the other extreme. That is not to say, of course, that the Republican attitude was due solely to Cleveland, for the party was already committed to protectionism. Nevertheless, many of its prominent leaders, including its presidents, had urged revision. That recommendation was now no longer heard. Such men as McKinley in the House fairly apotheosized the protective system. The philosophy of the party leaders received full exposition in a volume edited by John D. Long, ex-governor of Massachusetts, and composed of articles written by sixteen of the most prominent Republicans. It had been published during the campaign. The attitude of the party toward its chief tenet was expressed in the phrase, "The Republican party enacted a protective tariff which made the United States the greatest manufacturing nation on earth"; and its conception of the Democratic party in the statement that the Democrats were mainly old slave-holders, liquor dealers and criminals in the great northern cities. In the field of national expenditure, also, the party reacted from Cleveland's frugality. Senator Dolph frankly urged the expenditure of the surplus revenue rather than the reduction of taxation. McKinley took the position that prices might be too low. "I do not prize the word cheap," he said; "cheap merchandise means cheap men and cheap men mean a cheap country." Harrison remarked that it was "no time to be weighing the claims of old soldiers with apothecary's scales." This philosophy was now to have its trial, but first the obstructive power of the minority must be curbed. Reed's plan for accomplishing this result appeared late in January, 1890.

A contested election case was up for decision in the House. The roll was called and three less than a quorum of representatives answered. Scores of Democrats were present, but by merely refusing to answer to their names they could be officially absent. Unless the Republicans could provide a quorum—that is, more than half the total membership of the chamber of their own number, they were helpless. Clearly they could not muster their full force at all times and especially on questions upon which the party might be divided. On the other hand, the right to refuse to vote was a long-standing one and had been used over and over again by Republicans as well as Democrats. Reed, however, had made up his mind to cut the Gordian knot. Looking over the House he called the names of about forty Democrats, directed the clerk to make note of them and then declared a quorum present. The meaning of the act was not lost on the opposition. Pandemonium broke loose. Members rushed up the aisle as if to attack the Speaker, but Reed, huge, fearless and undisturbed, stood his ground. The Democrats hissed and jeered and denounced him with a wrath which was not mollified by the derisive laughter of the Republicans, who were surprised by the ruling, but rallied to their leader. Two days later, when a member moved to adjourn, the Speaker ruled the motion out of order and refused to entertain any appeal from his decision. He then firmly but quietly stated his belief that the will of the majority ought not to be nullified by a minority and that if parliamentary rules were used solely for purposes of delay, it was the duty of the Speaker to take "the proper course."

The rules committee then presented a series of recommendations designed to expedite business. One of the proposed changes provided that the chair should entertain no dilatory motions. Such motions, whose purpose was merely to obstruct action, had long been common. The Republicans were said to have alternated motions to adjourn and to fix a day for adjournment no less than one hundred and twenty-eight times in an attempt to defeat the Kansas-Nebraska bill in 1854. The second rule allowed the speaker to count members who were present and not voting in determining whether a quorum was present. Other rules systematized procedure and facilitated the passage of legislation. The Democrats raged, denounced Reed as a "Czar," fought against the adoption of the rules—all to no avail. The majority had its way; the Speaker dominated legislation.[7]

The efficacy of the Reed reforms in expediting legislation was quickly demonstrated. One of the earliest proposals to pass the House was Henry Cabot Lodge's federal election law, which was intended to insure federal control at polling places. Theoretically the measure was applicable to the North as well as to the South, but no doubt existed that it was really designed to prevent southern suppression of the negro vote. The Democrats rallied to the opposition and denounced Lodge's plan as a "force act." Despite objections it passed the House, but it languished in the Senate and finally was abandoned. The generous expenditure policy which the new philosophy called for brought forth certain increases which were noteworthy. The dependent pension bill which Cleveland had vetoed was passed, and a direct tax which had been levied on the states during the Civil War was refunded. Another extreme party measure was the Sherman silver act which became law on July 14, 1890. By it, 4,500,000 ounces of silver were to be purchased each month. Its partisan character was indicated by the fact that no Republicans voted against it, and no Democrats for it. Since the amount of silver to be purchased was practically the total output of the country, it was evident that the western mine owners were receiving the same attention that was being accorded manufacturers who sought protective tariff laws. Indeed, western Republicans, who were opposed to the high tariff which eastern Republicans favored, were brought to support such legislation only by a bargain through which each side assisted the other in getting what it desired.[8]

The tariff measure which was thus entwined with the silver bill was intended to carry out the pledge made in the party platform. Harrison had early called the attention of Congress to the need of a reduction of the surplus, had urged the passage of a new tariff law and the removal of the tobacco tax which, he declared, would take a burden from an "important agricultural product." The framing of the bill was in the hands of William McKinley, the chairman of the Committee on Ways and Means. McKinley was a thorough-going protectionist whose attitude on the question had already been expressed somewhat as follows: previous Democratic tariffs have brought the country to the brink of financial ruin; without the protective tariff English manufacturers would monopolize American markets; under the protective system the foreign manufacturer largely pays the tax through lessened profits; under protection the American laborer is the best paid, clothed and contented workingman in the world; since it is necessary, then, to preserve protection, the surplus should be reduced by the elimination of the internal revenues; and protective tariff duties should be raised and retained, not gradually lowered and done away with.

The Committee early proceeded to hold public hearings at which testimony was taken, and to which manufacturers came from all over the country to make known what duties they thought they ought to have. The bill which was finally presented to the House proposed a level of duties which was so high that it has generally been considered the extreme of protection. McKinley himself justified the high rates only on the ground that without them the bill could not be passed. With the help of the Reed rules and the western Republicans the McKinley tariff reached the President and was signed by him on October 1, 1890. It went into effect at once.

The more prominent features of the measure sprang from the tariff creed which had been advocated through the campaign. In order to conciliate the farmers, the protective principle was applied to agricultural products, and tariffs were laid on such articles as cereals, potatoes and flax. On the cheaper grades of wool and woolens and on carpet wools there was a slight rise over even the rates of 1883. On the higher grades of woolen, linen and clothing the increase was marked. The duty on raw sugar was removed and one-half cent per pound retained on the refined product, but domestic sugar producers were given a bounty of two cents a pound in order to protect them against the free importation of the raw material. As the sugar duty had been productive of large amounts of revenue, its remission reduced the surplus by about sixty to seventy millions of dollars. In order to encourage the manufacture of tin-plates, a considerable duty was imposed, which was to cease after 1897 unless domestic production reached specified amounts. As the result of Blaine's urgency, a reciprocity feature was introduced. The usual plan had been to reduce duties on certain products in case concessions to American goods were given by the exporting countries, but in the McKinley act the Senate inserted a novel provision. Instead of being given power to lower duties in case reciprocal reductions were made, the President was authorized to impose duties on certain articles on the free list when the exporting nation levied "unjust or unreasonable" customs charges on American products. It was expected that this plan would be applied to Latin-American countries and would increase our exports to them in return for sugar, molasses, tea, coffee and hides. In general, the McKinley act was the climax of protection. Under the impetus of President Cleveland's reduction challenge, the Republican party had recoiled to the extreme.

The high rates levied by the new tariff act were quickly reflected in retail prices and caused immediate and wide-spread discontent. The benefits which the farmer had been led to expect did not put in their appearance. Unhappily for McKinley and his associates the congressional elections occurred early in November, scarcely a month after the new law went into effect, and when the dissatisfaction was at its height. The result was a stinging defeat for the Republicans. The 159 Democrats were increased to 235, and the 166 Republicans dwindled to 88. Even in New England the Democrats gained eleven members, in New York eight, and in Iowa five. In Wisconsin not one Republican survived, and among the lost in Ohio was McKinley himself.

Although the Republicans retained control of the Senate after 1890, the Democratic House brought an end for a time to the domination of Reed and the primacy of the lower chamber in the government. Such extreme legislation as had characterized the first half of the Harrison regime stopped abruptly. The role played in all this by Harrison himself seems to have been a minor one. Many of his recommendations lacked the solid character of those made by Hayes, Arthur and Cleveland, and he did not make his influence felt in connection with the silver legislation, of which he probably disapproved. It is significant that the one piece of legislation which had the most enduring results was not a partisan act. This act, the Sherman Anti-Trust law, demands attention in detail.

BIBLIOGRAPHICAL NOTE

In addition to the general and special works already mentioned, C. Hedges, Benjamin Harrison: Speeches (1892), provides useful material; Cleveland's tariff message of Dec. 6, 1887 is in J.D. Richardson, Messages and Papers of the Presidents, VIII, 580-591.

On the administration, and particularly the ascendancy of the House of Representatives under Reed, consult: De A.S. Alexander, History and Procedure of the House of Representatives (1916); Mary P. Follett, Speaker of the House of Representatives (1896); C.S. Olcott, William McKinley (2 vols., 1916); J.G. Cannon in Harper's Magazine (Mar., 1920); Annual Cyclopaedia, 1890, pp. 181-191; S.W. McCall, Thomas B. Reed (1914), well written, although adding little to what was already known; H.D. Croly, Marcus A. Hanna (1912); W.D. Foulke, Fighting the Spoilsman (1919), on Harrison and the civil service; G.W. Curtis, Orations and Addresses (2 vols., 1894), summarizes the administration's attitude toward civil service; T.B. Reed, Reed's Rules, A Manual of General Parliamentary Law (1894), gives a concise summary of parliamentary conditions from Reed's standpoint; H.B. Fuller, The Speakers of the House (1909), excellent on the personal side. The tariff is well treated in Stanwood, Taussig and Tarbell. On pensions consult W.H. Glasson, History of Military Pension Legislation in the United States (1900), or better, the same author's Federal Military Pensions in the United States (1918).

* * * * *

[1] The vice-presidential candidate was Allan G. Thurman of Ohio, affectionately known as the "noble old Roman," one of whose titles to fame was the ownership of a large red bandanna handkerchief which he nourished on all occasions.

[2] A party worker who realized the opportunity which this fact presented complained that Pennsylvania manufacturers who made fortunes under protection did not contribute to the Republican campaign fund, and remarked: "If I had my way about it I would put the manufacturers of Pennsylvania under the fire and fry all the fat out of them."

[3] The remaining members of the cabinet were: Redfield Proctor, Vt., Secretary of War; W.H.H. Miller, Ind., Attorney-General; B.F. Tracy, N.Y., Secretary of the Navy; J.W. Noble, Mo., Secretary of the Interior; J.M. Rusk, Wis., Secretary of Agriculture.

[4] Corporal Tanner is commonly supposed to have been so anxious to have a hand in the generous distribution of government revenue among the old soldiers that he declared one morning as he seated himself at his desk, "God help the surplus." This is a mistake, although the Corporal seems to have been more ready than the President to act quickly and generously on claims.

[5] The open character of the financial corruption of the campaign also gave impetus to the movement for the secret or Australian ballot which was first introduced in Louisville, Ky., on Feb. 28, 1888, and in Massachusetts on May 29, of the same year. Another reform movement was that which resulted in the destruction of the Louisiana lottery. Cf. A.K. McClure, Recollections, 173-183, and Peck, Twenty Years, 215-220.

[6] An incident which occurred when he was not speaker may serve to illustrate the manner in which he routed his opponents. Representative Springer, of Illinois, who had a reputation for loquacity and insincerity, once asked for unanimous consent to correct a statement which he had previously made in debate. "No correction needed," shouted Reed. "We didn't think it was so when you made it."

[7] In his Manual of General Parliamentary Law, Reed declared that the House prior to 1890 was the most unwieldy parliamentary body in the world. Three resolute men, he asserted, could stop all public business. A few years later, when the Democrats were in power, they adopted the plans which Reed had so successfully used.

[8] These acts were part of the general financial history of the period and in that connection demand fuller discussion at a later point. Cf. Chap. XV.



CHAPTER XI

INDUSTRY AND LAISSEZ FAIRE

About the time the Sherman Anti-trust law was being passed, in 1890, Henry D. Lloyd was writing his book Wealth Against Commonwealth, in which occurred a memorable passage:

A small number of men are obtaining the power to forbid any but themselves to supply the people with fire in nearly every form known to modern life and industry, from matches to locomotives and electricity. They control our hard coal and much of the soft, and stoves, furnaces, and steam and hot-water heaters; the governors on steam-boilers and the boilers; gas and gas-fixtures; natural gas and gas-pipes; electric lighting, and all the appurtenances. You cannot free yourself by changing from electricity to gas, or from the gas of the city to the gas of the fields. If you fly from kerosene to candles, you are still under the ban.

To understand the dangers of the monopolies which Lloyd feared and denounced, it is necessary to know the principal features in the development of American industry from the close of the Civil War to 1890.

It will be remembered that the consolidation of small railroad lines into large systems was accompanied by such advantages to the companies and to the travelling public, as to demonstrate that combination was the inevitable order of the day. The similar integration of small industrial and commercial enterprises took place more slowly between 1870 and 1890, but the process was no less inevitable on that account. The census of 1890 indicated that the production of manufactured articles had greatly increased since 1870; more capital was engaged; the product was more valuable; and more workmen were employed. Nevertheless the number of establishments which were in operation had shown a considerable decline in many industries. An army of 100,000 employees represented the expansion of the wage-earning force in the iron and steel works, for example, and $270,000,000 the increase in the value of their products; yet the number of establishments engaged showed a shrinkage of nearly fourteen per cent. The workers in the textile mills grew from 275,000 to 512,000, and the capital outlay from $300,000,000 to $750,000,000, but the number of factories declined from 4,790 to 4,114. A cartoon in Puck on January 26, 1881, remarked that "the telegraph companies have been consolidated, which in simple language means that Mr. Jay Gould controls every wire in the United States over which a telegram can be sent."

Some of the reasons for the prevalent tendency toward combination were not hard to discover. In the first place, although industrial organizations fought one another with the utmost bitterness, it was in the nature of things for them to combine if threatened by any common foe. Moreover, production on a large scale made possible savings and improvements that were outside the grasp of more modest enterprises; buying and selling large quantities of goods commanded opportunities for profit; waste products could be made use of and costly scientific investigations conducted in order to discover improved methods, overcome difficulties and open new avenues of activity; large salaries and important positions could be offered to men of executive capacity; and expensive equipment could be purchased and utilized.[1] An effective force which tended to drive industries to combine was the cut-throat competition which prevailed. Herbert Croly in his stimulating book The Promise of American Life vividly describes the bitter, warlike character of industrial competition after 1865. Competition was battle to the knife and tomahawk. The leaders were constantly seeking bigger operations, to which the bigger risks only added zest. A company might be making unbelievable profits one year and "skirting" bankruptcy the next. Exciting as all this was, however, the desire for adventure was not as powerful as the desire for profits, and cut-throat competition in industry led as naturally to combination, as rate-wars on the railroads led to pooling agreements.

An important factor in the development of large corporations was the increasing use of the corporation form of industrial organization, as contrasted with the co-partnership plan. If a few men enter a copartnership, each of them must supply a considerable amount of capital; but if a corporation is formed and stock is sold, the par value of the shares may be placed at a low figure—$100 or less, for example—and thus a large number of persons may be able to establish an industry which is far beyond the financial resources of any individual or small group among them. The corporation, moreover, is relatively permanent, for the death of one stock-holder among many is unimportant as compared with that of one member of a co-partnership. In case of disaster to the enterprise the liability of the stock-holder in a corporation is limited to the amount which he has invested, while any member of a partnership may be legally held for all the debts of the organization. With such advantages in its favor the corporation plan largely dominated the organization of industry.

The most famous example of combination before 1890 was the Standard Oil Company, which was the cause of more litigation, more study and more complaint than any other industrial organization that has ever existed in America. In 1865 Rockefeller & Andrews started an oil-refining business in Cleveland, Ohio. Samuel Andrews was a mechanical genius and he attended to the technical end of the industry; John D. Rockefeller had bargaining capacity, and to him fell the task of buying the crude oil, providing barrels and other materials and selling the product. The firm prospered. H.M. Flagler was taken into the company and a branch was established in New York. In 1870 these three with a few others organized the Standard Oil Company of Ohio, with a capitalization of a million dollars. It controlled not over ten percent. of the business of oil-refining in the United States at that time. But the oil business was so profitable that capital flowed into it and competition became keen. Rockefeller and some associates, therefore, devised the South Improvement Company of Pennsylvania, a combination of refiners, headed and controlled by the Standard, the purpose of which was to make advantageous arrangements With the railroads for transportation facilities. Early in 1872, a most remarkable contract was signed between the company and the important railroads of the oil country—the Pennsylvania, the New York Central and the Erie. By it the roads agreed to establish certain freight rates from the crude-oil producing region of western Pennsylvania to such refining and shipping centers as New York, Philadelphia, Baltimore, Pittsburg and Cleveland. From these rates the South Improvement Company was to receive substantial rebates, amounting to forty or fifty per cent. on crude oil and twenty-five to forty-five per cent. on refined. On their side the railroads were promised the entire freight business of the Company, each to have an assured proportion of the traffic, with freedom from rate-cutting competition. All this was the common railroad practice of the times.

But another portion of the contract was not so common. It provided that the roads should give the South Improvement Company rebates on all oil shipped by its competitors and furnish it with full way-bills of all such shipments each day. In other words, the Company was to know exactly the amount of the business of its competitors and with whom it was being done. The contract allowed the roads to make similar rebates with anybody offering an equal amount of traffic, but the likelihood of such an outcome was slender in the extreme. Armed with this powerful weapon, Rockefeller entered upon a campaign to eliminate competition by offering to buy out independent refiners either with cash or with Standard Oil stock, at his estimate of the value of their property. Those who objected to selling were shown that the alliance between the South Improvement Company and the railroads was so strong that they faced the alternative of giving way or being crushed. Of the twenty-six refineries in Cleveland, at least twenty-one yielded. The capacity of the Standard leaped from 1,500 to 10,000 barrels a day and it controlled a fifth of the refining business of the country. When these facts came to be known in the oil country, the bitter Oil War of 1872 began. Independent producers joined to fight for existence, and at length the railroads gave way and agreed to abandon the contract with the South Improvement Company, and the legislature of Pennsylvania annulled its charter, although in one way or another rebates continued and the absorption of rivals went on. In 1882 the entire combination—thirty-nine refiners, controlling ninety to ninety-five per cent. of the product—was organized as the Standard Oil Trust. All stock-holders in the combining companies surrendered their certificates and received in return receipts or "trust-certificates," which showed the amount of the owner's interest in the trust. In order to secure unity of purpose and management, the affairs of the combination were put into the hands of nine trustees, with Rockefeller at the head.

The wonderful success of the Standard Oil Company, however, was not due solely to the alliance with the railroads, although this advantage came at a strategic time when it was fighting for supremacy. Its marketing department gave it an unenviable reputation, but achieved amazing success. The department was organized to cover the country, find out everything possible about competitors, and then kill them off by price-cutting or other means. The great resources of the Company enabled it to undersell rivals, going below cost if necessary, and thus wearing out opposition. Continuity of control, also, contributed to Standard success; the narrow limits of the area in which the crude oil was produced before 1890 rendered the problem of securing a monopoly somewhat easier; the organization was extremely efficient and the constituent companies were stimulated to a high degree of productivity by encouraging the spirit of emulation; men of ability were called to its high positions; the policy of gaining the mastery over the trade in petroleum and its products was kept definitely and persistently to the front; and then there was John D. Rockefeller.

Rockefeller was what used to be called a "self-made" man. He began his business life in Cleveland as a clerk at an extremely modest salary. Capacity for details and for shrewd bargaining, patience, frugality, seriousness, secretiveness, caution, an instinctive sense for business openings, self-control—all these were characteristic both of the Cleveland clerk and the later oil-refiner. In the bigger field he developed a daring caution, a quick understanding of the value of new inventions, a capacity for organization, quick grasp of essentials and a resourcefulness that dominated the entire Standard combination. He built his own barrels, owned the pipe-lines, tank-cars, tank-wagons and warehouses. Consolidation, magnitude and financial returns were his aims, and in achieving these he and his associates were so successful as to make the Standard a leader in all branches of business, except the ethics of industry. Litigation has been the constant accompaniment of Standard progress.

Following the Standard Oil Company, other combinations found the trust form of organization a convenient one. The cotton trust, the whiskey trust, and the sugar, cotton bagging, copper and salt trusts made the public familiar with the term. Moreover, popular suspicion and hostility became aroused, and the word "trust" began to acquire something of the unpleasant connotation which it later possessed.

Although it was upon the Standard Oil Company that people turned when they denounced the trusts and feared or condemned their practices, the principles to which the Standard adhered when under the strain of competition were the practices which were followed by their contemporaries, both big and little. When the Diamond Match Company, for example, was before the Courts of Michigan in 1889, it appeared that the organization was built up for the purpose of controlling the manufacture and trade in matches in the United States and Canada. Its policy was to buy up and "remove" competition, so that it might monopolize the manufacture and sale of matches. It could then fix the price of its commodity at such a point that it could recoup itself for the expense of eliminating competitors and also make larger profits than were possible when its rivals were active.

Still more dangerous was the combination of the hard coal operators. By 1873, six corporations owned both the hard coal deposits of Pennsylvania and the railroads which made it possible to haul the coal out to the markets. In the same year and later these companies made agreements which determined the amounts of coal that they would mine, the price which they would charge, and the proportion of the whole output that each company would be allowed to handle. Independent operators—that is, operators not in the combination—found their existence precarious in the extreme, for their means of transportation was in the hands of the six coal-carrying railroads, who could raise rates almost at will and find reasons even for refusing service. The states were powerless to remedy the situation because their authority did not extend to interstate commerce, yet it was intolerable for a small group of interested parties to have power to fix the output of so necessary a commodity as coal, on no other basis than that provided by their own desires.

Other abuses appeared which showed that industrial combinations were open to many of the complaints which, in connection with the railroads, had led to the Interstate Commerce Act. Industrial pools resembled railroad pools and were objected to for similar reasons. Bankers and others who organized combinations were given returns that seemed as extravagant as the prices paid to railroad construction companies; the issues of the stock of corporations were bought and sold by their own officers for speculative purposes; and stock-watering was as common as in railroading. The industrial combinations also had somewhat the same effect on politics that the railroads had. Lloyd declared that the Standard Oil Company had done everything with the Pennsylvania legislature except refine it.

One of the most noted cases of corporation influence in politics was that of the election of Senator Henry B. Payne of Ohio. In 1886 the legislature of the state requested the United States Senate to investigate the election of Payne because of charges of Standard Oil influence. The debate over the case showed clearly the belief on the part of many that the Standard, which controlled "business, railroads, men and things" was also choosing United States senators. Senator Hoar raised the question whether the Standard was represented in the Senate and even in the Cabinet. In denying any connection with the Oil Company, Payne himself declared that no institution or association had been "to so large an expense in money" to accomplish his defeat when he was a candidate for election to the lower house. Popular suspicion seemed confirmed, therefore, that the Company was taking an active share in government. Whether the trust was for or against Payne made little difference.

A complaint that brought the trust problem to the attention of many who were not interested in its other aspects was the treatment accorded independent producers. The rough-shod methods employed by the Standard Oil Company, the Diamond Match Company and the coal operators were concretely illustrated in many a city and town by such incidents as that of a Pennsylvania butcher mentioned by Lloyd. An agent of the great meat slaughtering firms ordered the butcher to cease slaughtering cattle, and when he refused the agent informed him that his business would be destroyed. He then found himself unable to buy any meat whatever from Chicago, the meat-packing center, and discovered that the railroad would not furnish cars to transport his supplies. Faced by such overwhelming force, the independent producer was generally compelled to give way to the demands of the big concerns or be driven to the wall. The helplessness of the individual under such conditions was strikingly expressed by Mr. Justice Harlan of the Supreme Court in a decision in a suit against the Standard Oil Company:

All who recall the condition of the country in 1890 will remember that there was everywhere, among the people generally, a deep feeling of unrest. The Nation had been rid of human slavery ... but the conviction was universal that the country was in real danger from another kind of slavery sought to be fastened on the American people, namely, the slavery that would result from aggregations of capital in the hands of a few ... controlling, for their own ... advantage exclusively, the entire business of the country, including the production and sale of the necessaries of life.

Observers noted that fortunes which outstripped the possessions of princes were being amassed for the few by combinations which sometimes, if not frequently, resorted to illegal and unfair practices, and they compared these conditions with the labor unrest, the discontent and the poverty which was the lot of the many.

In the meanwhile there had arisen a growing demand for action which would give relief from the conditions just described. As early as 1879 the Hepburn committee appointed by the New York Assembly had investigated the railroads and had made public a mass of information concerning the relation of the transportation system to the industrial combinations. In 1880 Henry George had published Progress and Poverty in which he had contended that the entire burden of taxation should be laid upon land values, in order to overcome the advantage which the ownership of land gave to monopoly. In 1881 Henry D. Lloyd had fired his first volley, "The Story of a Great Monopoly," an attack on the Standard Oil Company which was published in the Atlantic Monthly and which caused that number of the periodical to go through seven editions.[2] In 1888 Edward Bellamy's Looking Backward had pictured a socialized Utopian state in which the luxuries as well as the necessities of life were produced for the common benefit of all the people. Societies had been formed for the propagation of Bellamy's ideas, and the parlor study of socialism had become popular.

The platforms of the political parties had given evidence of a continuing unrest without presenting any definite proposals for relief. As far back as 1872 the Labor Reformers had condemned the "capitalists" for importing Chinese laborers; in the same year the Republicans and Democrats had opposed further grants of public land to corporations and monopolies—referring in the main to the railroads; in 1880 the Greenbackers and in 1884 the Anti-Monopolists, the Prohibitionists and the Democrats had denounced the corporations and called for government action to prevent or control them; and in 1888 the Union Labor party, the Prohibitionists and the Republicans had urged legislation for doing away with or regulating trusts and monopolies. By 1890 eight states had already passed anti-trust laws. Among unorganized forces, possibly the independent producers were as effective as any. Although usually overcome by the superior strength of their big opponents, they frequently conducted vigorous contests and sometimes carried the issue to the courts where damaging evidence was made public.

The solution of the problem of trust control was not easy to discover. The amount of property involved was so great that forceful legislation would be fought to the last ditch; while legislation that was obviously weak, on the other hand, would not satisfy public opinion. Public officials were hopelessly divergent in their views. Cleveland had called attention to the evils of the trusts in his tariff message of 1887, but had laid his emphasis on the need of reduced taxation rather than upon control of the great combinations. Blaine was opposed to federal action. Thomas B. Reed had characteristically ridiculed the idea that monopolies existed:

And yet, outside the Patent Office there are no monopolies in this country, and there never can be. Ah, but what is that I see on the far horizon's edge, with tongue of lambent flame and eye of forked fire, serpent-headed and griffin-clawed?

Surely it must be the great new chimera "Trust." Quick, cries every masked member of the Ways and Means. Quick, let us lower the tariff. Let us call in the British. Let them save our devastated homes.

More serious was the almost universal lack of knowledge of the elements involved in the situation. Industrial leaders were unenlightened and wrapped up in the attempt to outdo rivals who were equally unenlightened and absorbed; the nation needed instruction and leadership, and neither was to be found. Instead, the poorer classes became more and more hostile to big business interests; the capitalist class set itself stolidly to the preservation of its interests. The one saw only the abuses, the other only the benefits of combinations. Thoughtful men felt that industrialism was afflicted with a malady which would kill the nation unless a remedy were found.

The legal and constitutional position of the trusts was almost impregnable. Ever since the decision of the Supreme Court in the Dartmouth College case, handed down in 1819, franchises and charters granted by states to corporations had been regarded as contracts which could not be altered by subsequent legislation. Moreover, the Court had so interpreted the Fourteenth Amendment, as has been seen, that the states had found great difficulty in framing regulatory legislation that would pass muster before the judiciary.[3] It was doubtful whether federal attempts at regulation would be more fortunate. More fundamental still, for public opinion underlies even constitutional interpretation, American industrial and commercial expansion had run ahead of our conception of the possible and proper functions of government. Government as the protector of property was an ancient concept and commonly held in the United States; government as the guardian of the individual against the powerful holder of a great deal of property was a new idea and not generally looked upon with favor.

It has already been seen that the prevailing economic theory, laissez faire, was diametrically opposed to government regulation of the economic activities of the individual. According to this view, unrestricted industrial liberty would result in adjustment by business itself on honorable lines. Men whose integrity was such that they were in control of great enterprises, asserted an attorney for the Standard Oil Company, would be the first to realize that a fair policy toward competitors and the public was the most successful policy. Combination was declared to be inevitable in modern life and reductions in the price of many commodities were pointed to as a justification for leaving the trusts unhampered.

Public opinion, however, was reaching the point where it was prepared to brush aside theoretical difficulties. President Harrison, Senator Sherman and others urged action. Large numbers of anti-monopoly bills were presented in Congress. The indifference of some members and the opposition of others was somewhat neutralized by the fiery zeal of such men as Senator Jones of Arkansas, who declared that the fortunes made by the Standard Oil Company did not represent a single dollar of honest toil or one trace of benefit to mankind. "The sugar trust," declared the senator, "has its 'long, felonious fingers' at this moment in every man's pocket in the United States, deftly extracting with the same audacity the pennies from the pockets of the poor and the dollars from the pockets of the rich."

After much study of the mass of suggested legislation, Congress relied upon its constitutional power to regulate commerce among the several states and passed the Sherman Anti-trust Act, which received President Harrison's signature on July 2, 1890. Its most significant portions are the following:

Sec. 1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is ... illegal.

Sec. 2. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other such person ... to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of misdemeanor.

The purpose of the framers of the Act seems clearly to have been to draw up a general measure whose terms should be those usual in the English common law and then rest on the assurance that the courts would interpret its meaning in the light of former practice. For some centuries restraint of trade had been considered illegal in England, but no contract was held to be contrary to law if it provided only a reasonable restraint—that is, if the restraint was merely minor and subsidiary. The Sherman act was a Senate measure, was presented from the Judiciary Committee and was passed precisely as drawn up by it. In speaking from the Committee, both Edmunds and Hoar took the attitude which the latter expressed as follows: "The great thing that this bill does ... is to extend the common-law principles, which protected fair competition ... in England, to international and interstate commerce in the United States." Just how far the members of Congress who were not on the Judiciary Committee of the Senate shared in this view or really understood the bill can not be said. Indeed, many members of both chambers absented themselves when the bill came to a vote.[4]

For a long time the Sherman Act like the Interstate Commerce Act was singularly ineffective and futile. Trusts were nominally dissolved, but the separate parts were conducted under a common and uniform policy by the same board of managers. The Standard Oil Company changed its form by selecting the Standard Oil Company of New Jersey as a "holding corporation." Stock of the members of the combination was exchanged for stock in the New Jersey organization, leaving control in the same hands as before. The "same business was carried on in the same way but 'under a new sign.'" The wide variety of conditions tolerated under the corporation laws of the several states made confusion worse confounded. In its early attempts to convict corporations of violation of the law, the government was uniformly defeated.

In 1893 came the climax of futility. The American Sugar Refining Company had purchased refineries in Philadelphia which enabled it to control, with its other plants, ninety-eight per cent. of the refining business in the country. The government asked the courts to cancel the purchase on the ground that it was contrary to the Sherman law, and to order the return of the properties to their former owners. The Supreme Court declared that the mere purchase of sugar refineries was not an act of interstate commerce and that it could not be said to restrain such trade, and it refused to grant the request of the government. Unhappily the prosecuting officers of the Attorney-General's office had drawn up their case badly, making their complaint the purchase, not the resulting restraint. No direct evidence was presented to show that interstate commerce in sugar and the control of the sugar business and of prices were the chief objects of the combination. To the public it seemed that the corporations were impregnable, for even the United States government could not control them.