Europe, still the railways felt the decrease in traffic, their earnings shrinking by about $45,600,000.

By March, 1882, the export of gold in large quantities began, the total for the fiscal year ending June, 1882, being $32,500,000. Furthermore, Europe in 1882 produced large crops which hurt the American exports, not only in quantity but in prices. Wheat, cotton, iron and steel,* and almost all trades felt the change. Beside this the speculators on the exchanges were experiencing a slump in the prices of stocks, bonds, etc.

But the surplus of public revenue continued to raise higher and higher, in the fiscal year 1882 amounting to $145,543,810, and the disposition of this vast sum was now a great problem. But Congress soon found a way out of the difficulty. Instead of reducing taxation, that body proceeded to spend the surplus as rapidly as possible. The pension disbursements were increased from $27,000,000 in 1878 to about $68,000,000 in 1882 and other appropriations were increased in almost the same proportion. In 1882 President Arthur recommended‡ that the Mississippi River and its tributaries be improved in the interests of commerce. A bill known as the

See the Report of the American Iron and

River and Harbor bill (House Bill No. 6242) was thereupon passed by both Houses of Congress, appropriating $4,000,000 for improving the Mississippi and $14,000,000 for other purposes. President Arthur vetoed this bill August 1 as he considered the appropriation extravagant, but it was passed over his veto the next day and became a law.*

Several instances of corruption were also unearthed, the most prominent of which were the so-called "Star Route" cases, in which it was alleged that General T. W. Brady, the second assistant Postmaster-General, Senator Dorsey, of Arkansas, and others, had conspired to defraud the government of enormous sums by an ingenious. system of contracts and subcontracts on certain mail routes. Brady and Dorsey were tried on this charge but were acquitted, and the trial only served to furnish campaign material for the next presidential campaign.†

The political sentiment of the country, in the face of Congressional extravagances, and in the light of the exposures of corruption, now underwent a change. The voters stood behind President Arthur in his veto of the River and Harbor bill and at the elections of 1882 the Republicans suffered an overwhelming defeat, their

numbers.

In his first annual message to Congress, December 6, 1881, President Arthur said that 789,053 pension claims had been filed since 1860, of which 450,949 had been allowed.- Richardson, Messages and Papers, vol. viii., p. 58.

In his message of April 17, 1882, Richardson, vol. viii., p. 95.

Richardson, vol. viii., pp. 120-122; Hoar, Autobiography, vol. ii., pp. 112-119; Noyes, American Finance, pp. 89-90; McPherson, Handbook of Politics, 1882, pp. 175-179, 202-203.

Andrews, Last Quarter-Century, vol. i., pp.

336-341.

Democratic plurality of seventy-eight in the Forty-eighth. New York turned a Republican plurality of 43,000 (for Cornell) into a Democratic plurality of 192,000; and Pennsylvania, Connecticut, Massachusetts, Michigan, Kansas, Colorado, and California also elected Democratic governors. This change meant a revision of the revenue schedules but the protectionist Republicans now executed a clever move. Before the political complexion of Congress changed, that body passed a bill which was signed by the President May 15, 1882, appointing a committee of nine (not members of Congress) to investigate the tariff question and to report the next December.* This committee was protectionist, with John L. Hayes, president of the Wool Manufacturers' Association, at its head. Congress also passed at this session a Civil Service bill, providing for a nonpartisan commission of three members, and an act reducing the postage on letters throughout the country to two cents.

On December 4, 1882, the report of the tariff commission, covering 2,500 printed pages, was presented to Congress and an average reduction of 20 per cent. was recommended, a reduction which was an unwilling "concession to public opinion." This reduc

Stanwood, Tariff Controversies, vol. ii., p. 202 et seq.; McPherson, Handbook of Politics, 1880, p. 157, 1882, pp. 109-112.

The other members were H. W. Oliver, A. M. Garland, J. A. Ambler, Robert P. Porter, A. R. Boteler, J. W. H. Underwood, W. H. McMahon, and Duncan F. Kenner.

John L. Hayes, in Bulletin of Wool Manu

19

tion applied "to commodities of necessary general consumption, to sugar and molasses, rather than to luxuries and to raw rather than to manufactured materials."'*

An internal revenue bill was introduced in the House and the Senate tacked on the tariff bill containing some of the reductions recommended by the commission.† by the commission. The act of March 3, 1883,‡ as finally passed (in the Senate 32 to 31, in the House 152 to 116) abolished the taxes on bank checks, on watches, on savings-bank deposits, on patent medicines and perfumeries and on the capital and deposits of banks; it also reduced the duties on tobacco by one-half. The loss in internal revenues, however,

66

was not so great as anticipated, as there was a constant gain from the duties on spirits and fermented liquors.

It was estimated that the loss of internal revenue would amount to about $40,000,000, but the actual loss was less than $22,000,000. With regard to customs duties the act was a disappointment to those who favored a downward revision, for the ratio of duty actually collected to the value of dutiable articles during 1883 was 42.45 per cent., whereas the ratio

by 1885 had risen to 45.86 per cent.* Professor Taussig says "had the higher duties of the act of 1883 been brought before Congress in a separate bill, there can be no doubt that their enactment would have been impossible. That they were in many cases half concealed by means of changes in classification, or were coupled with apparent reductions on other articles in the same schedules, shows that the protectionists themselves had some fear of putting them nakedly before the public. Taussig also says that the measure is best described as a halfhearted and unsuccessful attempt on the part of protectionists to bring about an apparent reform of the tariff," that "it was framed by men who at heart were protectionists," and that the reductions made "had little effect other than the change of the figures on the statute-book." The "infant industries" demanded protection and the reductions were small, the more radical protectionists securing" modifications along lines of high and even increased protection." Congress treated the recommendations of the commission" with disapproval, if not with contempt." The duties were raised on certain classes of woolen goods, especially on dress goods, and the finer grades of cloths and cassion cotton hosiery, embroideries, trimmings, laces, and insertions, constituting about two-thirds

meres

*Howe, Internal Revenue System, p. 221 et seq. Stanwood, Tariff Controversies, vol. ii., p. 219 et seq.

Taussig, Tariff History, pp. 242-254.

iron ore and certain manufactures of steel." The reductions were on "the finer grades of wool, on the cheaper grades of woolen and cotton goods, on steel rails, copper, marble, nickel and barley."'*

But the bill was not satisfactory even to the Republican protectionists, John Sherman being particularly outspoken in his criticism of the bill.† As it was, the conference committee of the two Houses, instead of reducing duties raised them so that in some instances they equalled the old war tariff.t

A period of financial depression now set in, culminating in the panic of May and June, 1884, not however caused by the enactment of the tariff law. The gigantic speculation in railroads had reached its zenith in 1880, and a retrograde movement set in. Prices of securities declined for three years due to the ruinous competition of new lines and lowered rates and above all by the speculations and manipulations of their managers. In 1884 and 1885 forty-one railway corporations holding 19,000 miles of track were placed

See

Dewey, Financial History, p. 421. Taussig, pp. 235-253, for a discussion of the various schedules, and p. 266 for a table showing changes.

Recollections, vol. ii., p. 851 et seq.

This was undoubtedly due in some measure to the lack of proper consideration of the bill owing to the desire to pass it before that Congress expired. Debate on the bill began January 25 and ended March 3, but a large part of the discussion which should have been given to the bill was taken up with points of parliamentary law. For a summary of the debate see Stanwood, Tariff Controversies, vol. ii., pp. 208-218.

under receivership and thirty-seven smaller railroad properties were sold under foreclosure.* During 1883 there were several commercial failures and prices began to decline; goods accumulated in the warehouses; gold flowed away and ready cash decreased daily. On January 1, 1884, the New York & New England Railroad went into receivers' hands, followed by the North River Company January 12. These were followed on May 6 by the failure of the National Marine Bank of New York, the president of which was associated with the firm of Grant & Ward, which failed shortly afterward with liabilities of $17,000,000.†

Coman's Industrial History, p. 321. A. T. Hadley, Railroad Transportation, p. 52 (G. P. Putnam's Sons), states that of the 29,000 miles constructed in 1880-82 "not more than one-third

Of the re

were justified by existing business. Another third perhaps were likely to be profitable at some future date. mainder some were built to increase the power of existing systems, where they were not needed.

Some were built to put money into the hands of the builders as distinct from the owners. Some were built to sell as a blackmailing scheme against other roads."

He

Ex-President Grant was a special partner in this firm but was innocent of any wrongdoing in connection with the firm's affairs, as Ward had used Grant's name without his knowledge to cover some gigantic speculations on his own private account. Nevertheless, Grant suffered both in fortune and reputation, even pledging his sword of honor and other priceless gifts to partially redeem the notes which bore his name. then began to write his Memoirs to recoup his lost fortunes and provide for the future of his family, as he was then nearly bedridden by an incurable disease. See W. C. Church, U. S. Grant, pp. 441-454; Henry Clews, Twenty-Eight Years in Wall Street, pp. 215-221; Garland, U. S. Grant, pp. 486-503; Badeau, Grant in Peace, pp. 418-424. See also Ward's account of these transactions in the New York Herald, issues of December 19, and 26, 1909 and January 2 and 9, 1910.

21

Moreover, as defaulting was becoming general, the Secretary of the Treasury, in order to sustain the credit by the most regular methods, pledged himself to prepay the portion

of the national debt soon to come due. Besides this $24,915,000 of Clearing House certificates of deposit were issued to tide over some of the toppling institutions. Things then began to settle down, the general distrust diminished, credit circulation became re-established and the rate of discount declined to 5 per cent. (having been as high as 4 per cent. per day).

There had been no suspension of specie payment during the panic, and this, together with the outlook for a bounteous harvest, gave courage. While the panic centered in New York, there were numerous failures in other cities during the year, 11 National banks and about 130 other banks and private bankers being counted in the list. Almost the entire amount of the losses sustained in this panic was entirely borne by financiers and specu

Clement Juglar, History of Panics, pp. 102, 106-107; Henry Clews, Twenty-Eight Years in Wall Street, pp. 162–173.