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measure was highly protective and did not present sufficient changes to justify all the discussion attending its passage at the time. The principle of reciprocity, first brought forward in the McKinley tariff, was reaffirmed in the Dingley measure. Several reciprocity treaties were negotiated, but the Senate failed to ratify them. Soon after, the process of financial reorganization was again interrupted by the war with Spain.

Congress, without a dissenting vote, at once appropriated $50,000,000 for National defence. New internal revenue taxes were imposed to meet the increased expenses caused by the war and a novel and ingenious tax on legacies was enacted. Under the provision of the act of June 13, 1898, $200,000,000 of 3 per cent. bonds were sold. These bonds were speedily placed and their proceeds, together with the receipts brought in through the imposition of the new internal revenue duties, proved ample for the expenditures of the time. What the actual cost of the war was, however, is hard to estimate with any degree of accuracy. The campaign in China and the restoration of peace in the Philippines - both to be reckoned in the cost of the Spanish War, since they were direct outgrowths of that event -resulted in a huge increase in the annual appropriations made for military and naval purposes. These must be included as part of the financial effects of that war.

When the problems incident to the

war were over, Congress once more turned its attention to the important matter of currency, and the result was the act of March 14, 1900. This act declared gold as the standard of value and ordered the Secretary of the Treasury to maintain all other forms of money at parity with it. It retained the full legal tender quality of silver dollars and provided for the retirement of the Treasury notes issued in payment for bullion under the Sherman act and the substitution of coin as the silver was counted, which was to be represented by certificates in circulation. It established in the Treasury Department a division of issue and a division of redemption, and provided for a redemption fund of $150,000,000 in gold against the legal tender notes, and for the custody of coin represented by gold and silver certificates redeemable on demand. able on demand. It provided also for the reproducing of outstanding bonds with new obligations bearing only 2 per cent. interest, permitted the establishment of National banks with $25,000 capital in any places having a population not less than 3,000, and insured the maintenance of the 2 per cent. bonds at or above par by reducing the tax upon bank notes 1/2 to 1 per cent. per annum when secured by deposit of these obligations. One result of this was a large increase in the number of banks and in the volume of circulation.

In the first year of the present century there was an extraordinary de

FINANCES.

velopment of large industrial organizations formed chiefly by the combination, consolidation or merging of existing corporations or firms, conspicuous examples of which were the United States Steel Corporation and the American Tobacco Company. There was a considerable expansion of capital and over-issue of securities in forming these. This resulted in a certain congestion which checked prosperity in 1904, but business speedily recovered and continued in 1906 and the first half of 1907 at an unprecedented pace. There was the usual over-expansion, extension of credit and bold speculation, attended by an advance in wages and prices, which caused a check in the demand for the products of industry. A A strain came in the autumn of 1907 under which several weakened banking institutions in New York were compelled to suspend and a general panic, with the customary results, set in.* There was a stimulus to exports for obtaining gold and a falling off in imports, and business was generally depressed all through 1908, with a partial but premature recovery the next year, from which there was a mild reaction.

One of the contributing causes to the severity of financial crises since the establishment of the National banking system has been the lack of elasticity in the credit currency of the country. Never was this realized

* For details see previous chapter.

407

more fully than after the panic in October of 1907.

Accordingly on March 4, 1907, an act was passed known as the Aldrich law which, it was hoped, would prove a remedy in times of financial stress. It provided among other things that National banks designated by the Secretary of the Treasury should be made depositories of the public funds under regulations prescribed by him; furthermore, that a National bank might upon deposit of lawful money withdraw its notes from circulation, the total withdrawals for all banks not to exceed $9,000,000 per month. It was thought by the means of the latter provision allowing the banks to withdraw their notes from circulation, joined with their power to issue these notes on deposit of securities with the National Treasury, an elastic circulating medium would be obtained. It was also provided in this act that securities other than National bonds might be deposited, if satisfactory to the Secretary of the Treasury. This act at the time of its. passage was confessedly somewhat of a makeshift, and was formulated for the purpose of meeting the extraordinary conditions that were developing in 1906-7. Its framers themselves acknowledged the necessity for its revision and this was emphasized by some of the unforseen workings of the law when it went into force.

It was in recognition of this fact that a bill was reported in the next Congress (Sixtieth, 1908) proposing

to make still further modifications of the National banking laws. This was also under direction of Senator Aldrich, and contained some provisions that were not only obnoxious to the minority party, but to a strong faction in the Republican ranks. The disaffection came mainly from the representatives of the Middle West, who conceived that the amendments to the laws were indicative of a still further yielding of the control over the National finances to the banking interests. It was originally proposed to allow banks to deposit railway bonds as a part of the security for their note circulation. This, however, was defeated, and the securities other than National bonds were restricted to interest-bearing obligations of the States and the legal bonds of counties, cities, towns, etc. The opposition to this bill in the Senate was led by Senator LaFollette, who inaugurated a filibuster which lasted nearly two days, but which in the end proved fruitless, as the bill was passed in spite of his efforts, May 30, 1908.*

* For the provisions of the Act, see previous chapter.

In the campaign of 1908 it was generally understood that the Republican party was pledged to a "downward revision," and that was advocated by its candidate for President. Immedi

ately after his inauguration in 1909, President Taft called a special session of Congress, and the Payne-Aldrich bill was passed, as has been told in previous pages. Out of this tariff grew the reciprocity treaty with Canada which was rejected by the people of that country in 1911 as has been told in a previous chapter."

Maurice L. Muhleman, The Money of the United States - Its Volume from 1873 to 1893 (1894); John J. Knox, United States Notes (1884); History of the Currency from the Earliest Period to June 30, 1900 issued by the Treasury Department, Washington; Albert Sidney Bolles, Financial History of the United States from 186185 (1886); Davis Rich Dewey, Financial History of the United States (1903); Levi P. Morton, Free and Unlimited Coinage of Silver (1879); C. J. Bullock, Essays on the Monetary History of the United States (1900); Alonzo B. Hepburn, Government Currency vs. Bank Currency (1908); W. G. Sumner, A History of American Currency; J. Lawrence Laughlin, History of Bimetallism in the United States; A. D. Noyes, Thirty Years of American Finance; C. F. Dunbar, Laws of the United States Relating to Currency, Finance and Banking, and Chapters on the Theory and History of Banking; Horace White, Money and Banking.

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CHAPTER XIII.

1865-1912.

LABOR AND ITS PROBLEMS.

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After the Civil War the padrone system, by which foreigners were brought over under contract, was resorted to for the purpose of securing cheap labor. In the West the importation of Chinese and Japanese became common. Some features of the padrone system still exist, but the coming of Chinese laborers has been prohibited since 1882. Since 1885 there has been a law (amended in 1907) to prohibit the importation of laborers under contract; but, owing to defects and inadequate penalties, it is not rigidly enforced.*

Peonage and padroning after the Civil War - The rise of labor unions Objects of the first labor organizaThe Knights of Labor and its aims The Federation of Labor and its growth The first great labor strike in the United States - A decade of industrial unrest - The Homestead strike and its lessons - Other serious labor conflicts - The boycott and its legal status - Blacklisting - Industrial combinations vs. competition - Compulsory arbitration in labor disputes - The evils of child and woman labor — Legislative restrictions of the former - Attempts to regulate the latter Other labor legislation. With the disappearance of chattel slavery in 1865, every man in America was at least nominally free to follow any industrial pursuit and make any labor contract he saw fit. However, the Federal government found it necessary to adopt laws against laws against peonage. One of the most notable cases under this law was that of Alonzo Bailey, in which the Supreme Court declared null and void a law of Alabama designed to foster this system.† Another form of unfree labor is that of convicts. The convict lease system has practically disappeared, the convicts now being employed by the State in productive industries or on public works. The protests of labor organizations, so commonly heard a few years ago,t against their employment in productive industries, have ceased almost entirely.

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The increase of capitalistic production, which was hardly checked by the Civil War and has increased very rapidly since that event, the rapid changes from adversity to prosperity, and the sudden accumulation of large fortunes, accentuated the differences between the rich and the poor as never before. The multiplication of machinery seemed also to work against the individual, hence there.

*See Adams and Sumner, Labor Problems, pp. 90-91.

was a corresponding growth of soli- Knights of Labor. This grew out of darity among laborers. Dissatisfaca local union organized at Philadeltion with labor conditions must find phia in 1869. It was gradually exits remedy, not in individual, but in tended to other trades, a "national collective action. This gave rise to resistance fund" was accumulated the formation of unions, to strikes, for use by "brothers in need against and boycotts. A counter movement the aggressions of employers," and was found in various schemes of the name Knights of Labor was profit-sharing and coöperation. In adopted. Its policy was war on aggregations of wealth unjustly accumulated and the establishment of coöperative industries. It demanded the establishment of bureaus of labor, the holding of public lands for actual settlers, simplification of the administration of justice, abolition of the contract labor system, weekly payments, and an eight-hour working day. For a time, under the presidency of Terrence V. Powderly, this was the leading organization of the country.

a few cases they have proved very successful, but they offer no valid grounds for any hope that they will solve the labor problem.

Labor unions hardly assumed a National character before 1850. Their real history may be said to begin with the organization of the International Industrial Assembly of North America at Louisville in September of 1864. The motive of this organization, as stated in the preamble to its constitution, was to maintain the rights and dignity of labor against capitalists who "have banded themselves together in secret organization, for the express purpose of crushing out our manhood" and have assumed "the right to own and control labor for the accomplishment of their own greedy and selfish ends, regardless of the laws of nature and Nature's God." This may be taken as having been the basic principle of unions ever since. Such organizations multiplied and grew very rapidly in different industries, and projects were soon on foot to unite the unions. The first important outcome of this was the

* Commons and Andrews, vol. ix., p. 123.

*

In 1881 the Federation of Organized Trades and Labor Unions came into existence, which took issue with the Knights of Labor mainly on questions of the autonomy of such trade. The struggle continued until 1886, in which year the high-water mark was reached, in point of numbers, by the Knight of Labor and the nationalizing of trades. Then occurred the transition of the newer organization into the American Federation of Labor, which soon passed the older order and under the presidency of Samuel Gompers, took its place as the most powerful labor organization in

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