Books New and Old: American Finance

No adage of mediaeval statecraft contains a stranger blend of shrewdness and fatuity than the mot attributed to Richelieu, that finances are the nerves of the state, and therefore should not be exposed to vulgar gaze. That finances are the nerves of the state, the guarantors of efficient administration in times of peace no less than the sinews of war, — to this there is to-day universal assent. But no modern governments would subscribe to Richelieu’s wily depreciation of publicity. They have learned that there is little to be gained, and much to be lost, by veiling their finances in secrecy. Hence the fullness in modern states of their financial reports.

So abundant in this country have our statistical data and historical materials become, that it is now possible, as never before, to attempt a critical evaluation of our fiscal methods, past and present. To this task in the past decade a number of our historians and economists have addressed themselves with marked success, and the four works under review are good examples of this line of historical inquiry.

It so happens that these four studies, between them, cover practically the entire period from the American Revolution to the present time. One is a biography of the Financier of the Revolution, Robert Morris; one a chronicle of the monetary changes and monetary struggles of a century; one a two-volume history of the most persistent issue in our national politics, the tariff question; and the fourth an acute and comprehensive study of the finances of the civil war period as they focus themselves in the issue of the legal tenders. Curiously enough, though the point of view of each writer is determined by the subject matter of his own inquiry, there are a number of instances where two of them pronounce judgment on the same moot point. Thus, for example, both Mr. Mitchell, in his study of the greenbacks, and Mr. Hepburn, in recounting what he terms “the perennial contest for sound money,” enter deliberate verdicts on the cause of the suspension of specie payments in 18G1, and in another instance on the Supreme Court’s momentous deliverances in the legal tender cases. This occasional cross-fire directed upon the same point is very stimulating in its effect upon the student of finance. It calls for an exercise of individual discrimination to extract the essential truth from the reports of witnesses of differing competency. For this very reason the synchronous perusal of financial studies which occasionally intersect is likely to result in a more robust power of judging the matters at issue, than if one entrusted one’s self wholly to the leadership of a single guide, be he never so learned and judicious.

Mr. Mitchell’s study of the greenbacks,¹ though delimited to the period of the civil war, bids fair to be the definitive deliverance of competent economic opinion upon the subject. Few of his deliberate verdicts seem likely to be reversed. That the resort to legal tender notes was inevitable because there was no alternative and no possibility of delay, he shows is open to very serious question. That they added enormously to the cost of the struggle, and so, “from the narrowly financial point of view of their sponsors,” were singularly unfortunate in their consequences, that they robbed the laborer of approximately a sixth of his real wages during the war, that they cheated the creditor whose loans had been made upon a specie basis, and that they contributed mainly to the gains of a single class, — the speculator and the profit-recipient, — of these facts Mr. Mitchell has given us an indefeasible demonstration. The real significance, however, of Mr. Mitchell’s treatment is found not so much in his formulation of these propositions, but in his plain yet careful, exhaustive, and judicial sifting of evidence often statistical, and in the constructive skill with which he so frequently evolves order out of chaos. The reader who is to profit to the full from his study of the book must make up his mind to grapple bravely with the manipulation of statistics, but there are no sight drafts drawn on his credulity, and there are no payments deferred on claims that the reader may warrantably present.

While it is no part of Mr. Mitchell’s plan to characterize the chief actors in the financial drama of the civil war, one cannot fail to be impressed very unfavorably by the light thrown by this study on Secretary Chase. It is true that the author exonerates Chase from the sole or even the chief responsibility for the suspension of specie payments in December, 1861, — in this showing more discrimination and justice than Mr. Hepburn, who continues to lay the charge at Chase’s door, —but at the bar of financial history Chase’s responsibility is heavy enough in all conscience. Cha^e was the McClellan of Federal finance. And while McClellan may have been excusable for delays in the field, of Chase in the Cabinet hardly as much can be said. McClellan, at all events, had a plan of campaign ; while Chase, though enjoying the titular honors of financial command, left Spaulding and Stevens, in the critical months of January and February, 1862, to plan the financial operations of the government. With a Congress craving leadership and “a people praying to be taxed,” and confronted in December, 1862, with an impending deficit of hundreds of millions, Chase proposed to obtain practically all his resources by borrowing, though he did not find it consonant with his dignity to issue bonds of longer term than five years, nor to pay thereon more than six per cent interest. Contrast with this the rugged integrity of Robert Morris, the doughty old financier of the Revolution, who in 1783 said in his letter to Congress: “To increase our debts, while the prospect of paying them diminishes, does not consist with my idea of integrity.”

Mr. Mitchell does not comment adversely on the decision subsequently rendered by Chase when on the bench of the Supreme Court, that “ the making of these notes [the greenbacks] a legal tender was not a necessary or proper means to the carrying on war, or to the exercise of any express power of government.” But the fact that this and the subsequent decisions of that tribunal reversing its first opinion in the case are treated at some length by Mr. Hepburn in his Contest for Sound Money allows a ready transition to the latter work, and affords an opportunity of assessing it at a critical point.

Of Mr. Hepburn’s book ² it may be said at the outset that its title would seem to lead one to look for some sort of triumphal arch to commemorate the triumph of the gold standard over the advocates of the free coinage of silver. It might therefore be anticipated that, like other triumphal arches, it would serve a commemorative rather than a critical purpose. But our author takes his task rather more seriously to heart. Just as Curran believed that “the condition upon which God hath given liberty to man is eternal vigilance,” so Mr. Hepburn, from his study of our monetary and financial history, is impressed with the idea that sound money can be had by a nation only at the price of “perennial contest.” It seems a trifle discouraging to hear his conclusion (page 415) that “a general review of the monetary history of the entire period of our national existence shows that each generation had to learn for itself and at its own expense the evils of unsound money.” But if he is right., there is justification for his task of widening the perspective of the friends of sound money, and of showing them by how great a cloud of witnesses around they are held in full survey.

The first fact that strikes one is that Mr. Hepburn has not allowed himself space enough to recount with anything like requisite fullness all the successive phases of our financial and monetary contests. His annals of the earlier eras run, for the most part, like a narrow stream of bald narrative whose monotonous banks are occasionally pranked with artificial flowers of edifying comment. But occasionally the stream, especially as it approaches the time with which the author is acquainted at first hand, widens into a broad sheet of criticism, and finally empties into an ocean of appendixes. As a history of the earlier eras of our national finance the work leaves much to be desired, but as an authentic, and what is much more remarkable, an impartial and unbiased record of the last great struggle, in which the author himself played no mean part, it is a praiseworthy and valuable achievement. As illustrative of our adverse judgment may be cited the treatment of the second Bank of the United States. Here the author, apparently oblivious of Catterall’s monumental investigation into its character and administration, fails to discriminate sharply between Cheves’s and Biddle’s policies, and essentially misapprehends the roles played by Biddle and Clay in forcing the issue for recharter. Mr. Hepburn (page 99) says that Biddle, “ upon the advice of the leaders of that [the Whig] party,” early in 1832 petitioned Congress for a renewal of the charter. Catterall has shown conclusively that Biddle himself, and not Clay, “was the responsible actor” in this move. Other illustrations of Mr. Hepburn’s adhesion to views which in point of correctness or adequacy have been severely shaken by the patient toil and criticism of financial historians are his attributing to Chase (page 181) the responsibility for the suspension of specie payments in December, 1861, his misapprehension of Chase’s interpretation of selling bonds at the market price (page 193), his assertion (page 269) that “the war could not have been carried on and the Union saved without a United States note issue,” and his declaration that ‘ ‘ the framers of the Constitution intended to absolutely prohibit the issue of paper money as money with legal tender power” (page 268). It would be impossible to elucidate each of these points seriatim, but on the last one it is worthy of note that Professor Davis R. Dewey, in his recent Financial History of the United States, has, after a painstaking reexamination of the evidence, been unable to attain Mr. Hepburn’s feeling of certitude, and says conservatively that the “question was thus left in such a doubtful form that it is difficult now to decide whether the [constitutional] convention intended to deny absolutely to Congress the right to emit bills of credit under any circumstances whatever.” On the other hand, one cannot sufficiently admire the acuteness and the dispassionate candor of Mr. Hepburn’s account of the contest over silver. Unlike most writers, he shows the least bias and fullest knowledge when he recounts the issues of which he may justly say, —

A double contrast to Mr. Hepburn’s strong and weak points is found in Mr. Stanwood’s two ample volumes on the history of the tariff.³ In his eight hundred pages Mr. Stanwood allows himself plenty of space to follow the century-long controversy in all its windings. He has laboriously dragged the ponds for every scrap of available material, and is equally at home in the earlier and later phases of the question. On the other hand, it would seem as though a slight trace of bias becomes more pronounced as he takes up the analysis of its latter phases. “The years that bring the philosophic mind,” in Mr. Stanwood’s case, are the years that separate him from the phenomena he describes, instead of the years in the midst of whose activity he has lived. But whatever the limitations discernible in the evenness of his treatment, it must be acknowledged at once that the substantial excellence of this work is beyond dispute. It will stand along with Professor Taussig’s tariff history, to which it is an essential counterfoil, as one of the two absolutely indispensable works for the student who seeks an understanding of this momentous issue. Mr. Stanwood is avowedly a believer in protection, but he is candid, and in his researches, which at times must have been dreary to a degree, he has been indefatigable. He has, in consequence, laid under obligation both his supporters and his opponents. Perhaps this general verdict may gain a scruple or two in weight if the confession is here recorded that the reviewer is not personally of Mr. Stanwood’s way of thinking in this matter.

Beginning with the earliest tariff legislation enacted by Congress, Mr. Stanwood takes up the long-disputed point of its conscious protective aim. Twice in his analysis he runs afoul of Professor Henry Carter Adams’s Taxation in the United States, 1789-1816, and it must be conceded that Adams’s contention that the analysis of Hamilton’s Report on Manufactures, construed in its contemporary setting, evidences the “total subordination of the industrial to the political problem,” gets a black eye, as does his contention that this version of the matter finds support in “the further development of the general financial policy of the government,” especially from 1791 to 1795. The open-minded reader is likely to agree with Mr. Stanwood’s verdict that “there is no way to divide the supporters of the act of 1789 into classes, and to distinguish those who chiefly wish to retaliate on England from those who thought the well-being of the country to be promoted by establishing manufactures. It is, therefore, pure assumption to assert that the first class outnumbered the second.”

Another aspect of the tariff question is thrashed out with most exemplary thoroughness, and that is the constitutional aspect. Mr. Stanwood shows how late the objection to protection arose on the ground of its alleged unconstitutionality, and declares (vol. i, page 293) that “a diligent examination of all the debates upon the tariff reveals but a single suggestion prior to 1820” on this score. Curiously enough, the first elaboration of the idea of the unconstitutionality of protection is traceable to Webster’s Faneuil Hall speech of October 20, 1820. The late historical emergence of the argument, as well as the close analysis to which the argument in its various forms is here subjected, will suffice to convince most readers that if protection is to be successfully assailed, it must be with some other weapon than the yardstick of the constitutional lawyer.

The mention of Webster’s name in connection with the tariff will serve to indicate some of the phases of Mr. Stanwood’s treatment of tariff history which seem to savor of a parti pris. By the time of the Compromise Tariff of 1833, Jackson, Clay, Calhoun, and Webster had all completed their singular somersaults in the matter of the tariff. Jackson’s volteface is mentioned in terms of restrained asperity, but between the lines there lurks a suggestion of presumptive treachery. Webster’s tergiversation is freely condoned, although, to his credit be it said, Mr. Stanwood rejects Senator Henry Cabot Lodge’s jesuitical attempt to reconcile Webster’s earlier and later utterances, while Clay’s change of attitude is belauded as evidence of “political sagacity.” Another unconscious exhibition of bias is seen in Mr. Stanwood’s contention that the South had no right to complain over the burdensomeness of the tariff of 1828. He admits that its protective features were wholly for the benefit of the North, but adds naively (vol. i, page 162), “that was only because the South preferred, by devoting itself exclusively to agriculture, to seek none of the benefits which were open to all.” On the other hand, when the farmers in 1890 demanded that protective duties be laid to assist them, he finds “it was surely an act of justice so to do, if the farmers desired protective duties, and regarded them as necessary ” (vol. ii, page 264). One would think that what was sauce for the goose in 1828 might well serve as sauce for the gander in 1890.

The analysis of Secretary Walker’s famous report is not unfair, and the ungrudging admission of the success of the Walker low tariff as a revenue measure, and of the general prosperity of the country from 1846 to 1857 under that tariff, sufficiently attests Mr. Stanwood’s determined purpose to be fair. Those who hold a different creed from Mr. Stanwood will be apt to protest against his not infrequent reference to certain weird “theorems” which “orthodox” economists are supposed to hold, such, for example, as that “a nation will not or cannot buy from another country which maintains a high tariff against its productions” (vol. ii, page 392). And even Mr. Stanwood himself, when he comes to print a later edition of his generally admirable history, will hardly want to put it on record as his final and deliberate judgment that the popular disapproval of the McKinley Act “was brought about by men who fancied themselves wronged because tinware was to be higher, by philanthropists who pitied the sewing-women condemned to poverty by an advance in the price of pearl buttons, by young men about town who resented an additional tax on cigars ” (vol. ii, page 295).

It is in the last of these books, the life of Morris, that the distinctively human note is struck.1 The justification for another life of the Financier of the Revolution, if justification were necessary, is to be found in the diaries and letter-books of Morris which the Library of Congress has recently acquired. Along with other material they have served in Mr. Oberholtzer’s hand to produce a sympathetic portrayal of their author and his times. As a general proposition it may be laid down that a great financier is seldom a popular hero. To the man in the street he is like the great inventor,— something of a wizard rather than a fellow mortal of flesh and blood. Morris, however, proves an exception to this rule, blit it may possibly be argued that it was because of the unique character of the financial task he essayed. He was not ordinarily to be found closeted with expert advisers, treasuring up his bright designs and planning audacious coups that would electrify the stock market. His was rather a commonplace task of buying and forwarding supplies, of standing off persistent creditors of the government, and of “preaching to the dead,” as he phrased it, in speaking of his ceaseless appeals to the states to honor the requisitions of Congress. A man of nice scruple would have shrunk from the task that he faced. “I knew,” so he writes the president of Congress, “that until some plain and rational system should be adopted . . . the business of this office would be a business of expedient and chicane.” But he faced the unpalatable task with equanimity. He realized, as he once wrote to a firm of foreign bankers, that “it is no uncommon thing for a government to find itself in situations where nothing is left but a choice of evils, and where the smallest of these evils will be a very great one.” But though the situation was often unpalatable in the extreme, Morris faced it with resolution, and was buoyed up by a native humor which often stood him in good stead. When he was assailed by public creditors, he stood them off sometimes with a good-natured impudence that nothing but an exhausted treasury and a starving army would have justified. Young Thomas Edison, who persisted in pressing his picayune claim, was told “ that he was too expensive for his circumstances, and that Congress did not mean to support extravagance.” Baron de Frey, a soldier of fortune, desired Congress to give him the means of returning home. Morris regretted his inability to help the baron, but finally offered to refer the request to Congress, accompanied, however, with an opinion that Congress might properly dispense favors when Congress had first paid its just debts. The baron declined this proffer in high dudgeon, and the financier records the incident with a chuckle, adding, “and I hope that he may arrive safe in his own country.”

Like so many others of those whom we revere as “the Fathers,” Morris had a style of public utterance which was at once dignified, cogent, and eloquent. There is nothing in the Fecleralist much finer than Morris’s utterance in his letter to Congress in 1784, — “ The inhabitants of a little hamlet may feel pride in a sense of separate independence. But if there be not one government which can draw forth and direct the combined efforts of our united America, our independence is a name, our freedom a shadow, and our dignity a dream.” The letter which Morris, when financier, sent to the governor of Connecticut dissipates the governor’s exculpation of that colony’s tardy tax payments, much as a mountain breeze blows away a fog:—“as to the complaint made by the people of a want of money to pay their taxes, it is nothing new to me, nor indeed to anybody. The complaint is, I believe, quite as old as taxation, and will last as long. That times are hard, that money is scarce, that taxes are heavy and the like, are constant themes of declamation in all countries, and will be so. But the very generality of the complaint shows it to be ill-founded. The fact is that men will always find use for all the money they can get hold of, and more. A tax-gatherer, therefore, will always be an unwelcome guest, because his demand must necessarily interfere with some pleasurable or profitable pursuit.” Shades of Adam Smith! You would never have monopolized the title of being “the father of political economy” had Robert Morris taken to the cloister instead of to the counting-house.

Mr. Oberholtzer has well drawn the pathos of Morris’s final career. After his priceless services to his country as Superintendent of Finance, after serving in the convention that drafted the Constitution, and after representing Pennsylvania in the Senate, Morris was ultimately ruined by land speculations, and the closing years of his life were spent behind prison walls, a prisoner for debt. The enormous figures of recent financial promotions do not seem so stupendous, after all, when compared with the five or six millions of acres which Morris and his associates at one time controlled. There were alleviations even of his prison life, — the constancy of his wife and daughter, and his own imperturbable courage and good humor. No more pathetic or dramatic picture has come down to us from those times than that presented in 1798 when war threatened with France, and when Washington, who had quitted his retirement to organize the American forces, dined with Morris in the prison-house. Though Morris secured release from prison before his death, it was too late to think at his advanced age of retrieving his fortunes, and his last years might well be described in the very words with which Morris himself described the American army after the surrender at Yorktown, — “crowned with laurels, but distressed by want.”