The United States Since The Civil War by Charles Ramsdell Lingley

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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.