just, but it protected their revenues. The new rule was cheerfully accepted and imperative orders were issued for its obedience. But toward the close of 1887 it began to be perceived that there were difficulties, which became much more serious in 1888. On even rates the traffic naturally flowed to the direct lines, which could give the best service and make the best time. Roads less direct or of less capacity, roads with higher grades or less advantageous terminals and roads otherwise at a disadvantage, found that business was leaving them. It was discovered that the law in this its most essential feature, as well as in other respects, was practically a direct interference by the government in favor of the strong roads and against the weak. Dissatisfaction arose among officials of roads whose earnings were reduced and which were often near the edge of insolvency. It had been customary for them to obtain business by rebates and other like devices, and they knew no other method. It presently became to some of them a case of desperation. There was nothing in the law specifically forbidding the payment of "commissions," and it was found that the routing of business might be secured to a given line by a slight expenditure of that nature to a shipper's friend. Other kindred devices were suggested, some new, some old; the payment of rent, clerk hire, dock charges, elevator fees, drayage, the allowance of exaggerated claims, free transportation within some single State a hundred ingenious forms of evading the plain requirements of the law-were said to be in use. The demoralization was not by any means confined to the minor roads ; shippers were ready to give information to other lines concerning concessions which were offered them, and to state the sum required to control their patronage. A freight agent thus appealed to at first perhaps might let the business go, but when the matter became more serious and he saw one large shipper after another seeking a less desirable route, he was very apt to throw up his hands and fall in with the procession.

Meanwhile nothing was done in the way of the enforcement of the law. It was found that the sixth or administrative section had been so framed as to require the exact maintenance of the tariffs of each carrier, but that this important provision had been omitted respecting "joint tariffs," in which two or more carriers participate; rates upon interstate traffic are usually joint.

...

Toward the end of the second year came a reaching out for a remedy. In the closing days of the Fiftieth Congress amendments to the law

were adopted by which shippers as well as carriers were made subject to its penalties, and the punishment of imprisonment was added to the fine in cases of unjust discrimination; joint tariffs were also distinctly brought within the jurisdiction of the Commission and the courts.

These amendments became effective March 2, 1889, and their influence was immediately felt. . . . The third year therefore exhibited an almost entire cessation of the use of illegitimate methods for securing business, and until near its close little complaint was heard. The fourth year, 1890, witnessed a renewed relaxation of the spirit of obedience. The conditions that had prevailed in 1888 again became pressing, and evasions secretly inaugurated were not efficiently dealt with; for a considerable time no prosecutions were commenced; customers began to renew their appeals for favors, or as they term it, for relief; and it was presently a common statement among shippers and traffic agents that the law was after all a dead letter, and that its penalties need not be feared. A short corn crop added its pressure by threatening a deficiency in the usual tonnage; and at the end of last year, although irregularities were more carefully concealed, they were generally believed to exist to a considerable extent.

Aldace F. Walker, The Operation of the Interstate Commerce Law, in Forum, July, 1891 (New York), XI, 524-533 passim.

166. The Tariff and Reciprocity (1890)

BY PRESIDENT BENJAMIN HARRISON

Harrison was elected president on a platform advocating protection to home industries; and, two months before he sent to Congress the annual message from which this extract is taken, he had approved of the "McKinley Act," a tariff measure which greatly increased protection, while it reduced the revenue from import duties. This law contained a section providing for a limited reciprocity in the manner described in the text, a measure that had been strongly advocated by James G. Blaine (see No. 160 above), the secretary of state. Immediately after its passage the McKinley law was subjected to much severe criticism both at home and abroad.For Harrison, see Lew Wallace, Life of General Benjamin Harrison. - Bibliography: Bowker and Iles, Reader's Guide in Economic, Social, and Political Science, 65; and as in No. 164 above.

THE

HE misinformation as to the terms of the act which has been so widely disseminated at home and abroad will be corrected by experience, and the evil auguries as to its results confounded by the market reports, the savings-banks, international trade balances, and the

general prosperity of our people. Already we begin to hear from abroad and from our custom-houses that the prohibitory effect upon importations imputed to the act is not justified. . . . And so far from being an act to limit exports, I confidently believe that under it we shall secure a larger and more profitable participation in foreign trade than we have ever enjoyed, and that we shall recover a proportionate participation in the ocean carrying trade of the world. . . .

There is no disposition among any of our people to promote prohibitory or retaliatory legislation. Our policies are adopted not to the hurt of others, but to secure for ourselves those advantages that fairly grow out of our favored position as a nation. Our form of government, with its incident of universal suffrage, makes it imperative that we shall save our working people from the agitations and distresses which scant work and wages that have no margin for comfort always beget. But after all this is done it will be found that our markets are open to friendly commercial exchanges of enormous value to the other great powers.

From the time of my induction into office the duty of using every power and influence given by law to the Executive Department for the development of larger markets for our products, especially our farm products, has been kept constantly in mind, and no effort has been or will be spared to promote that end. We are under no disadvantage in any foreign market, except that we pay our workmen and workwomen better wages than are paid elsewhere better abstractly, better relatively to the cost of the necessaries of life. I do not doubt that a very largely increased foreign trade is accessible to us without bartering for it either our home market for such products of the farm and shop as our own people can supply or the wages of our working people.

In many of the products of wood and iron, and in meats and breadstuffs, we have advantages that only need better facilities of intercourse and transportation to secure for them large foreign markets. The reciprocity clause of the tariff act wisely and effectively opens the way to secure a large reciprocal trade in exchange for the free admission to our ports of certain products. The right of independent nations to make special reciprocal trade concessions is well established, and does not impair either the comity due to other powers or what is known as the "favored-nation clause," so generally found in commercial treaties. What is given to one for an adequate agreed consideration can not be claimed by another freely. The state of the revenues was such that we could dispense with any import duties upon coffee, tea, hides, and the

lower grades of sugar and molasses. That the large advantage resulting to the countries producing and exporting these articles by placing them on the free list entitled us to expect a fair return in the way of customs concessions upon articles exported by us to them was so obvious that to have gratuitously abandoned this opportunity to enlarge our trade would have been an unpardonable error.

There were but two methods of maintaining control of this question open to Congress to place all of these articles upon the dutiable list, subject to such treaty agreements as could be secured, or to place them. all presently upon the free list, but subject to the reimposition of specified duties if the countries from which we received them should refuse to give to us suitable reciprocal benefits. This latter method, I think, possesses great advantages. It expresses in advance the consent of Congress to reciprocity arrangements affecting these products, which must otherwise have been delayed and unascertained until each treaty was ratified by the Senate and the necessary legislation enacted by Congress. Experience has shown that some treaties looking to reciprocal trade have failed to secure a two-thirds vote in the Senate for ratification, and others having passed that stage have for years awaited the concurrence of the House and Senate in such modifications of our revenue laws as were necessary to give effect to their provisions. We now have the concurrence of both Houses in advance in a distinct and definite offer of free entry to our ports of specific articles. The Executive is not required to deal in conjecture as to what Congress will accept. Indeed, this reciprocity provision is more than an offer. Our part of the bargain is complete; delivery has been made; and when the countries from which we receive sugar, coffee, tea, and hides have placed on their free lists such of our products as shall be agreed upon, as an equivalent for our concession, a proclamation of that fact completes the transaction; and in the mean time our own people have free sugar, tea, coffee, and hides.

The indications thus far given are very hopeful of early and favorable action by the countries from which we receive our large imports of coffee and sugar, and it is confidently believed that if steam communication with these countries can be promptly improved and enlarged the next year will show a most gratifying increase in our exports of breadstuffs and provisions, as well as of some important lines of manufactured goods.

Senate Journal, 51 Cong., 2 sess. (Washington, 1890), 8 passim.

167. The Clearing-House System (1890-1893)

BY COMPTROLLERS EDWARD SAMUEL LACEY AND JAMES H. ECKELS

Lacey was comptroller of the currency during the major portion of Harrison's administration, and Eckels held the position during Cleveland's second administration. The comptroller has charge of all matters relating to national banks; his annual report includes also the condition of state and savings-banks, and is, in consequence, a résumé of the banking interests of the nation during the year. The issuance of clearing-house certificates during the financial stringency of 1893, contemporary with the agitation for the repeal of the Sherman Law, was denounced by the advocates of free silver. This extract is from the official reports. - Bibliography: Brookings and Ringwalt, Briefs for Debate, No. xxxvi; Bowker and Iles, Reader's Guide in Economic, Social, and Political Science, 35-44; Horace White, Money and Banking, 469-477.

A. LACEY'S REPORT, 1891

HE effect of a general monetary stringency is felt first and most

TH

reserve cities.

Whenever financial affairs are in a normal condition the surplus funds of the local banks find their way to the vaults of their correspondent banks located in the great centers of business activity. This is undoubtedly due in part to the fact that these deposits may be made available for lawful money reserve and that a small rate of interest is, as a rule, paid upon bank balances by associations in the larger cities, and to the further fact that the maintenance of a good balance with their city correspondents strengthens the claim of the interior banks upon the former for rediscounts when the temporary condition of redundancy passes away and the increased demand for money is greater than the interior banks from their resources can conveniently supply.

Thus it results that the wants of a continent in case of general depression are at last brought through various channels of business activity, by way of withdrawals or loans, to the bankers of the great metropolitan cities for relief, and they are presented in such a form, in many cases, as to preclude the possibility of refusal, if general bankruptcy is to be avoided.

During the period of the stringency [1890] . . . the cities of New York, Philadelphia, and Boston were subjected to the most pressing demands, and after very careful consideration it was decided by the associated banks that the exigency made necessary a resort to the issuing of clearing-house loan certificates, for the purpose of settling clearing-house balances. This expedient had been successfully resorted to during the panics of 1873 and 1884.