Frank Albert Fetter.

Source book in economics, selected and ed. for the use of college classes online

. (page 24 of 30)
Online LibraryFrank Albert FetterSource book in economics, selected and ed. for the use of college classes → online text (page 24 of 30)
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1793 gave slavery a new and undreamed-of lease of life.
Hitherto only cotton of the long staple had been grown, and
that only in the tide-water sections. The cotton-gin made
profitable the cultivation of the short-staple variety, and
opened the vast unoccupied upland of the South to cotton
culture. The planter with his gang of slaves penetrated the
Southern wilderness, moving in parallels to the white pioneer
and settler on the North and West. The early economic com-
plexion of the South was thus irretrievably fixed by slavery.
Free labor would not betake itself to a section where slavery
had stamped an odium on manual toil, and the subsequent
stream of European immigration left the South untouched.
The two westward currents finally converged in the border


States of the West, and first iu Kansas the free settlers and the
slave-owners contended for the territory in question. The
contest grew until it involved the nation in civil war; and
eventually the arbitrament of war swept slavery away alto-
gether. The ultimate economic result of the war upon the
South, impoverished and exhausted by the struggle, was re-
generative. The deeps of its industrial stagnation were
stirred, and its isolated homogeneity was destroyed. Manu-
factures and commerce have invaded its territory and diversi-
fied its occupations, so that eventually its economic structure
will conform closely to that of the other sections of the nation.
It is true that the legacy of slavery still persists in the South
in the shape of sharp race antagonism. What the outcome of
that situation will be no one can say. Racial amalgamation
is so improbable, and, if possible, so incredibly distant, that
the hypothesis may be dismissed as beyond the scope of present
inquiry. Political equality was conferred on the negro by
amendments to the Federal Constitution, but its denial in
practice only indicates that, as a solution of the race question,
it was an untimely step. There is unfortunately not very
much to be anticipated from the speedy growth of the black
in wealth ; for while a few negroes have prospered individu-
ally, the race as a whole has hardly shown aptitude sufficient
to warrant belief in its power as a permanent competitor with
the Avhite in many occupations. Even in cotton-planting, the
recent Italian immigrant is, in some sections, ousting the
negro tenant-farmer from the land. The most that a sane
optimism can reasonably hope is, that a remnant may be
trained so as to hold their own as small cultivators, artisans,
and servants, and that white immigration to the South may
very appreciably lessen the relative proportion of the blacks to
the entire population. Recent censuses give some consider-
able color to this latter contingency. If the negro individii-
ally shows remarkable talent, recognition of his achievement
is bound to follow, and it would be wrong as well as im])Os-
sible in the long-run to withhold it. But the deep-seated ra-


cial antipathy that so often leads a white mob of the South,
incensed at negro brutality, to acts of inhumanity that make
civilization a mockery, is only an index of the cancerous na-
ture of the race problem in our Southern States.

III. Capitalistic consolidation and class antagonism. At
the close of the Civil War, in 1865, the remaining free public
lands of the West greatly facilitated the disbanding of the
Northern army. But a decade later, by the time that the
Southern States were again represented in Congress, and
the war's results had been embodied in constitutional amend-
ments, the available land of the West was practically ex-
hausted, and the frontier of settlement had disappeared.
New public issues of a progressively economic character
emerged, and were to be canvassed often with rancor, now that
free lands served no longer as an absorbent of social discon-

It was the beginning of a period of recoil and readjust-
ment. Population was losing some of its fluidity, and friction
was developing. The center of population was no longer
shifted rapidly towards the Pacific, moving tardily in the last
census decade (1890-1900) only fourteen miles to the west-
ward. Tendencies that heralded the approaching industrial
maturity of the country multiplied. The urban population
gained steadily on that of the rural districts, and by 1900
towns of 8000 or over contained fully one-third of all the
inhabitants. The first manifestation of unrest centered about
financial and monetary heresies, such as the agitation for the
permanent inflation of the currency; and the agrarian com-
munities of the newer sections rallied to the support of this
and kindred proposals. The so-called Granger or anti-rail-
road legislation, prevalent in the same section, was an index of
a newly awakened hostility to the rapidly growing transporta-
tion interest. By 1880 the phenomenon of industrial con-
solidation began to attract attention. In cotton, woolen, and
iron manufactures, the number of plants either diminished
absolutely from decade to decade, or showed an inconsiderable


increase by no means proportionate to the growtli of popula-
tion. Concurrently with this check in the increase of the
number of establishments, the average capital investment, the
annual output per plant, and the average number of em-
ployees per factory, grew prodigiously. The dearth of profits
which vigorous competition had brought about had given rise
to attempts at consolidation in certain industries; an-d the
virtual monopoly of refining sugar and petroleum, originally
under the trust form of organization, was evident as early as
1880. Both the organization of industry upon a' grand scale,
and the ampler means at the disposal of master manufacturers,
quickened the pace and multiplied the economies of produc-

On the other hand, labor associations after the Civil War
grew in number, and took on a radically different character.
Instead of transitory quasi-social guilds of local craftsmen,
they became permanent unions, militant in aim, and con-
federated with hundreds of similar organizations pursuing a
common purpose. Beginning first in 1877, strikes of such
magnitude and violence occurred as to simulate territorial in-
surrections and to require the intervention of the Federal

The legislative mill began to grind out statutes of a signifi-
cant and far-reaching economic purport. In Congress the
Chinese Exclusion Act came in 1882. The law prohibiting
the importation of laborers under contract for hire followed
in 1885. Federal regulation of railroads by the Interstate
Commerce Commission began in 1887, and the Sherman Anti-
Trust Act followed in 1890. Even after the tardy resump-
tion of specie payments in 1879, the forces of discontent, es-
pecially among the agrarian communities of the West, battled
persistently until 1896 for inflation, under the guise of free
silver coinage. . . .

The growth of colossal private fortunes began to excite
formidable unrest. . . . [Omitted here is the discussion of
the then current political issues and policies] .


I have tried to indicate, first, how the prevalence of natural
economic opportunities created for a time in the belt-line of our
expanding national power a fiercely equalitarian society, and
how this society wrested political control from an older
hereditary aristocracy and deposited it in the hands of the
masses. The cost of this progress was registered in a fluctuat-
ing civil service, and in a permanent and costly political or-
ganization which has too often succumbed to corrupting in-
fluences. Second, I have sought to show how slavery stamped
indelibly its economic character upon the South, until the
clash of the two opposed industrial systems in the border
States of the West precipitated civil war and led to the even-
tual abolition of slavery. This undoubted gain was purchased
only at the cost of the acute race-antagonism which still
agitates the South. Lastly, I have tried to outline the results
of the more systematic exploitation of wealth in a territory
whose frontier has disappeared, — a process which has largely
proceeded from the concentration of capitalistic control, which
has issued in unprecedented opulence, difi^used in some meas-
ure throughout the greater part of the population, and yet at-
tended by the unfortunate growth of class-antagonisms and by
pervasive distrust of our party organizations. Each move-
ment has shown a temporary social loss, and no less surely
there has emerged in each a correlative social gain.


[The Director of the Mint in his annual report for the year 1011,
discusses the recent increase in the output of gold, the manner and
extent of its absorption into monetary and industrial uses, and some
of the probable changes in the future. Omitting many details of the
evidence, we give here the most essential parts of the discussion.
( Annual Keport of the Secretary of the Treasury on the State of the
Finances, June 30, I'Jll, p. 266.)]

The world's absorption of gold and the rise of prices.

The enormous increase in the production of gold which has
occurred in recent years, and the relationship that may exist
between these enlarged supplies and the advancing prices of
commodities, has awakened a world-wide interest among
economists. It has seemed for this reason worth while to
undertake the task of tracing the yield of the last two decades
into actual use for the purpose of discovering wdiere it has
been located and how much of it has been placed where it
would probably exert an influence for the expansion of credit,
the stimulation of industry, and the rise of prices.

The new golden era may be said to have had its beginning
with the discovery of the Transvaal deposits in South Africa
and the development of the cyanide process, which was first
used successfully in the treatment of the Transvaal ores, but
has since contributed in an important degree to the increased
production of nearly all gold-mining districts. . . .

The production of the world for [three of] the ten years
from 1890 to 1899, inclusive, and for [three of] the eleven
years from 1900 to 1910, inclusive, is given in separate tables
and the yield of the three principal producing countries is also
shown separately. The African product is mainly from the



Transvaal but includes Ehodesia and lesser fields which alto-
gether had in 1910 a production of $19,592,679. [Tables ab-




Years. Africa. States. Australia. Others. Total.

1890 9.8 32.8 29.8 40.6 113.1

1895 44.7 46.6 44.7 62.6 198.7

1899 73.0 71.0 79.3 83.3 306.7

Total 10 years 420.0 467.0 458.2 614.5 1959.9

Average 42.0 46.7 45.8 61.4 195.9




Years, Africa. States. Australia. Others. Total.

1900 8.6 1 79.1 73.4 94.2 255.6

1905 113.2 88.1 85.9 92.9 380.2

1910 175.1 96.2 65.4 117.7 454.7

Total 11 years 1123.9 955.3 862.7 1095.5 4037.6

Average 102.1 86.8 78.4 99.5 367.0

By way of accounting for the distribution and employment
of this product, . . , [several tables are given below].

Gold used in the arts. It is confessedly a difficult task to
make a satisfactory estimate of the amount of gold consumed
in the arts and industries, for the reason that only a few
countries have made it the subject of official inquiry. Evi-
dently, however, it is necessary in any consideration of the
influence of the new supplies of gold upon prices to make
some allowance for the portion of these supplies or of the
existing monetary stock that has been diverted to industrial
uses. . . .

[Page 272] The following is the bureau's estimate in de-
tail for the consumption in the arts and waste of gold for
the calendar year 1910, excluding Asia and Africa :

[1 Note effect of the Boer War.]


world's industrial COiNSUMPTION, 1910.

Countries. Gold (value).

United States $ 33,756,500

Germany 15,5.36,000

France ' 16,836,000

Great Britain 18,000,000

All otlier countries 27,720,000

Total 11 1,848,500

Some writers oi' repute in the past have made large esti-
mates for the abrasion which coins suffer under use. This
was doubtless a larger factor in former times than it is now,
the principal use of coin in modern monetary systems being
to serve in reserves against paper money in circulation. . . .

Exports to Asia. There are practically no figures for the
absorption of Western or Central Asia. The statistics for
China are of little value, but on the whole there is a move-
ment outward, showing that the production, possibly aug-
mented by unrecorded imports, exceeds the recorded imports.

In statistics of the precious metals India is the most im-
portant coimtry of Asia, and has long been one of the most
important in the world. The Government of India has ad-
vised this bureau that the uncoined gohl imported into that
country might be considered to be used for ornaments and in
manufactures. This amounted in 1910 to $47,026,698.

The movement to India deserves to be treated in a class by
itself. A large part of the gold and silver that goes there
sinks out of sight, and whether it is made into ornaments
or buried in the ground, is withdrawn at least in large part
from the monetary stock of the world. Some of it may be
brought out in periods of emergency, such as times of famine,
and reconverted into money, but in the past a steady stream
of the precious metals has moved into India and disappeared
as a factor in the commercial world. Sir James "Wilson,
K.C.S.I., for many years in the Government service in India,
in a comprehensive address delivered before the East India
Association of London, on June 14, 1911, reported the net



imports of gold by India since 1840 at about $1,200,000,000,
or one-tenth of the world's production in that time. . . .

Sir James Wilson, in the address alluded to, sums up his
explanation by saying :

As for India, her prosperity is steadily advancing. Great numbers
of her people prefer to spend their savings on gold rather than on
other commodities. The probability is that altogether apart from
questions of currency, India will continue to absorb gold in ever-
increasing quantity. ...

Egyptian absorption [page 275]. The Egyptian situation
is somewhat like that of India. The country is on a gold basis,
and for thirty years has been steadily taking gold in the set-
tlement of its trade balances. The high price of cotton in
' recent years and the increasing production of the country
explains the trade balances, but there is some mystery about
the way the gold disappears from view. It does not enter
into bank stocks, and it is difficult to understand how a
country of its size and population and in which the masses
of the people are so poor can absorb so much gold coin. In
the first period under review the customs records show net
imports of $58,670,000 and in the second period $146,660,000.
For the year 1910 they were $30,000,000.

Some light is shed upon the situation by the following state-
ment in an address by Lord Cromer, made in London in 1907 :

A little while ago I heard of an Egyptian gentleman who died
leaving a fortune of £80,000, the whole of which was in gold coin
in his cellars. Then, again, I heard of a substantial yeoman who
bought a property for £25,000. Half an hour after the contract was
signed he appeared with a train of donkeys bearing on their backs
the money, which had been buried in his garden. I hear that on
occasion of a fire in a provincial town no less than £5,000 was found
hidden in earthen pots. I could multiply instances of this sort. There
can be no doubt that the practice of hoarding is carried on to an
excessive degree. (The Statist, Nov. 2.) ...

The movement to South America [page 276] . During the
first period there was little change in the gold stocks of South


America, but in the second period there was an important
movement to several countries. Two in particular, viz., Ar-
gentina and Brazil, drew heavily for the accumulation of
reserves as a basis for their paper currencies. This policy
in Argentina is being carried out under the law of November
4, 1909, and in Brazil under an act that went into effect
December 2, 1906. The total stock of gold in Argentina at
the close of the calendar years 1889 and 1899 was estimated
in oi¥ieial returns to this bureau at $13,000,000 and $25,-
000,000, respectively; the stock in the conversion fund and
in the Bank of the Nation on the 31st of December, 1910, was

No estimates are available for the amount of gold in mone-
taiy use in Brazil in the years 1889 or 1899, but it was prob-
ably not in excess of $10,000,000 at either time. On Decem-
ber 31, 1910, tlie stock in the conversion fund was $98,500,000.

According to the customs records of Great Britain and the
United States, Uruguay has imported large amounts of gold.
Their records indicate an excess of exports to Uruguay over
imports from that country of $128,000,000. There are no
published figures for Uruguay either of customs records or
bank reserves. The country is on a gold basis, but its pop-
ulation, banking business, and trade are all too small for such
an absorption of gold. Probably most of these imports ulti-
mately reached Argentina.

There have been small gains in other South American coun-
tries and it is prnl)ably fair to estimate that altogether South
America during the second period has increased its gold hold-
ings by the amounts now in the conversion funds of Argentina
and Brazil, or, in round figures, $343,000,000. . . .

Summary of foregoing [page 277]. During the first pe-
riod Asia and South America took comparatively little gold.
Where they had any metallic standard or currency, it was
silver, and for many countries the currency was inconvertible
and depreciated paper.

Reviewing the second period, in which the production of



gold amounted to approximately $4,037,000,000, the following
amounts appear to have been diverted from monetary use, or
so employed that apparently they would not be directly effect-
ive upon world prices:

Industrial consumption $ 958,000,000

India 433,000,000

Egypt 146,000.000

Japan 69,000,000

South America 343,000,000

Mexico 28,500,000

Total 1,977,500,000

The total represents nearly one-half of the production of
the period. The demand outside of the old circle of gold-
using nations is a growing one, greater in the last half of the
period than in the first, still increasing in the countries named
and spreading to other countries that in the past have not
been accustomed to use gold as money. . . .



Banks and treasuries.

Dec. 31

Dec. 31

Dec. 31


1899 over



1910 over


Total United States. .

Total Europe

Total Australia, Can-
ada, S. Africa











Grand total. . .








Dec. 31

in eircul

Dec. 31


Dec. 31

Dec. 31

and disc

Dec. 31


Dec. 31

Total Europe

Total United States

Total Australia, Canada, S.
Africa and Japan














Grand total







Relative value of factors in the calculation. In consider-
ing the figures for j)rodiiction, consumption, and distribution,
those for the holdings of banks and treasuries are, of course,
of first importance, there being no element of uncertainty in
them. Next to them in order of credibility are the figures
for production, which for all the more important mining dis-
tricts are reported by responsible authorities. The figures
for consumption in the arts must be allowed a larger margin
for error, and have been fully explained. The official state-
ments of the exports and imports of different countries, which
might be supposed to be from trustworthy records, in fact
must be used with great caution, as they are frequently con-
tradictory, or inconsistent with more credible evidence. . . .
It is generally understood that exports are given a less strict
surveillance than imports, and that movements by sea are
more accurately recorded than those between adjacent coun-
tries by rail.

The first period, 1890-1899. The production of the first
period was estimated in round numbers at $1,960,000,000,
which from the best data available seems to have been dis-
tributed about as follows:

Industrial arts $ 570,000,000

Banks and treasury of United States 260.000,000

European banks 686,800,000

Banks of Canada, Australasia, and South Africa 59,700,000

Total 1,576,500,000

Other banks, circulation, private holdings, etc... 383,500,000

Total 1,960,000,000

. . . The production of gold during this decade was approx-
imately $900,000,000 greater than in the preceding one, and
the increase was largely taken for the reorganization of mon-
etary systems and for strengthening bank reserves. The gold
reserves of European banks increased 75 per cent., while the
paper issues increased less than 5 per cent. The world over
it was a decade in which enterprise was at a low ebb, although
the years 1890-1892 were very prosperous in the United


States, and there was a general revival in the last two years
of the period. Prices reached the lowest 10-years level for
which records are existent.

Second period, 1900-1910. According to the figures given
the distribution of new gold during the second period was
apparently about as follows :

Industrial consumption $ 958,000,000

India 433,000,000

Egypt ■. 146,000,000

Bank of Japan 69,000,000

Banks and conversion funds of Soutli America . . 343,000,000

Banks of Mexico 28,500,000

Banks and treasury of the United States 726,800,000

Banks and treasury of Canada 85,700,000

Banks, Australasia and South Africa 95,600,000

Banks of issue of Europe 863,200,000

Total 3,748,800,000

Other banks, circulation, private holdings, etc... 288,200,000

Grand total 4,037,000,000

Again, the amount unaccounted for, and which is consid-
ered to have been gained by other banks or to have entered
into circulation and private hoards, may seem small for the
volume of production. In the United States a calculation
based upon coinage and the exports and imports of domestic
coin, indicates a net gain of gold coin in circulation of $71,-
000,000. It is to be considered that there is an undoubted
tendency in all countries to use banks more than formerly,
and it is probable that the stock of gold in banks has been
recruited not only from new production but to some extent
from gold heretofore held in private hoards and out of use.
In every country the younger generation to whom these hoards
descend is likely to put them to some use.

The table shows that banks of issue in Europe in the second
period increased their gold stocks by about 50 per cent, and
their note issues about the same. Their advances or loans
and discounts increased about 25 per cent., or by a lower per-
centage than during the previous period.

An examination of the individual gains of these institu-


tions will show that a large amount of the new gold taken
by Europe has been devoted to the same purpose as in the
preceding period, to wit, the rehabilitation of monetary
systems and to strengthen and buttress the institutions of
issue. ...

The outlook for gold production [page 286]. It has been
a theory of writers on the subject that the rise of commodities
and wages would automatically check the production of gold,
thus providing its own corrective, but the gold-mining indus-
try furnishes an illustration of how invention, organization,
and the use of capital are able to accomplish a reduction in
costs when every factor in the calculation shows an advancing

Online LibraryFrank Albert FetterSource book in economics, selected and ed. for the use of college classes → online text (page 24 of 30)