CHAPTER LVII CLEVELAND'S SECOND TERM THE PANIC OF 1893 Notwithstanding the prevalence of widespread discontent in the rural sections of the country, Harrison and his party were not so badly off as they might have been. The falling prices for farm products, about which the West and South complained, were a positive benefit to the urban worker, especially as wages had shown a tendency to rise. Business had been active, and the East bore the marks of prosperity. But by the end of 1892 there were indications that the East might be subjected to "hard times" of its own, and it was this legacy of impending trouble which Harrison passed on to his successor. Continued low prices for cotton and wheat had nearly ruined the purchasing power of the farmers, and as a result Eastern manufac turers were beginning to feel the strain. Imports too were steadily falling off, partly because of decreased purchasing power, partly on account of the high duties of the McKinley Tariff. Because the federal government depended largely on import duties for its revenue, the Treasury began to suffer. Even before Harrison left office, the surplus had disappeared, and in the face of a serious deficit the government was forced to borrow money to maintain its gold reserve. Neither the federal government nor its currency system was in a position to stand any real strain. Of the treasury notes issued during the Civil War, there were still in circulation approximately $350,000,000. Each year the Treasury was buying silver, as required by the Sherman Act, and paying for it in more treasury notes. This necessitated a yearly increase of $54,000,000. All these notes were redeemable in gold, as were the silver dollars coined under the BlandAllison Act. These had an intrinsic value of about sixty cents in the winter of 1892. To provide for the redemption of this cheap currency the Treasury maintained a gold reserve. There had been no legal provision fixing its amount, but custom had fixed $100,000,000 as a safe minimum; if the reserve dropped below that point bankers THE PANIC OF 1893 649 and business men became alarmed. The Sherman Silver Purchase Act had imposed a heavy strain on this reserve, and Harrison had kept it up to the safe minimum with the greatest difficulty. In addition to the Sherman Act, other Republican measures were proving seriously embarrassing. The effect of the McKinley Tariff in cutting down revenue has been mentioned. In 1890 the Republican Congress had passed another pension measure, the Dependent Pensions Act, which called for heavy expenditures. While imports were falling off, exports were decreasing even faster, so that there was a balance of trade against the United States. While the United States was struggling with these difficulties, the Argentine Republic suspended specie payments. This collapse in South America injured British bankers, and in order to get money they began to sell American securities, and to take gold in payment. During the winter of 1892-93 several foreign nations were making desperate efforts to increase their gold reserves, and every attempt seemed to take gold away from the United States. In the face of such pressure the gold reserve dropped like a barometer at the approach of a storm. Standing at $190,000,000 in June, 1890, it had gone to $177,000,000 in June, 1891. By 1893 it had fallen below the minimum of safety, and stood at $95,000,000. By the end of the year it went to $70,000,000, and by January, 1895, it touched $41,000,000. Everything pointed toward the suspension of specie payments and a silver standard. On February 20, 1893, the Philadelphia and Reading Railroad went into bankruptcy, and this failure brought on a panic in the stock market. By March 4, the date of Cleveland's inauguration, every one could see that a tremendous crash was coming, and it is not improbable that the Republicans congratulated themselves upon their good fortune in getting out from under at the very best time possible. In May, 1893, a second stock panic occurred, and with this the storm broke loose. Banks called in all the loans they could, and refused to make new ones. Before long they even refused to cash checks. These devices were of little help, and banks failed by the hundred. Business men found themselves entirely cut off from their money, if they had any, and they were plunged into bankruptcy. Then factories closed, and the wage-earners were thrown out of work. Men with families, large ones too, with practically no accumulated savings, were left with nothing to do but to wonder at the extent of their calamity, and to pray for better days. President Cleveland called Congress in special session in the summer of 1893, and asked for an immediate repeal of the Sherman Silver Purchase Act, in order that one drain on the Treasury might be stopped. The House complied, before the end of August, but the Senate was hard to move. The silver element was well represented in the upper house, and the silver Senators began a determined filibuster, to prevent the repeal bill from passing. Jones of Nevada made a speech that filled a hundred pages of the Congressional Record. But finally the President had his way, and late in October the Senate passed the repeal. In the debates in the House a young member from Nebraska, William Jennings Bryan, hitherto unknown, made something of a reputation by his impassioned pleas for silver. In December, 1893, the Wilson tariff bill was introduced in the House, and the debate upon it began the following month. As first brought in the measure was a step in the direction of what the Democrats regarded as reform. But in the Senate many of Cleveland's own party turned against the bill, while the Republicans heaped upon it all the scorn and ridicule at their command. "The framers of the Wilson Bill having classified hydraulic hose. . . among articles of wearing apparel," one Republican Senator said, "no doubt will remodel that extraordinary measure so as to include hydraulic rams and spinning-mules in the live-stock schedule." By the time the Senate had finished with the bill it looked like almost anything but the original Wilson bill in the House. Cleveland himself described the made-over act as "party perfidy and party dishonor," and allowed it to become law without his signature. The Wilson Bill reduced some duties, and it put wool on the free list, but it was not in any sense a satisfactory measure. Its most distinctive feature was an income tax provision, included by way of response to Populist demands. This was subsequently declared unconstitutional by the Supreme Court. While the Wilson Bill was undergoing the process of amendment, Cleveland's Secretary of the Treasury, John G. Carlisle, was strugling to maintain at least the semblance of a gold reserve. His only resource was borrowing, but the first bond issues merely started an "endless chain." Banks came to the Treasury for the gold with which they bought the bonds. In February, 1895, with the gold THE PANIC OF 1893 651 reserve at $41,000,000, J. P. Morgan, the best known American banker, was called into conference with the President and the Treasury officials. Morgan suggested that the Government buy $100,000000 in gold from the banks. He agreed that the banks would get at least half the gold from Europe, and that none of it should be taken from the Treasury. Cleveland agreed to the proposal, and the plan was carried through. While the arrangement was justified by the principles of public finance, it was politically disastrous. Leading Congressmen of Cleveland's own party turned upon him with venomous hatred that shocked even some of the hardened veterans of twenty years' political mud slinging. The widespread industrial depression inevitably brought labor troubles and disturbances. Where factories simply closed, there was not much that the employees could do. Where the shops were kept running, wage reductions came as a matter of course. In 1893 and 1894 the Pullman Palace Car Company reduced wages about twentyfive per cent. A committee of the employees asked for a return to the original scale: their request was refused and some of the members of the committee were discharged. A strike followed. The American Railway Union joined with the Pullman employees, and the General Managers' Association upheld the Pullman Company. The railroad unions refused to handle Pullman cars on trains, and the strike spread into all the states west of the Mississippi. Violence and destruction of property were far too common, and the United States mail service was interrupted. The disorders were most serious in Illinois, in and around Chicago, and President Cleveland sent in federal troops to enforce federal law. In July, 1894, the United States District Court of Illinois issued an injunction, forbidding officers, members of the Union, and all other persons from interfering with the movement of trains, or with employees who were performing their duties. Eugene V. Debs, the President of the Union, and the other officers continued their efforts in directing the strike, and in consequence they were imprisoned for contempt of court. In the congressional election of 1894 the Democrats were badly beaten. The Republicans regained control of the House with 248 members against 104 for the Democrats. The Populist Party polled about one and a half million votes. By 1895 Cleveland was the most unpopular, most cordially hated man in the Democratic Party. While the Democrats were berating him for the repeal of the Sherman Silver Act, the bargain with the Morgan banking interests, and the use of federal troops in Illinois, the Republicans were holding him responsible for the Panic of 1893. As an Ohio Congressman put it, until November, 1892, economic conditions in the country were most favorable. "Iron furnaces throughout the country were in full blast, and their cheerful light was going up to Heaven notifying the people of the United States of existing prosperity and warning them against change of conditions." But the voters foolishly put the Government into the hands of the party "which had declared war on the system upon which our whole industrial fabric had been erected." "One by one the furnaces went out, one by one the mines closed up, one after another the factories shortened their time." By 1896, thanks to the convincing arguments of Republican orators, and to the panic, the industrial sections had adopted the theory that economic well-being was impossible save under a Republican administration. VENEZUELA While Cleveland, Congress, and the country were struggling with the problems of business depression, the Venezuela tangle was suddenly thrown before the public. In the form which it assumed in Cleveland's second term, it came as a combination of shock and surprise, partly perhaps because for a number of years matters of foreign policy had been submerged under the mass of domestic issues. For a generation after the Civil War, little attempt had been made to cultivate intimate relations with the Latin-American countries. Various isolated issues came up for consideration but there was little evidence of any well defined or consistent policy. This was especially true after the disappearance of the American Merchant Marine. With her ships, trade, capital, and interest in developing foreign markets, Great Britain seemed likely to win a position of dominant influence in that part of the American World. Moreover, the rising German Empire was looking about for foreign markets, and German immigration in Brazil was noticeably heavy. In 1881, as Secretary of State under Garfield, Blaine planned to map out a constructive Latin-American policy for the United States, and to make that the great achievement of the administration. But with the advent of Garfield all of Conkling's foes had to be ousted from high Government positions, so Blaine resigned. Restored to the State Department in 1889 by Harrison, Blaine proceeded to |