In 1894, the Democratic Party was under significant pressure to reduce the tariffs imposed by the 1890 McKinley Tariff. As I discussed in my previous blog the economy was in recession and the average Americans purchasing power had dropped. Government revenue had been significantly reduced by the recession.

However, it was difficult to build a consensus between the House and the Senate- a bill that started as significant tariff cuts was diluted by over 600 amendments in the Senate. The result was the Wilson-Gorman Tariff, a hodgepodge of tariff cuts and tariff increases that became law without the signature of President Cleveland.

For purposes of discussion here, the most important aspect of the Wilson-Gorman Tariff was that for the first time an income tax was imposed during peacetime. The tax consisted of 2% on all income over $4,000 for individuals and corporations. 

This wasn’t the first income tax imposed in the US. The first was the Civil War income tax imposed in 1861 which was a progressive tax with rates ranging from 3%-10%. It was passed along with a slough of other taxes as an emergency measure. After the war, the income tax was gradually reduced and eventually eliminated in 1872 along with most of the other taxes imposed during the war.  

A serious economic issue back in the late 1800's was which metal should be used to back up the currency. In 1873, the US adopted gold as the official legal tender. Silver was still used in small coins, but was no longer legal tender for large debts. 

Back in those days, the value of US currency was tied directly to gold. You could bring gold  in to a mint and trade it for its equivalent in gold coins minus a small fee for seignorage. When the country adopted the gold standard, naturally certain sectors of the economy were upset. It created a large divide across party lines with a large group arguing for "free silver".

The "silverites" as they were called, argued that having the value of the dollar pegged to silver was better than gold because silver was more inflationary, while gold was monopolized by the industry tycoons. They supported silver over gold, but many were willing to accept bimetallism; the use of both metals.

The 1870's and 1880's saw a lot of expansion into the western US as railroads expanded their lines and increased the number of trains running. This created a boom for both the farmers and railroads. Farmers in the western midwest were now able to export grains (mostly wheat) overseas and railroads made good profits transporting the grains to ports. Another result of the railroads western expansion was the discovery of silver. Lots of silver.

 It has been repeatedly said that the Great Depression was caused by "no rules" laissez-faire capitalism. This is a completely absurd claim as the Great Depression occurred after several decades of laws that were revolutionary at the time and completely changed the nature of our economy from one that was heavily influenced at the state level, to one that was heavily influenced by the federal government.

I don't care to argue about whether or not the changes were positive at this time. Anyone who has read my posts knows what my opinions are. I simply want to deal with the facts of what laws were passed. My contention is that while the economy at the time of the 1929 crash was free by today's standards, it occurred in an economy that was in the process of becoming more regulated. Hardly the free, no rules, anarchic economy that some on this site, and the vast majority of teachers suggest there was.

I don't know about you, but my middle school economics discussion regarding this era consisted of talking about the expansion of the railroads in the 1800's then magically skipping to "the 20's boomed and then there was a crash, lets talk about Roosevelt"  while ignoring the period of 1890-1929. Any discussion of the era was of the new technologies while virtually ignoring the laws. So hopefully you might learn something you were not aware of before.

It has been awhile since I posted anything in my blog so I thought I would share another little business story now since the economics threads have gotten so much interest recently.

Once upon a time there were two youngish entrepreneurs who decided they were going to attempt to take advantage of a newfangled advertising tool called the internet. Independently of each other they determined that there was great potential for businesses to expand their customer base and more importantly, there was a large and relatively untapped market of businesses that needed people to create websites for them. Both decided to start businesses that catered to this market.

The great thing about web design is that start up costs were minimal. The first entrepreneur had already purchased a computer for personal use being a big fan of computer games and internet porn. The second entrepreneur worked at a tech support desk and was married to a geek so of course she had a computer. Since hosting costs and such could easily be billed to the customer, the only real significant start up cost involved was advertising.

Surveys indicate that around 40% of Americans have a monthly budget. I suspect that a good portion of those are lying or stretching the truth when it comes to defining a monthly budget. On average, Americans save well less than 5% of their income while personal debt remains at high levels. So suppose you are one of the millions who has been spending more than you make and have found yourself in hole, which direction do you dig?

On the surface, budgeting is pretty straightforward. You make $X so as long as spending<X your headed in the right direction. If spending>X then you either need to reduce spending or increase X. What is quite simple in theory proves quite difficult to implement in real life. So how do you get control of your personal finances so you can make rational economic decisions? 

Where did my money go?

Before you do anything else, you must know exactly how much money you are getting and exactly where every penny is going. There are a lot of resources available for free on the internet. I use Quicken because it is extremely helpful when it comes to doing taxes. Intuit also offers a free service at www.mint.com which does an awesome job helping you keep track of all your electronic transactions. However, if you are digging yourself into a debt hole internet service is one of those luxuries that is easy to cut out and doing your personal financing on a library computer isn't the best idea. Go to a dollar store and invest in a pocket notebook.

 As "luck" would have it I met a rather interesting person last night who said something that got the hamster in my brain running. I was sitting in one of my favorite watering holes having dinner and a beer when a guy in his late 60's sat down (lets call him John). Being the only person in the bar I struck up a conversation that eventually led to work.

Being me, I was quite inquisitive about his business, how he got into it etc. I have always been fascinated by stories of business success and/or failure since I was a kid and first heard Earl Nightengale. John's story has made me realize that many people don't have a clue how business works even when they are involved in one. There is no school that really teaches how to run a business, a MBA program will teach you to be a corporate cog but not how to build your own.

Building a business is very much a learn as you go process. I was fortunate enough to be the son of a businessman surrounded by businessmen who's conversation often centered around business and what works and what doesn't. When I was young my father encouraged me in various minor business endeavors like landscaping, car washing, sales and leather making so by the time I was headed into the military I had already failed and succeeded in several endeavors and had a pretty good grounding in business.