A History of US Economic Law Part 4: The McKinley Years
The election of 1896 centered on economics issues. If you remember from my previous post, the country was in a very deep recession since the panic of 1893. Unemployment was still in the double digits, which metal to base the currency on was still a hot political issue and there was a whole lot of uncertainty. McKinley ran on a platform supporting protective tariffs and the gold standard. While McKinley himself was not a hardliner on the gold standard, it was a position he was forced to take for political reasons as his democratic opponent was William Jennings Bryan a very prominent silverite.
I have been a little remiss in discussing tariffs because quite frankly I find the subject boring. But arguments over tariffs were as important at that time as the metalism arguments. Tariffs are taxes on imports and there was a large "protectionist" movement that was mostly fueled by industrial tycoons. Protectionists supported high tariffs which would make it more difficult for foreign companies to offer competitive prices and therefore encourage people to buy domestically. Obviously, domestic industry leaders liked this because it cut out a competitor. Large domestic trusts like the sugar trust that held 90%+ of the domestic production were especially enthusiastic about pursuing high tariffs.
Protectionist tariffs were generally unpopular among the populist movement. They were viewed as simply a way for the extremely wealthy to charge higher prices. Tariffs on raw materials especially could lead to higher consumer prices, which for obvious reasons was not very popular with consumers who didn't have a lot of money.
Tariff laws tended to be extremely complex, much like our tax code today. Large businesses aggressively lobbied for higher tariffs and representatives from rural states aggressively fought against them. The resulting laws were often a mix of high tariffs on certain products while other products were "free" and had no tariffs at all. If you were to go through the effort of reading an entire tariff law you would basically get an idea of which industries had the most political ties.
The result was that tariffs became a routine political issue in the late 19th century, often with tariff reform being portrayed as the magic bullet to solve everyone's economic problems. Pretty much every presidential election saw a new tariff law as the battle of the protectionists and populists seesawed back and forth. Tariffs were unpredictable and changed every 4-5 years.
As a congressional representative McKinley was appointed chairman to the Ways & Means Committee. The committee in the house primarily responsible for creating a budget and taxation law. He created the McKinley Tariff which was passed into law in 1890- which was overturned by the Wilson-Gorman Tariff Act in 1894 (the same act I discussed in the previous post that created the first peacetime income tax). It is only natural that reinstating protective tariffs was a cornerstone of the McKinley campaign. The result was that the separate issues of protectionist tariffs and metalism became linked with the Republican McKinley running on a platform of protectionist tariffs and the gold standard, the Democrat Bryan running on a platform of low tariffs and bimetalism.
This link was purely a political creation, as there really isn't any intellectual reason why a position on one logically dictates a position on the other. Both issues tended to cross party lines, many democrats supported the gold standard and many republicans supported low tariffs, and McKinley himself was pretty apathetic regarding the gold standard.
Hon. James H. Eckels, the Comptroller of the Currency at the time wrote a compelling argument supporting both the gold standard and moderate tariffs shortly after the election.
The protective theory as applied to our tax laws, and the theory of fiatism as applied to our currency issues, have introduced into the citizens' private business the elements of legislative control to such an extent that injury instead of benefit has been the resultant effect. The business prosperity which is substantial and lasting excludes this factor of aid and control, just as a currency which is thoroughly sound must not depend upon legal sanction for any part of its value.As long as business prosperity is to be wrought or sought by law, the business world must be subject to the influence of the needs of party politics, the decrees of the political caucus, the demands of party leaders, and the whims of party law makers.
Legislative control in the business world means, during each campaign, congressional and presidential, months of uncertainty, depression, and stagnation. It must entail hardship upon the laborer and loss upon the capitalist. Any temporary benefits which seem to flow from it are certain ultimately to be swallowed up in widespread disaster and ruin. It insures disturbance not in one or two but in innumerable interests which ought to be free to work out their own ends.
The rest of the essay can be read in the North American Review Volume 163 Issue 481. Which also has several other relevant articles, one written by three leaders from different chambers of commerce and one written by the William Jennings Bryan. Reading those will give you a good sense of the flavor of the political debate at the time.
One of the first laws passed in the McKinley administration was the Dingley Act, a tariff that raised average rates up to 52% on dutiable products and 30% on dutiable and free products combined. The highest rates in our history and the Dingley Act would go on to be the longest running tariff in our history.
The Dingley Act made the French very upset because it placed high tariffs on luxuries which they exported to the US. Remember, in the late 1800's the US was the largest manufacturer in the world, but we had not yet become the consumer nation we are today. We were the world's China, exporting finished products and importing mostly raw materials and luxuries. Diplomatic negotiations ensued which attempted to build and international bimetalist system in exchange for lowering the tariffs. The idea being that bimetalism would work if silver was accepted as international currency whereas the previous attempt at using silver was doomed to failure because only gold was accepted in international trade.
The US and France did reach an agreement, however it was conditional on the Britain also accepting it, which they did not. The British effectively put the last nail in the coffin of bimetalism by blocking any chance of an international agreement. Congress passed the Gold Standard Act in 1900 and it was signed into law. The silverites made one more attempt in the election of 1900 which featured a rematch between McKinley and Bryan with Theodore Roosevelt as McKinley's new vice presidential candidate after Vice President Garret Hobart died from heart failure. McKinley and Roosevelt won handily. When McKinley was assassinated shortly after the election, Roosevelt went on to serve two terms and the silverite movement was finished.
The other significant economic issue that was addressed during the McKinley election was bankruptcy. Bankruptcy laws up until that time varied from state to state. A couple of attempts had been made to create federal guidelines for bankruptcy in the early to mid 1800's but both were failures that were quickly repealed. A comprehensive bankruptcy law the Nelson Act was passed in 1898 which remained the basis of our bankruptcy laws until 1978. That a bankruptcy law was passed at all is an indication of how strong business interests were in the 55th Congress.
Creditors wanted a federal bankruptcy law because it was very difficult and expensive to resolve disputes or collect across state lines. They complained that people tended to pay back local creditors or family members first while shielding their assets from other creditors. Despite the Constitution specifically giving Congress the power to write
uniform Laws on the subject of Bankruptcies throughout the United States
There were no such laws. It had been a recurring battle in Congress but creditors never seemed to have enough pull until 1896.
However, even though creditors can be credited with providing the force to get a bankruptcy law passed, that isn't to say the law was exactly what they wanted. The Nelson Act is notable because at its time it was revolutionary in the way it was friendly to the debtor and the protections it offered to the debtor. This was a result of widespread disagreement about what provisions should be included in a bankruptcy law and intense negotiations. The result was a law that no side really favored, but it was acceptable enough to get through Congress. The act allowed both voluntary and involuntary bankruptcy but involuntary bankruptcy was strictly limited to certain conditions. Overall, it was a moderate bill that was more strict than the laws in some states while offering the debtor more protection than the laws in other states. The important thing is that the law provided stability and a federal framework for creditors to formally sue and for debtors to protect their vital assets.
I won't go into it further because it isn't that relevant to the rest of the blog, but if you are interested in learning more I would recommend the book Debt's Dominion: A History of Bankruptcy Law in America by Dr. David A. Skeel Jr.
The final law I want to touch on is the River and Harbors Act of 1899 our countries oldest federal environmental law.
It shall not be lawful to throw, discharge, or deposit, or cause, suffer, or procure to be thrown, discharged, or deposited either from or out of any ship, barge, or other floating craft of any kind, or from the shore, wharf, manufacturing establishment, or mill of any kind, any refuse matter of any kind or description whatever other than that flowing from streets and sewers and passing therefrom in a liquid state, into any navigable water of the United States, or into any tributary of any navigable water from which the same shall float or be washed into such navigable water; and it shall not be lawful to deposit, or cause, suffer, or procure to be deposited material of any kind in any place on the bank of any navigable water, or on the bank of any tributary of any navigable water, where the same shall be liable to be washed into such navigable water, either by ordinary or high tides, or by storms or floods, or otherwise, whereby navigation shall or may be impeded or obstructed: Provided, That nothing herein contained shall extend to, apply to, or prohibit the operations in connection with the improvement of navigable waters or construction of public works, considered necessary and proper by the United States officers supervising such improvement or public work: And provided further, That the Secretary of the Army, whenever in the judgment of the Chief of Engineers anchorage and navigation will not be injured thereby, may permit the deposit of any material above mentioned in navigable waters, within limits to be defined and under conditions to be prescribed by him, provided application is made to him prior to depositing such material; and whenever any permit is so granted the conditions thereof shall be strictly complied with, and any violation thereof shall be unlawful.
(Don't you just love how short laws used to be?)
This law is pretty straight forward, don't throw garbage in the water. The law also had the effect of requiring permits to dam rivers and navigatable streams, which was a big deal since during this time electric power was spreading rapidly, the law gave the Secretary of the Army the power to decide whether or not new hydroelectric plants could be built and where. A power that still remains and is exercised through the US Army Corps of Engineers.
The McKinley presidency is one marked by great economic growth as the country emerged from the panic of 1893. Within just two years of assuming office unemployment was down from mid double digits to low single digits, GDP was growing again and the economy started booming. The economy remained strong until the panic of 1907. Economists are still in disagreement as to the extent that McKinley's policies played a role in rebuilding the economy.
Some argue that the growth was already occurring, partly because of the natural ebb and flow and also because of the Klondike Gold Rush which started in mid 1897. Many of the prospectors were people who were unemployed and unable to find employment. Without other options they went to attempt to strike it rich, relieving the number of unemployed and creating new jobs to service the hopeful prospectors. The gold that was found in the Klondike along with new gold finds in Australia caused mild inflationary pressures- one of the goals of the silverite movement.
Others argue that it was the protective tariffs that spurred domestic industry and rebuilt domestic employment plus the increased confidence that gold would be a stable and reliable currency. Regardless of whether it was sheer luck or a result of his policies, the legacy that McKinley left behind was a prosperous economy and with his death a new president in Theodore Roosevelt- a charismatic, progressive, environmentalist, anti-trust politician- who ushered in the progressive era.
"It is easy to be conspicuously 'compassionate' if others are being forced to pay the cost." - Murray Rothbard
"I was all for Obamacare until I found out I was paying for it"- California resident http://www.washingtontimes.com/news/2013/oct/28/californian-i-was-all-obamacare-until-i-got-bill/