The End of an Economic Cycle

To Adam Smith, writing in the year of our Independence, 1776, the real significance of America to the Old World was the fact of the opening up of a “new and inexhaustible market to all the commodities of Europe.” This was the opinion of the most prescient political economist of possibly all time. And yet how fateful to his prophecy were the next few years! In much the same way, the merchant princes of the mediæval Italian cities must have seen in the emergent northern towns of Germany and France assurances of a developing commerce for their wares. But trade is capricious, and civilization takes a restless delight in the process by which the colonies of to-day become self-sufficient, then dominant, on the morrow. Thus Venice stealthily appropriated from Constantinople the hegemony of the commercial world, while her outposts in turn became the centres of the world’s industry, and eventually transferred the control of exchanges from Italy to Germany, Spain, and the Netherlands. By this same resistless process, the centre of commercial gravity shifted across the English Channel in the eighteenth century, and took up its abode on the banks of the Thames, and with it went the culture, refinement, and power which inevitably follow the world’s exchanges.

Then London became the clearinghouse of the world. But little more than a century after the obviously true comment of the author of The Wealth of Nations, we see the centre of the world’s business again shifting and Europe confronted with a commercial invasion by the surplus products of America. This bouleversement of the world’s commercial preconceptions is much too recent for its effects to be appreciated; it is much too close at hand for the results even to be conjectured. The diversion of trade from English and German counters to our own is one of the least momentous of the forces which have been set in motion. Of itself, this is merely a matter of national bookkeeping. The ultimate political influence of this shifting of trade balances can be compared in its consequences only to the great world movements of trade and commerce, by which the centre of exchanges has shifted ever westward from the beginnings of civilization about the rivers of Mesopotamia to the rivers of Great Britain, by way of temporary halting - places in Phœnicia, Greece, Constantinople, Venice, Florence, and the Netherland cities. Wall Street is probably within the mark in anticipating that New York will be the clearinghouse of the world within a comparatively few years, and with that once established, the supremacy of Great Britain will depart as has the supremacy of her predecessors, only the period of the passing will be more brief, and the immediate consequences more momentous.

The influence of this trade readjustment (a readjustment which is not unlike a revolution in its consequences) has already made itself felt in our politics. The external manifestations of the change are too patent for comment. It was one of the unconscious forces that precipitated the Spanish-American war; and in a subconscious way it affects our Philippine policy, our relations with the Orient, and the demand for a trans-Isthmian canal. It is, in fact, the potential justification for the present colonial policy of America, and, in its ultimate relations, of our internal policy as well.

All great political and social changes are subconscious. They are psychological. But we never admit this to be true of changes which are contemporary. And yet, by the formula of Professor Edward A. Freeman, “Politics is present history and history is past politics. ” The Protestant Reformation was a Kulturkampf rather than a succession of battles and councils. Rousseau, Voltaire, Diderot, and the Philosophers were the French Revolution. The Assembly and the Terror were but explosions. Lincoln had a ground wire by which he communicated with the country, and it was the latent, unexpressed, and unappreciated conscience of the American people that abolished slavery. To-day the political forces at work within us, while not so patent, are scarcely less potent.

A long perspective is required properly to estimate social forces. A half century passed before the French Revolution presented anything save chaos and anarchy to the conservative, and a fertilizing stream of beneficence to the radical. Only recently have its true proportions come into full view. While such historical perspective is denied as to the contemporary phenomena of America, still the changes which took place in Great Britain during the years that followed the Napoleonic wars offer some parallel to our own situation. During these years, English trade sought out the markets of the world. The expanding energies of the nation broke by force the mediæval restraints and eighteenthcentury barriers which chained her commerce to local exchanges. On the repeal of the Corn Laws, men freely predicted that Parliament had brought down a catastrophe upon England’s industrial system. As a matter of fact, with the abolition of the archaic protective duties, her trade became world wide. Great Britain had reached a point where her energy demanded to be free. It was strong enough to enter the struggle unaided, and the development which ensued was due to its release. Many signs appear to indicate that we have now reached a position not unlike that which confronted Sir Robert Peel at that time. Changed conditions have brought new needs, and certain things may be necessary now that would not have been advisable a few years ago. With the greater fluidity of American thought, the expression of our national convictions will certainly be much more ready than was that of Great Britain under the leadership of Cobden and Bright.

Historically considered, the protective tariff has ever been looked upon by a large body of voters as an expedient rather than as a principle. It had its birth in necessity, — the hard necessity of the Civil War. But such a consideration does not require its maintenance now, for America stands unique among the nations of the world in the plenitude of her financial resources. In truth, the events of the past few years have brought such an alteration in our conditions and commercial perspective that considerations which called for state aid to industry a generation ago, and urged its long continuance, now require a readjustment to new conditions and changed needs.

The press bears constant witness to the fact that internationalism is the keynote of present day politics. We have come to think on a world scale. But little over three generations ago the local fair was the horizon of trade. Only in the matter of luxuries were national boundaries crossed. The Orient meant the land of silks, spices, and precious gems. The formulas of the early economists were those of the hand loom and the charcoal furnace. Man’s life began and ended with his family and immediate neighbors. To-day, the commercial arena is that of the world itself. It has passed national boundaries. And the future tariff policy of the United States must be governed by the size of the bargain table; not more by home than by foreign conditions. From this time on it is probable that home labor and domestic industry will suffer more from an inadequate market than from the competition of foreign makers. Wisely or unwisely, we have broken the shell of nationalism, and only unwise restraints can impair our trade growth. And we cannot trade with impoverished peoples. The “balance of trade ” doctrine, if ever true, has no application to-day, for we cannot long drain our customers of their gold, and we dare not permit them to become impoverished or their industries to languish. “A poor nation, a poor king” was the pregnant saying of a French finance minister, and in a like manner the modern Secretary of Commerce may say, “An impoverished market, an impoverished producer.” We have come to know that domestic trade exists only because the producer of finished steel takes his pay in coal and iron. The prairies of the great West supply New England with food products because the Kansas farmer accepts his pay in kind. If he refused commodities in exchange, he would soon be without a market for his food stuffs. In much the same way, it is the fires under the English boilers that drive the threshing machines of the far West, and, to the extent of our foreign trade, clothe the miners and mill operators of the East. We were able to ignore this trade truism so long as our horizon was limited by national boundaries. But the time has come when a sound and permanent policy concerning trade relations must be solicitous of the industries of England, Germany, and France, just as the commonwealths beyond the Mississippi are now dependent upon the prosperity of the mill hands in the East.

Never before were people so dependent as they are to-day. It is conceivable that we may fry all the fat out of our consumers or bring about a retaliatory tariff war. And it would seem that a tariff readjustment designed to awaken more cordial trade relations with European countries would benefit not only the American consumer, but the producer as well.

Moreover, never since the Civil War have we been in a position to take up the problem of scientific tariff revision so well as now. This is true for various reasons. The national revenues are abundant and are growing rapidly. During the fiscal year ending June 30, 1901, the income of the Federal Government from taxation alone reached the extraordinary sum of $545,700,000, with a surplus of receipts over disbursements of $78,000,000. This surplus, it is true, has been abated by the revenue reduction act of the present Congress. At the same time, the currency question has passed into history, while the relation of industry and capital has become most close, owing to the fact that the industrial combinations are intimately allied with the banking interests of the country. No longer is the manufacturer dependent upon local banking aid. He does his own banking. Consumption and production are likewise susceptible of more accurate adjustment to each other, so that periods of over-production or under-consumption are less likely to recur than heretofore. For upwards of a generation, owing to persistent currency agitation, speculative railroad construction, and an industrial competition which was little less than war, the world of finance was so delicately adjusted that the slightest disturbance threw it out of balance, and whatever evil results may have followed from business consolidation, it must be admitted that by it the industrial world has been rendered stronger and more stable than it has ever been before.

For these reasons, it would seem that tariff readjustment along scientific lines might be safely undertaken without disturbing the business situation. The interest of American expanding trade may be joined with that of the great body of the people for the accomplishment of a reform which will prove a blessing to those most inclined to resist its coming.

Frederic C. Howe.