This was exactly the concession that the silver party wanted. "Three-fourths of the business enterprises of this country are conducted on borrowed capital," said Senator Jones, of Nevada. "Three-fourths of the homes and farms that stand in the names of the actual occupants have been bought on time and a very large proportion of them are mortgaged for the payment of some part of the purchase money. Under the operation of a shrinkage in the volume of money, this enormous mass of borrowers, at the maturity of their respective debts, though nominally paying no more than the amount borrowed, with interest, are in reality, in the amount of the principal alone, returning a percentage of value greater than they received—more in equity than they contracted to pay.... In all discussions of the subject the creditors attempt to brush aside the equities involved by sneering at the debtors."
The Silver Purchase Act (1878).—Even before the actual resumption of specie payment, the advocates of free silver were a power to be reckoned with, particularly in the Democratic party. They had a majority in the House of Representatives in 1878 and they carried a silver bill through that chamber. Blocked by the Republican Senate they accepted a compromise in the Bland-Allison bill, which provided for huge monthly purchases of silver by the government for coinage into dollars. So strong was the sentiment that a two-thirds majority was mustered after President Hayes vetoed the measure.
The effect of this act, as some had anticipated, was disappointing. It did not stay silver on its downward course. Thereupon the silver faction pressed through Congress in 1886 a bill providing for the issue of paper certificates based on the silver accumulated in the Treasury. Still silver continued to fall. Then the advocates of inflation declared that they would be content with nothing short of free coinage at the ratio of sixteen to one. If the issue had been squarely presented in 1890, there is good reason for believing that free silver would have received a majority in both houses of Congress; but it was not presented.
The Sherman Silver Purchase Act and the Bond Sales.—Republican leaders, particularly from the East, stemmed the silver tide by a diversion of forces. They passed the Sherman Act of 1890 providing for large monthly purchases of silver and for the issue of notes redeemable in gold or silver at the discretion of the Secretary of the Treasury. In a clause of superb ambiguity they announced that it was "the established policy of the United States to maintain the two metals on a parity with each other upon the present legal ratio or such other ratio as may be provided by law." For a while silver was buoyed up. Then it turned once more on its downward course. In the meantime the Treasury was in a sad plight. To maintain the gold reserve, President Cleveland felt compelled to sell government bonds; and to his dismay he found that as soon as the gold was brought in at the front door of the Treasury, notes were presented for redemption and the gold was quickly carried out at the back door. Alarmed at the vicious circle thus created, he urged upon Congress the repeal of the Sherman Silver Purchase Act. For this he was roundly condemned by many of his own followers who branded his conduct as "treason to the party"; but the Republicans, especially from the East, came to his rescue and in 1893 swept the troublesome sections of the law from the statute book. The anger of the silver faction knew no bounds, and the leaders made ready for the approaching presidential campaign.
The Protective Tariff and Taxation
Fluctuation in Tariff Policy.—As each of the old parties was divided on the currency question, it is not surprising that there was some confusion in their ranks over the tariff. Like the silver issue, the tariff tended to align the manufacturing East against the agricultural West and South rather than to cut directly between the two parties. Still the Republicans on the whole stood firmly by the rates imposed during the Civil War. If we except the reductions of 1872 which were soon offset by increases, we may say that those rates were substantially unchanged for nearly twenty years. When a revision was brought about, however, it was initiated by Republican leaders. Seeing a huge surplus of revenue in the Treasury in 1883, they anticipated popular clamor by revising the tariff on the theory that it ought to be reformed by its friends rather than by its enemies. On the other hand, it was the Republicans also who enacted the McKinley tariff bill of 1890, which carried protection to its highest point up to that time.
The Democrats on their part were not all confirmed free traders or even advocates of tariff for revenue only. In Cleveland's first administration they did attack the protective system in the House, where they had a majority, and in this they were vigorously supported by the President. The assault, however, proved to be a futile gesture for it was blocked by the Republicans in the Senate. When, after the sweeping victory of 1892, the Democrats in the House again attempted to bring down the tariff by the Wilson bill of 1894, they were checkmated by their own party colleagues in the upper chamber. In the end they were driven into a compromise that looked more like a McKinley than a Calhoun tariff. The Republicans taunted them with being "babes in the woods." President Cleveland was so dissatisfied with the bill that he refused to sign it, allowing it to become a law, on the lapse of ten days, without his approval.
The Income Tax of 1894.—The advocates of tariff reduction usually associated with their proposal a tax on incomes. The argument which they advanced in support of their program was simple. Most of the industries, they said, are in the East and the protective tariff which taxes consumers for the benefit of manufacturers is, in effect, a tribute laid upon the rest of the country. As an offset they offered a tax on large incomes; this owing to the heavy concentration of rich people in the East, would fall mainly upon the beneficiaries of protection. "We propose," said one of them, "to place a part of the burden upon the accumulated wealth of the country instead of placing it all upon the consumption of the people." In this spirit the sponsors of the Wilson tariff bill laid a tax upon all incomes of $4000 a year or more.
In taking this step, the Democrats encountered opposition in their own party. Senator Hill, of New York, turned fiercely upon them, exclaiming: "The professors with their books, the socialists with their schemes, the anarchists with their bombs are all instructing the people in the ... principles of taxation." Even the Eastern Republicans were hardly as savage in their denunciation of the tax. But all this labor was wasted. The next year the Supreme Court of the United States declared the income tax to be a direct tax, and therefore null and void because it was laid on incomes wherever found and not apportioned among the states according to population. The fact that four of the nine judges dissented from this decision was also an index to the diversity of opinion that divided both parties.