2. A PANIC OF CREDIT, as in 1866, when the failure of Overend, Gurney, & Co. rendered the whole business world over cautious, and led to a universal shrinkage of credit. [I take the liberty of adding that it seems evident to me that such a danger must soon confront us in the United States, unless our Silver Law is changed, because of a finally inevitable distrust of the government's ability to keep 67-cent silver dollars on an equality with 100-cent gold dollars.]
3. PANICS OF CAPITAL, as in 1847, when capital was so locked up in internal improvements as to prove largely useless.
4. GENERAL TARIFF CHANGES. To the three causes given above the translator adds a fourth and most important one: Any change in our tariff laws general enough to rise to the dignity of a new tariff has with one exception in our history precipitated a panic. This exception is the tariff of 1846, which was for revenue only, and introduced after long notice and upon a graduated scale. This had put the nation at large in such good condition that when the apparently inevitable Decennial Panic occurred in 1848 recovery from it was very speedy.
The reason for this general effect of new tariffs is obvious. Usual prices and confidence are so disturbed that buyers either hold off, keeping their money available, or else draw unusually large amounts so as to buy stock before adverse tariff changes, thus tightening money in both ways by interfering with its accustomed circulation. This tendency towards contraction spreads and induces further withdrawal of deposits, thus requiring the banks to reduce their loans; and so runs on and on to increasing discomfort and uneasiness until panic is speedily produced. The practical coincidence and significance of our tariff changes and panics is shown by an extract below from an article written by the translator in October-November, 1890, predicting the recent panic which was hastened somewhat by the Baring collapse. [Footnote: Inter-relations of Tariffs, Panics, and the Condition of Agriculture, as Developed in the History of the United States of America.
This brief sketch of our economic history in the United States seeks to show that Protective Tariffs have always impoverished a majority of our people, the Agriculturists; that agriculture has thus been made a most unprofitable vocation throughout the States, and that this unsoundness at the very foundation of the business of the American people has often forced our finances into such makeshift conditions, that under any unusual financial strain a panic, with all its wretched accompaniments, has resulted.
To consider this properly, we must note the well known fact that in this land, those who live by agriculture directly, are more than one half of our population. Their votes can cause to be made such laws as they see fit, hence, one would expect the enactment of laws to raise the price of farm products, and to lower the price of all that the farmer has to buy. But the farmers vote as the manufacturers and other active classes of the minority of our voters may influence; and only twice in our history, from 1789 to 1808, and from 1846 to 1860, have enough of the minority found their interests sufficiently identical with that of the unorganized farmer-majority to join votes, and thus secure at once their common end. In consequence of this coalition during these two periods, two remarkable things happened: 1st, agriculture flourished, and comfortable living was more widely spread: 2d, panics were very infrequent, and the hardships and far-reaching discomforts that must ever attend adjustments to new financial conditions after disturbances were, of course, minimized.
It is not fair to deduce very much from the first period of prosperity among the farmers, 1789 to 1808, for, during this time, there were no important business interests unconnected with agriculture; but we may summarize the facts that from 1789 to 1808, there was, 1st, no protection, the average duty during this time being 5 per cent., and that laid for revenue only; 2d, that agriculture flourished; 3d, that there was not a single panic.
"The Embargo" of 1808, followed by the Non-Intercourse Act in 1809 and the War of 1812-15, and the war tariff, by which double duties were charged in order to raise money for war purposes, caused us to suffer all the economic disasters flowing from tariffs ranging between absolute protection, and those practically prohibiting, and intensified by the sufferings inseparable from war.
During this period agriculture, for the first time in our history, was in a miserable condition. It is significant that for the first time too, we had a protective tariff. Though our people made heroic efforts to make for themselves those articles formerly imported, thus starting our manufacturing interests, they had, of course, lost their export trade and its profits. When the peace of 1814 came, we again began exporting our produce, and aided by the short harvests abroad, and our own accumulated crops, resumed the profitable business which for six years our farmers and our people generally had entirely lost. Our first panic, that of 1814, came as a result of our long exclusion from foreign markets, being followed by the stimulation given business through resumption of our foreign trade in 1814, which was immensely heightened by the banks issuing enormous quantities of irredeemable paper, instead of bending all their energies to paying off the paper they had issued during the war.
But worse than the suffering entailed by this panic, was the engrafting upon our economic policy of the fallacious theory made possible by the Embargo and the Non-Intercourse Act, (which was equivalent, let me enforce it once more, to that highest protective tariff, a prohibitory one) that all infant manufactures must be protected, that is, guaranteed a home market, though such home market be one where all goods cost more to the purchaser than similar goods bought elsewhere, and this in order that the compact little band of sellers in the home market may make their profit. This demand for protection was made by those who had started manufactures during the years from 1808 to the end of the war of 1815, when, as we have seen, imports were practically excluded.