It is not necessary to take account of these discriminations for the purposes of the present study.
Turning then to the table, we observe that the monthly average of arrivals during the first six months of 1907 was a high one. Following a large immigration during the last six months of the preceding year, this made the fiscal year ending June 30, 1907, the record year for immigration in the history of the country. For the next four months the stream of immigration continued high, considering the season, and the number of departures was moderate. Early in October, however, there were signs of disturbance in the New York Stock Exchange. On the sixteenth there was a crash in the market, and within a week the panic had become general. It reached its height on October 24, and continued for many weeks after.[[318]] The response of the alien population to this disturbance was almost immediate, and manifested itself first in the emigration movement. In November the number of departures almost doubled. But the immigrants who were on the way could not be stopped, and in spite of the large exodus, there was a net gain of 38,207 during the month. The next month, December, however, saw a marked decrease in the stream of arrivals, which, accompanied by a departure of aliens almost as great as in November, resulted in a net decrease in population of 11,325 for the month. During the first six months of 1908 the number of arrivals was small, and the departures numerous, so that, with the exception of March, each month shows a net loss in population. During July the number of departures began to approach the normal (compare the months in 1908 with 1907 and 1910), but the arrivals were so few that there was still a decrease for the months of July and August. In September, 1908, the balance swung the other way, and from that time to the present every month with the exception of December, 1911, has shown a substantial increase in population through the movement of aliens.
Thus we see that the period during which the number of alien laborers in the United States was decreasing was confined to the months December, 1907, to August, 1908, inclusive.[[319]] By the end of July, 1908, the effects of the crisis were practically over as far as departures are concerned. It is evident, then, that the effects of the crisis on emigration were immediate, but not of very long duration. During the months of November and December, 1907, when the distress was the keenest, there were still large numbers of aliens arriving. But when the stream of immigration was once checked, it remained low for some time, and it was not until about January, 1909, that it returned to what may be considered a normal figure. The reasons for this are obvious. The stream of immigration is a long one, and its sources are remote. It takes a long time for retarding influences in America to be thoroughly felt on the other side. The principal agency in checking immigration at its source is the returning immigrant himself, who brings personal information of the unfortunate conditions in the United States. This takes some time. But when the potential immigrants are once discouraged as to the outlook across the ocean, they require some positive assurance of better times before they will start out again.
Now what catches the public eye in such an epoch as this is the large number of departures. We are accustomed to immense numbers of arrivals and we think little about that side of it. But heavy emigration is a phenomenon, and accordingly we hear much about how acceptably our alien population serves to accommodate the supply of labor to the demand. But if we stop to add up the monthly figures, we find that for the entire period after the crisis of 1907, when emigration exceeded immigration, the total decrease in alien population was only 124,124—scarcely equal to the immigration of a single month during a fairly busy season. This figure is almost infinitesimal compared to the total mass of the American working people, or to the amount of unemployment at a normal time, to say nothing of a crisis.[[320]] It is thus evident that the importance of our alien population as an alleviating force at the time of a crisis has been vastly exaggerated. The most that can be said for it is that it has a very trifling palliative effect.
The really important relation between immigration and crises is much less conspicuous but much more far-reaching. It rests upon the nature and underlying causes of crises in this country. These are fairly well understood at the present time. A typical crisis may be said to be caused by speculative overproduction, or overspeculative production. Some prefer to call the trouble underconsumption, which is much the same thing looked at from another point of view. Professor Irving Fisher has furnished a convenient and logical outline of the ordinary course of affairs.[[321]] In a normal business period some slight disturbance, such as an increase in the quantity of gold, causes prices to rise. A rise in prices is accompanied by increased profits for business men, because the rate of interest on the borrowed capital which they use in their business fails to increase at a corresponding ratio. If prices are rising at the rate of two per cent annually, a nominal rate of interest of six per cent is equivalent to an actual rate of only about four per cent. Hence, doing business on borrowed capital becomes very profitable, and there is an increased demand for loans.
This results in an increase of the deposit currency, which is accompanied by a further rise in prices. The nominal rate of interest rises somewhat, but not sufficiently, and prices tend to outstrip it still further. Thus the process is repeated, until the large profits of business lead to a disproportionate production of goods for anticipated future demand, and a vast overextension of credit. But this cycle cannot repeat itself indefinitely. Though the rate of interest rises tardily, it rises progressively, and eventually catches up with the rise in prices, owing to the necessity which banks feel of maintaining a reasonable ratio between loans and reserves. Other causes operate with this to produce the same result. The consequence is that business men find themselves unable to renew their loans at the old rate, and hence some of them are unable to meet their obligations, and fail. The failure of a few firms dispels the atmosphere of public confidence which is essential to extended credit. Creditors begin to demand cash payment for their loans; there is a growing demand for currency; the rate of interest soars; and the old familiar symptoms of a panic appear. In this entire process the blame falls, according to Professor Fisher, primarily upon the failure of the rate of interest to rise promptly in proportion to the rise in prices. If the forces which give inertia to the rate of interest were removed, so that the rate of interest would fluctuate readily with prices, the great temptation to expand business unduly during a period of rising prices would be removed. It may well be conceived that there are other factors, besides the discrepancy between the nominal and real rates of interest, that give to business a temporary or specious profitableness, and tend to encourage speculative overproduction. But the influence of the rate of interest resembles so closely that resulting from immigration, that Professor Fisher’s explanation is of especial service in the present discussion.
The rate of interest represents the payment which the entrepreneur makes for one of the great factors of production—capital. The failure of this remuneration to keep pace with the price of commodities in general leads to excessive profits and overproduction. The payment which the entrepreneur makes for one of the other factors of production—labor—is represented by wages. If wages fail to rise along with prices, the effect on business, while not strictly analogous, is very similar to that produced by the slowly rising rate of interest. The entrepreneur is relieved of the necessity of sharing any of his excessive profits with labor, just as in the other case he is relieved from sharing them with capital. It would probably be hard to prove that the increased demand for labor results in further raising prices in general, as an increased demand for capital results in raising prices by increasing the deposit currency. But if the demand for labor results in increasing the number of laborers in the country, thereby increasing the demand for commodities, it may very well result in raising the prices of commodities as distinguished from labor, which is just as satisfactory to the entrepreneur. This is exactly what is accomplished when unlimited immigration is allowed. As soon as the conditions of business produce an increased demand for labor, this demand is met by an increased number of laborers, produced by immigration.
In the preceding paragraph it has been assumed that wages do not rise with prices. The great question is, is this true? This is a question very difficult of answer. There is a very general impression that during the last few years prices have seriously outstripped wages. Thus Professor Ely says, “Wages do not usually rise as rapidly as prices in periods of business expansion.”[[322]] R. B. Brinsmade stated in a discussion at a recent meeting of the American Economic Association that “our recent great rise of prices is acknowledged to be equivalent to a marked reduction in general wages.”[[323]] Whether this idea is correct, and if correct, whether this effect had transpired in the years immediately previous to 1907, cannot be definitely stated. The index numbers of wages and prices given in the Statistical Abstract of the United States, for 1909 (p. 249), seem to show that during the years 1895 to 1907 money wages increased about pari passu with the retail prices of food, so that the purchasing power of the full-time weekly earnings remained nearly constant.
But whether or not money wages rose as fast as prices in the years from 1900 to 1907, one thing is certain, they did not rise any faster. That is to say, if real wages did not actually fall, they assuredly did not rise. But the welfare of the country requires that, in the years when business is moving toward a crisis, wages should rise; not only money wages, but real wages. What is needed is some check on the unwarranted activity of the entrepreneurs, which will make them stop and consider whether the apparently bright business outlook rests on sound and permanent conditions, or is illusory and transient. If their large profits are legitimate and enduring, they should be forced to share a part of them with the laborer. If not, the fact should be impressed upon them. We have seen that the rate of interest fails to act as an efficient check. Then the rate of wages should do it. And if the entrepreneurs were compelled to rely on the existing labor supply in their own country, the rate of wages would do it. Business expands by increasing the amount of labor utilized, as well as the amount of capital. If the increased labor supply could be secured only from the people already resident in the country, the increased demand would have to express itself in an increased wage, and the entrepreneur would be forced to pause and reflect. But in the United States we have adopted the opposite policy. In the vast peasant population of Europe there is an inexhaustible reservoir of labor, only waiting a signal from this side to enter the labor market—to enter it, not with a demand for the high wage that the business situation justifies, but ready to take any wage that will be offered, just so it is a little higher than the pittance to which they are accustomed at home. And we allow them to come, without any restrictions whatever as to numbers. Thus wages are kept from rising, and immigration becomes a powerful factor, tending to intensify and augment the unhealthy, oscillatory character of our industrial life. It was not by mere chance that the panic year of 1907 was the record year in immigration.
Against this point of view it may be argued that the legitimate expansion of business in this country requires the presence of the immigrant. But if business expansion is legitimate and permanent, resting on lasting favorable conditions, it will express itself in a high wage scale, persisting over a long period of time. And the demand so expressed will be met by an increase of native offspring, whose parents are reaping the benefit of the high standard of living. A permanent shortage of the labor supply is as abhorrent to nature as a vacuum. Expansion of any other kind than this ought to be hampered, not gratified.