The Americans

by Hugo Münsterberg

Extreme jingoes see in this huge growth only the beginning of something yet to come, and in their dreams imagine a day when America shall rule the markets of the world. But no one should be deceived by such ideas. The thoughtful American knows very well that, for instance, the great increase of his export trade has by no means overcome all obstacles. He knows that American wages are high, and that prosperity makes them more so, because the American workman is better able than the European to demand his share of all profits. Also the thoughtful American does not expect to gain the European market by “dumping” his wares. In the apprehension of dull times he may snatch an expedient for getting rid of accumulations which the home market will not take off his hands. In ordinary times industry will not do this, because it knows the demoralizing effect produced on the home country when it is known that the manufacturer is selling more cheaply abroad than at home. The American is afraid of demoralizing the domestic market more than anything else; since, owing to the strong tendency toward industrial imitation, any economic depression spreads rapidly, and can easily cause a general collapse of prices. Even the elaborate pains taken to replace human labour in the American labour-saving machines are often quite made up for by the thoughtless waste of by-products and by the general high-handedness of conducting business.

While America has a tremendous advantage in the fact that coal can be readily brought to the industrial centres, and that the products can be delivered cheaply throughout the country, it stands under the disadvantage that most of its exports are shipped in foreign bottoms, so that the freight charges go to foreigners; for the American merchant-marine is wholly inadequate to the needs of American trade. If America is strong by reason of protective tariff, England intends, perhaps, to remind her daughter country that the American game can be played by two. Protection is no monopoly. While the natural wealth of this country is inexhaustible, the American knows that the largest profits will go to the country which manufactures them; and while the American is energetic and intelligent in getting a foothold in foreign markets, he finds that other nations also have some counterbalancing virtues which he neither has nor can get. First of these is the patience to study foreign requirements, and then the ways of guarding against wastefulness. He has one incomparable advantage, as we have seen—his economic idealism, his belief in the intrinsic value of economic progress, his striving to be economically creative in order to satisfy the restlessness which is in him. The economic drawback of this point of view is not far to seek. The spirit of individual initiative awakens in the workman the demand for equal rights, and intensifies the fight between capital and labour more than in any other country, and puts such chains on industry as are spared to America’s competitors in the markets of the world. In short, the thoughtful American knows very well that the markets of the world are to be won for his products only one by one, and that he will meet competitors who are his equals; that there will be difficulties on difficulties, and that the home market from time to time will make heavy imports necessary. He knows that he cannot hope simply to overthrow the industry of all Europe, nor to make the industrial captains of the New World dictators of the earth.

That which he does expect, however, is sure to happen; namely, that the progress of America will be in the future as steady as it has been in the past. The harvests of all the states will not always prosper, nor speculators be always contented with their profits, but the business life of the nation as a whole, unless all signs fail, need fear no setbacks or serious panics.

The United States have gone through six severe crises—in 1814, 1819, 1837, 1857, 1873, and 1893. There is much to indicate that the trite idea of the rhythmical recurrence of crises will be given up henceforth. And although just now, after years of great expansion, contraction is setting in, still the times are not to be compared with preceding crises, and particularly not with the bitter days of 1893. Let us examine what happened in that year. The unhappy experiences of the early nineties resulted naturally from an abnormal expansion of credit. Five or six years of prosperity had gone before, and therewith every industry which contributed to personal gratification was stimulated to excess. An unreasonable craze for building went over the country, and real estate rose constantly. But the country had not developed economically in other directions to a corresponding degree. Too many superfluous undertakings had been started, and houses and lands were everywhere heavily mortgaged. As early as 1890 things began to tremble, and three years later the final crash came. More than 15,000 bankruptcies followed one another during that year, of which the total obligations were $350,000,000; and in the three following years matters were hardly any better. Everything was paralyzed. The farmer was in debt, the artisan out of employment, the miner had to be fed by charity, and since the purchasing power of millions of people was destroyed, there was no one to support industry and trade. It was a veritable economic collapse, with all the symptoms of danger; but the organism recovered without the aid of a physician, by its own healthy reaction, and in such wise that a relapse will hardly take place in the future.

The catastrophe prepared for the return to strength by destroying many business concerns which were not fit to survive, and leaving only the strongest in the field. But this result is, of course, not a lasting one, because in prosperous years all sorts of poor businesses start up again; good years stimulate superfluous production. The permanent result was the lesson which industry learned, in prudence and economy. There is very much in this direction still to be learned, yet the last crisis accomplished a great deal. For instance, in the stock-yards a single company had formerly thrown away annually portions of the animals which would have yielded six million pounds of lime, 30 million pounds of fat, and 105 million pounds of fertilizer, and a few years later the total dividends of that company were paid by the by-products which had been thrown away a short time before. The same thing has happened in the mines and oil-wells, in the fields and in the forests.

Owing to the special gift which the American has for invention, this period brought out a great number of devices looking toward economy. In iron factories and coal mines, and in a thousand places where industry was busy, expenses were cut down and profits were increased, more labour-saving devices were invented, and all sorts of processes were accomplished by ingenious machines. American industry derived advantages from this period in which the nation had to be economical, which it will never outlive.

Although such great economy helps out in bad times, it does not in itself revive trade. It is difficult to say where and how the revival set in, since the most diverse factors must have been at work. But the formation of the great trusts was not a cause of such revival, but merely a symptom of it. The real commencement seems to have been the great harvest which the country enjoyed in the fall of 1897. When wheat was scarce in Russia and India, and therefore throughout the world, America reaped the largest harvest in years, and despite the enormous quantity the European demand carried prices up from week to week. The farmer who in 1894 had received forty-nine cents for each bushel of wheat, now received eighty-one cents, and at the same time had his bins full. Of course there could be only one result. The farmers who had been economizing and almost impoverished for several years became very prosperous, and called for all sorts of things which they had had to go without—better wagons and farming implements, better clothing, and better food. In a country where agriculture is so important, this means prosperity for all industries.

The shops in every village were busy once more, and the large industries again started up one by one. The effect on the railroads was still more important. The good times had stimulated the building of many competing lines of railroad, which were very good for the country, but less profitable to their owners. The lean years just passed had brought great demoralization to these lines. One railroad after another had gone into a receiver’s hands, and the service was crippled. Every possible cent was saved and coaches and road-beds were sparingly renewed. Now came an enormous freight demand to carry the great harvest to market, and to serve the newly revived industries. The railroads rapidly recovered; their service was restored. The railroads brought prosperity once more to the iron and steel industries; new rails and ties were absolutely necessary, and the steel industry started forward and set everything else in motion with it. Artisans became prosperous again and further stimulated the industries which they patronized; coal was wanted everywhere, and so the mines awakened to new life.

Then the Spanish War was begun and brought to the nation an unexpected amount of self-confidence, which quickened once more its industrial activity. Such were the internal conditions which made for growth, and the external conditions were equally favourable. In 1898 America harvested 675 million bushels of wheat, and the enormous quantity of 11 million bales of cotton. By chance, moreover, the production of gold increased to $64,000,000; and this, with the enormous sums which foreign countries paid for American grain, considerably increased the money in circulation. This was the time for the stock market to enjoy a similar boom. During the crisis it had nervously withheld from activity and looked with distrust on the West and South, which were now being prospered by great harvests. Everything had formerly been mortgaged in those regions, and from the despair of the Western farmer the ill-advised silver schemes had arisen to fill the eastern part of the country with anxiety. But now the election of McKinley had assured the safety of the currency; the silver issue was laid low; the debts of the Western farmer had been paid within a few years by magnificent crops, and the Western States had come into a healthy state of prosperity. Now the stock markets could pluck up courage. In the stock market of New York in the year 1894 only 49,000,000 shares were bought and sold. In 1897 the market began to recover, and 77,000,000 shares were exchanged; in 1898 there were 112,000,000, and in 1899, 175,000,000 shares.

In the winter of 1898–99 the formation of trusts commenced in good earnest, and this was a glad day for the stock markets. Large amounts of capital which had been only cautiously offered now sought investment, and since the market quotations could rise more quickly than industries could grow, it was a favourable time for reorganizing industry and making great combinations with a capital proportioned to the happy industrial outlook. In the State of New Jersey alone, a state which specially invited all such organizations by means of its very lenient laws of incorporation, hundreds of such combinations were incorporated with a total nominal capital of over $4,000,000,000. To be sure, in just this connection there was very soon a recoil. In December of 1899, a great many of these watered-stock issues collapsed, although the industries themselves went on unharmed. But this activity of the stock market, in spite of its fluctuating quotations, was of benefit to industrial life.