A few concrete ill.u.s.trations[78] will show the lack of correspondence between the political system and the economic system. Each state bids against the others to increase the number of factories which adds to its wealth and increases the value of property within its borders, although it makes no difference to the total wealth of the nation and the happiness of the whole people whether a particular concern is located in New Jersey or in Pennsylvania. As the national government enjoys no power to regulate industries--even those which are national in character--the states use their respective powers under the pressure which comes from those who are interested in increasing the industry of the commonwealth. For example, it is stated "the gla.s.s workers of New Jersey oppose any attempt to prohibit night work for boys under sixteen years of age on the ground that such work is permitted in the neighboring state of Pennsylvania." In 1907, in South Carolina, Georgia, and Alabama, a ten year old child could, under the law, work for twelve hours a day; North Carolina had sixty-six mills where twelve year old children could do twelve hours' night work under the law. Although this situation was somewhat remedied later, the advocates of reform were resisted at every point by the interested parties who contended that in competing with New England, the southern states had to take advantage of every opportunity, even at the expense of the children.

The situation may be described in the language of the chief factory inspector of Ohio: "Industrially as well as geographically we of the Ohio Valley are one people and our laws should be uniform, not only that they may be the easier enforced, but in justice to the manufacturers who pursue the same industry in the several states and therefore come into close compet.i.tion with one another." Moreover, if a state enacts an important industrial law, it may find its work in vain as the result of a decision of the national Supreme Court, or of the state courts, interpreting the Fourteenth Amendment.

Another example of a national interest which is wholly beyond the reach of the Federal government, under a judicial decision reached in the case of Paul _v._ Virginia in 1868, is that of insurance. Although Hamilton and earlier writers on the Const.i.tution believed that the insurance business was a branch of interstate commerce whose regulation was vested in Congress, the Supreme Court in this case dealing with fire insurance declared that the act of issuing a policy of insurance was not a transaction of commerce. "The policies," said the Court, "are simple contracts of indemnity against loss by fire, entered into between the corporations and the a.s.sured for a consideration paid by the latter.

These contracts are not articles of commerce in any proper meaning of the word; they are not subjects of trade and barter offered in the market as something having an existence and value independent of the parties to them.... Such contracts are not interstate transactions, though the parties may be domiciled in different states.... They are then local transactions and are governed by the local laws. They do not const.i.tute a part of the commerce between the states any more than a contract for the purchase and sale of goods in Virginia by a citizen of New York whilst in Virginia would const.i.tute a portion of such commerce."

As a result of this narrow interpretation of the commerce clause, the vast insurance business of the country, national in character, was put beyond the reach of Congress, and at the mercy of the legislatures of the several commonwealths. Under these circ.u.mstances, the insurance laws of the United States were in splendid chaos. "If a compilation of these laws were attempted," says Mr. Huebner, "a most curious spectacle would result. It would be found that fifty-two states and territories are all acting along independent lines and that each, as has been correctly said, possessed its own schedule of taxations, fees, fines, penalties, obligations and prohibitions, and a retaliatory or reciprocal provision enabled it to meet the highest charges any other state may require of the companies of any other states."

A still better example of confusion in our system is offered by the corporation laws of the several states. Great industrial corporations are formed under state laws. While many contend that Congress has the power to compel the Federal incorporation of all concerns doing an interstate business and thus to occupy the whole domain of corporation law involving interstate commerce, this radical step has not yet been taken. Congress has confined itself to the more or less fruitless task of forbidding combinations in restraint of interstate trade.

Under these circ.u.mstances, there appeared the anomalous condition of states actually advertising in the newspapers and bidding against each other in offering the corporations special opportunities and low fees for the privilege of incorporating. If the conscience of one state became enlightened and a strict corporation law was enacted, the result was simply to drive the irregular concerns into some other state which was willing to sell its privileges for the small fee of incorporation, and ask no questions. As might have been expected, every variety of practice existed in the forty-eight jurisdictions in which corporations might be located.

Not only was there the greatest diversity in these practices, but special discriminations were often made in particular states against concerns incorporated in other states; and on top of all this there was a vast ma.s.s of anti-trust legislation, frequently drastic in character or loose and futile. Often it was the product of a popular clamor against large business undertakings, and often it was the result of the effort of legislators to "strike" at corporations. Whatever the underlying motive, it was generally characterized at the outset by lack of uniformity and absence of any large view of public policy, and then it was glossed over by judicial decisions, state and Federal, until it was a fortunate corporation official, indeed, who knew either his rights or his duties under the law. Moreover, it was a particularly obtuse attorney who could not lead his client unscathed through this wonderland of legal confusion.

The position of railway corporations, if possible, was more anomalous still. Their interstate business was subject to the regulations of Congress and their intra-state business to the control of the state legislatures. Although there existed, in theory, a dividing line between these two cla.s.ses of business, there were always arising concrete cases where it was difficult to say on which side of the line they would fall in the opinion of the Supreme Court. States were constantly being enjoined on the application of the railways for their "interference with interstate commerce"; and when far-reaching legislation was proposed in Congress, the cry went up that the rights of states were being trampled upon. If X shipped a carload of goods to Y within the borders of his state, he paid one rate; if he shipped it to Z, two miles farther on in another state, he paid a different rate, perhaps less than in the first instance. In a number of states companies owning parallel lines might consolidate; in others, consolidation was forbidden. According to a report of the Interstate Commerce Commission in 1902, the states were equally divided on this proposition as to the consolidation of competing lines. According to the same report, if a railway company was guilty of unjust discrimination in one state, it paid a fine of $50, and in other states it was mulcted to the tune of $25,000. At the same time, whoever obstructed a railway track in Mississippi was liable to three months in jail; for the same offense in New York he might get three years; if, perchance, after serving three years and three months in these two commonwealths, he tried the experiment again in Wyoming, he might in the mercy of the court be sentenced to death.

A further element of confusion was added by the intervention of the Federal judiciary in declaring state laws invalid, not merely when they conflicted clearly with the execution of Federal law, but on const.i.tutional grounds which meant, for practical purposes, whenever the said laws were not in harmony with the ideas of public policy entertained by the courts at the time. The Federal judiciary in regard to state legislation relative to corporations was, therefore, a destructive, not a constructive, body. To use the language of the street, state legislation was simply "shot to pieces" by judicial decisions. That which was chaotic, disjointed, and founded upon no uniformity of purpose or policy to begin with was riddled and torn by a body which had no power for positive action.

As the Interstate Commerce Commission declared in 1903, "One of the chief embarra.s.sments in the exercise of adequate government control over the organization, the construction, and the administration of railways in the United States is found in the many sources of statutory authority recognized by our form of government. The Federal Const.i.tution provides for uniformity in statutory control, so far as interstate commerce is concerned, but it does not touch commerce within the states, nor, as at present interpreted, does it cover the organization of railroad corporations or the construction of railroad properties. These matters, as well as the larger part of that cla.s.s of activities included under the police jurisdiction, are left to the states. Such being the case, the development of an harmonious and uniform railroad system must be attained, if at all, by one of two methods. The states must relinquish to the Federal government their reserved rights over internal commerce, or having first agreed upon fundamental principles, they must, through comity and convention, work out an harmonious system of statutory regulation."

This was the situation that called forth the demand for the national regulation of large corporate enterprises, and brought about the demand for a strengthening of the Federal government, either by a const.i.tutional amendment or judicial interpretation, which received the name of "New Nationalism." Wide currency was given to this term by Mr.

Roosevelt, in his speech delivered at Ossawatomie on August 31, 1910.

After outlining a legislative policy which he deemed to be demanded by the changed economic conditions of our time, Mr. Roosevelt attacked the idea of "a neutral zone between the national and state legislatures,"

guarded only by the Federal judiciary; and pleaded for the strengthening of the Federal government so as to make it competent for every national purpose.

"There must remain no neutral ground," he said, "to serve as a refuge for lawbreakers, and especially for lawbreakers of great wealth, who can hire the vulpine legal cunning which will teach them how to avoid both jurisdictions. It is a misfortune when the national legislature fails to do its duty in providing a national remedy so that the only national activity is the purely negative activity of the judiciary in forbidding the state to exercise the power in the premises.

"I do not ask for overcentralization; but I do ask that we work in a spirit of broad and far-reaching nationalism when we work for what concerns our people as a whole. We are all Americans. Our common interests are as broad as the continent. I speak to you here exactly as I would speak in New York or Georgia, for the most vital problems are those which affect us all alike. The national government belongs to the whole American people, and where the whole American people are interested, that interest can be guarded effectively only by the national government. The betterment which we seek must be accomplished, I believe, mainly through the national government.

"The American people are right in demanding that New Nationalism without which we cannot hope to deal with new problems. The New Nationalism puts the national need before sectional or personal advantages. It is impatient of the utter confusion that results from local legislatures attempting to treat national issues as local issues. It is still more impatient of the impotence which springs from overdivision of government powers, the impotence which makes it impossible for local selfishness or for legal cunning, hired by wealthy special interests, to bring national activities to a deadlock. This New Nationalism regards the executive power as the steward of the public welfare. It demands of the judiciary that it shall be interested primarily in human welfare rather than in property, just as it demands that the representative body shall represent all the people rather than any one cla.s.s or section of the people."

FOOTNOTES:

[70] The political history of the initiative and referendum has never been written. Some valuable materials are to be found in _Direct Legislation_, Senate Doc.u.ment No. 340, 55th Cong., 2d Sess. (1898); and in "The Direct Legislation Record," founded in May, 1894; and in the "Equity Series,"

now published at Philadelphia. See also Oberholtzer, _The Initiative, Referendum, and Recall in America_, ed. 1911.

[71] _The Initiative, Referendum, and Recall_, Annals of the American Academy of Political and Social Science, September, 1912, pp. 84 ff.

[72] Arizona was admitted without the judicial recall provision, but immediately set to work and reinserted it in the const.i.tution, and devised a plan for the recall of Federal district judges as well.

[73] See below, p. 325.

[74] See list in the _National Munic.i.p.al Review_ for July, 1912.

[75] The Socialist party does not at present contemplate public ownership of petty properties or of farm lands tilled by their possessors. This is one part of its program not yet definitely worked out.

[76] _Proceedings of the American Political Science a.s.sociation_, 1908, Vol. V, p. 42.

[77] See above, p. 54.

[78] Taken from Professor Leac.o.c.k's paper in the _Proceedings of the American Political Science a.s.sociation_, 1908, pp. 37 ff.

CHAPTER XII

MR. TAFT AND REPUBLICAN DISINTEGRATION

In spite of the stirring of new economic and political forces which marked Mr. Roosevelt's administration and his somewhat radical utterances upon occasion, there was no prominent leader in the Republican party in 1908, except Mr. La Follette of Wisconsin, who was identified with policies which later came to be known as "progressive."

Although Mr. Hughes, as governor of New York, had enlisted national interest in his "fight with the bosses," he was, by temperament, conservative rather than radical, and his doctrines were not primarily economic in character. Other Republican aspirants were also of a conservative cast of mind, Mr. Fairbanks, of Indiana, Mr. Knox, of Pennsylvania, Mr. Cannon, of Illinois, all of whom were indorsed for the presidency by their respective states. The radical element among the Republicans hoped that Mr. Roosevelt would consent to accept a "second elective term"; but his flat refusal put an end to their plans for renomination.

Very early in his second administration, Mr. Roosevelt made it clear that he wanted to see Mr. W. H. Taft, then Secretary of War, designated as his successor; and by the judicious employment of publicity and the proper management of the Federal patronage and the southern Republican delegates, he materially aided in the nomination of Mr. Taft at Chicago, in June, 1908. The Republican platform of that year advocated a revision of the tariff, not necessarily downward, but with a due regard to difference between the cost of production at home and abroad; it favored an amendment of the Sherman anti-trust law in such a manner as to give more publicity and the Federal government more supervision and control; it advocated the regulation of the issuance of injunctions by the Federal courts; it indorsed conservation and pledged the party to "unfailing adherence" to Mr. Roosevelt's policies. This somewhat noncommittal platform was elaborated by Mr. Taft in his speech, after a conference with Mr. Roosevelt; the popular election of Senators was favored, an income tax of some kind indorsed, and a faintly radical tinge given to the party doc.u.ment.

The nomination of Mr. Bryan by the Democrats was a foregone conclusion.

The debacle of 1904 had demonstrated that the breach of 1896 could not be healed by what the western contingent called "the Wall Street crowd"; and Mr. Bryan had secured complete control of the party organization.

The convention at Denver was a personal triumph from beginning to end.

Mr. Bryan mastered the proceedings and wrote the platform, and received the most telling ovation ever given to a party leader by a national convention.

Having complete control, Mr. Bryan attempted what the politicians who talked most aggressively about the trusts had consistently refused to do--he attempted to define and precisely state the remedies for objectionable combinations. Other leaders had discussed "good" and "bad" trusts, but they had not attempted the mathematics of the problem.

In the platform of his party, Mr. Bryan wrote: "A private monopoly is indefensible and intolerable. We therefore favor the vigorous enforcement of the criminal law against guilty trust magnates and officials and demand the enactment of such additional legislation as may be necessary to make it impossible for private monopoly to exist in the United States." In this paragraph, there is of course nothing new; but it continues: "Among the additional remedies we specify three: first, a law preventing the duplication of directors among competing corporations; second, a license system which will, without abridging the rights of each state to create corporations or its right to regulate as it will foreign corporations doing business within its limits, make it necessary for a manufacturing or trading corporation engaged in interstate commerce to take out a federal license before it shall be permitted to control as much as 25 per cent of the product in which it deals, a license to protect the public from watered stock and to prohibit the control by such corporation of more than 50 per cent of the total amount of any product consumed in the United States; and third, a law compelling such licensed corporations to sell to all purchasers in all parts of the country on the same terms after making due allowance for cost of transportation."

In dealing with railway corporations, the Democratic platform proposed concretely the valuation of railways, taking into consideration the physical as well as other elements; an increase in the power of the Interstate Commerce Commission, giving it the initiative with reference to rates and transportation charges and the power to declare any rate illegal on its own motion, and to inspect railway tariffs before permitting them to go into effect; and finally an efficient supervision and regulation of railroads engaged in interstate commerce.

Mr. Bryan's proposals, particularly with regard to trusts, were greeted with no little derision on the part of many practical men of affairs, but they had, at least, the merit of being more definite in character than any statement of anti-trust policy which had been made hitherto, except by the Socialists in advocating public ownership. The Republicans, for example, contented themselves with simply proposing the amendment of the Sherman law in such a manner as to "give to the federal government greater supervision and control over and secure greater publicity in the management of that cla.s.s of corporations engaged in interstate commerce having power and opportunity to effect monopolies."

The campaign of 1908 was without any specially dramatic incidents. The long stumping tours by all candidates did not seem to elicit the old-time enthusiasm. The corporation interests that had long financed the Republican party once more poured out treasure like water (as the Clapp investigation afterward revealed in 1912); and Mr. Bryan attempted a counter-movement by asking for small contributions from each member of his party, but he was sadly disappointed by the results. The Democratic national committee announced that it would receive no contributions from corporations, that it would accept no more than $10,000 from any individual, and that it would make public, before the election, all contributions above $100. Mr. Bryan also challenged Mr. Taft to make public the names of the contributors to his fund and the amount received from each. The Republican managers replied that they would make known their contributors in due time as required by the law of the state of New York where the headquarters were located, and Mr. Taft added that he would urge upon Congress the enactment of a law compelling full publicity of campaign contributions.[79]

In the election which followed, Mr. Bryan was defeated for the third time. His vote was somewhat larger than it was in 1900, and nearly a million and a half above that cast for Mr. Parker in 1904. But Mr. Taft more than held the strength of his predecessor as measured by the popular vote, and he received 321 electoral votes against 162 cast for his opponent. Once more, the conservative press announced, the country had repudiated Populism and demonstrated its sound, conservative instincts.

When Mr. Taft took the oath of office on March 4, 1909, he fell heir, on his own admission, to more troublesome problems than had been the lot of any President since Lincoln's day. His predecessor had kept the country interested and entertained by the variety of his speeches and recommendations and by his versatility in dealing with all the social questions which were pressing to the front during his administration.

Mr. Roosevelt was brilliant in his political operations, although he had been careful about attempting to bring too many things to concrete issue. Mr. Taft was matter-of-fact in his outlook and his expectations.

The country had been undergoing a process of education, as he put it, and now the time had come for taking stock. The time had come for putting the house in order and settling down to a period of rest. If there were signs on the horizon which warned Mr. Taft against this comfortable view, his spoken utterances gave no sign of recognition.

_Legislative Measures_

The first task which confronted him was the th.o.r.n.y problem of the tariff. His predecessor had given the matter little attention during his administration, apparently for the reason that it was, in his opinion, of little consequence as compared with the questions of railways, trusts, great riches, and labor. But action could not be indefinitely postponed. Undoubtedly there was a demand in many parts of the country for a tariff revision. How widespread it was, how much it was the creation of the politicians, how intelligent and deep-seated it was, no one could tell. Nevertheless, more than ten years had elapsed since the enactment of the Dingley law of 1897, and many who did not entertain radical views on the subject at all joined in demanding a revision on the ground that conditions had materially changed. The Republican platform had promised revision on the basis that the true principle of protection was best maintained by the imposition of such duties "as will equal the difference between the cost of production at home and abroad, together with a reasonable profit to American industries." Mr.

Taft in his speech of acceptance had promised revision, on the theory that some schedules were too high and others too low; and his language during the campaign had been interpreted to mean a more severe downward revision than he had doubtless contemplated.

In accordance with party pledges Mr. Taft called Congress in a special session on March 11, 1909, and after a hotly contested battle the Payne-Aldrich tariff act was pa.s.sed. The President made no considerable effort to force the hand of Congress one way or the other, and he accepted the measure on the theory that it was the best tariff law that could be got at the time. Indeed, it was pointed out by members of his party that the bill contained "654 decreases in duty, 220 increases, and 1150 items of the dutiable list in which the rates were unchanged." It was also stated that the bill was framed in accordance with the spirit of the party platform which had made no promise of a general sweeping reduction. It was admitted, however, that precise information upon the difference between the cost of production at home and abroad could not have been obtained in time for this revision, but a tariff board was created by law for the purpose of obtaining the desired information, on the basis of which readjustments in schedules could be made from time to time.

On April 9, 1909, the Payne tariff act pa.s.sed the House, one Republican voting against it and four Democrats from Louisiana voting in favor of it. This vote, however, was of no significance; the real test was the vote on the several amendments proposed from time to time to the original bill, and on these occasions the Democratic lines were badly broken. On April 12, Mr. Aldrich introduced in the Senate a tariff bill which had been carefully prepared by the finance committee of which he was chairman. This measure followed more closely the Dingley law, making no recommendations concerning some of the commodities which the House had placed on the free list, and pa.s.sing over the subject of income and inheritance taxes without remark. The Aldrich measure was bitterly attacked by insurgent Republicans from the West,--Senators Dolliver and c.u.mmins, of Iowa, La Follette, of Wisconsin, Beveridge, of Indiana, and Bristow, of Kansas,--who held out to the last and voted against the bill, even as amended, on its final pa.s.sage, July 8. The conference committee of the two Houses settled their differences by July 30, and on August 5 the tariff bill became a law.

There were several features of the transaction which deserve special notice. Very early in the Senate proceedings on the bill, an income tax provision was introduced by Senators c.u.mmins and Bailey, and it looked as if enough support could be secured from the two parties to enact it into law. Although President Taft, in his acceptance speech, had expressed an opinion to the effect that an income tax could be const.i.tutionally enacted notwithstanding the decision of the Supreme Court in the Income Tax cases, he blocked the proposal to couple an income tax measure with the tariff bill, by sending a special message on June 16, recommending the pa.s.sage of a const.i.tutional amendment empowering Congress to levy a general income tax, and advising a tax on the earnings of corporations. His suggestions were accepted by Congress.

The proposed amendment to the Const.i.tution was pa.s.sed unanimously by the Senate, and by an overwhelming majority in the House,[80] and a tax on the net incomes of corporations was also adopted. A customs court to be composed of five judges to hear appeals in customs cases was set up, and a tariff commission to study all aspects of the question, particularly the differences between cost of production in the United States and abroad, was created.