Rutherford B. Hayes - The depression and its effects

Hayes took office in the midst of one of this nation's longest and most severe depressions. Farm prices were low, unemployment was high, manufacturing was stagnant. As always in such conditions, the railroad industry, with its high fixed cost of operation, was particularly hard hit. Long-distance lines engaged in rate wars as they competed for the reduced volume of passenger and freight traffic. In time, weaker companies were forced into receivership when they could not maintain interest payments to bondholders. Inevitably, the railroads sought to re-trench their costs by further reducing wages that were already meager. Brakemen in early 1877 received $1.75 a day for twelve hours of exceedingly hazardous work; at the end of a run, moreover, they often either had to lay over at their own expense or pay full passenger fare to return home. Firemen, conductors, and engineers were paid little better. No wonder, then, that when the Baltimore and Ohio declared another 10 percent wage reduction for 16 July of that year, spontaneous strikes began in Baltimore and in Martinsburg, West Virginia, and quickly spread throughout the states of the Middle Atlantic, the Midwest, and the West, bringing much of the nation's freight transportation system to a halt. Worse, the pent-up anger of the strikers and unemployed workers erupted in widespread destruction of railroad property. In Pittsburgh alone a roundhouse, depot, 125 locomotives, 2,000 freight cars, and other equipment were burned. Except in the Civil War, violence on such a scale had never been witnessed in the United States.

State militiamen were too poorly trained and organized to control the situation. In Pittsburgh they fired on people indiscriminately, killing and wounding scores. Immediately, panicky governors appealed to the president for help in restoring order. To his credit, Hayes refused to be stampeded. Without direct precedents to guide him, he checked the language of the Constitution and insisted that the governors specify both that their legislatures were not in session and could not be speedily summoned, and that they were confronted with domestic violence they were powerless to suppress. In every instance the mere appearance of federal troops was enough to halt any continuing disorder.

Yet, the administration inexorably assumed the role of strikebreaker. Postal authorities tried to negotiate an agreement under which the mails in strike-bound areas would be carried on special trains that the workers would allow to move unimpaired. The companies refused. In the end, the government declared any passenger train carrying mail to be a mail train and threatened to prosecute anyone who interfered with it, and the railroad workers acquiesced. Even more one-sided was the action of the judiciary. Federal judges ruled that railroad workers could not strike against lines in receivership without damaging property interests under the custody of the courts. They authorized federal marshals to use military force if necessary to execute their orders. And so the great railroad strike was broken.

In retrospect, the railroad workers did not suffer a total defeat. Once the burning and looting stopped, public opinion was generally favorable to them. The losses sustained by the struck companies were so tremendous that they henceforth treated their employees more respectfully. Within a few years the wage cuts of the depression years were rescinded. Long after he left the White House, Hayes reflected, "Free government cannot long endure if property is largely in a few hands and large masses of people are unable to earn homes, education, and a support in old age." At the time he was not so sympathetic. Still, his handling of the strike had probably kept the government in as neutral a position as the circumstances would permit.

The depressed state of the economy also greatly complicated the task of managing the interrelated issues of the currency and the national debt. During the Civil War the debt had increased forty times over, soaring from less than $2.50 per capita to $75 per capita, or a staggering total of $2.8 billion. Most of this debt was in the form of bonds, but a portion was composed of legal-tender notes (the so-called green-backs, in practice very much like today's paper currency in that they were non-interest bearing and not explicitly backed by specie). After the war, the government undertook to refund the immensely burdensome bonded debt at a lower rate of interest and over a longer repayment schedule. To make the new terms attractive, treasury officials had to be able to offer firmer assurance than they had in connection with the original bond issues that both principal and interest would be repaid in gold. Making such a promise credible in turn required that the country move toward the resumption of specie payments, whereby citizens holding paper currency could exchange it for gold at full face value.

The question that haunted the postwar years was whether specie payments could be resumed without reducing the volume of legal-tender notes in circulation. Contraction of the currency would make credit tighter and exacerbate the problem of falling prices brought on by the depression. Debtors (who might be farmers, workingmen, shopkeepers, manufacturers, or railroad magnates) quite naturally objected to repaying loans in dollars that were worth more than those they had borrowed. Many of them, in fact, wanted some degree of currency expansion to stimulate higher prices, like the ones they remembered from the prosperous war years.

Hayes was fortunate in this situation to have a secretary of the treasury who well understood both the politics and the economics of these matters, fellow Ohioan John Sherman (who, incidentally, had also been the first politician of national importance to endorse Hayes for the presidency). Sherman was a moderate who cared more for practical results—not least among them, the preservation of the Republican party's political majority—than for abstract principles. As a senator in 1875, he had authored the Specie Resumption Act. This complex measure had been designed, above all, to maintain Republican unity until after the approaching presidential election. Among other things, it authorized the treasury to stockpile a substantial gold reserve by direct purchase or by the sale of additional bonds, in order to cushion a resumption of specie payments on 1 January 1879, a date that was regarded as safely distant.

Meanwhile, the stagnant economy and the continuing downward spiral of commodity prices and wages created growing public pressure for moderate currency inflation. Advocates of an enlarged green-back currency presented the most sophisticated proposals, reasoning that such a flexible circulating medium could be more readily adapted to changing economic conditions and yet would have sufficient strength because it was backed by the collective confidence of the nation in its government and economic system. Neither was the idea lacking in popularity. Independent Greenback and Greenback-Labor candidates for Congress in 1878 captured better than 10 percent of the national vote and ran especially well in the midwestern and southern states. But the simple remonetization of silver was easier to comprehend and quickly outstripped the appeal of greenbackism as an inflationary device.

Sponsored by Democrat Richard P. Bland of Missouri, a bill that provided for the free and unlimited coinage of silver dollars at their traditional ratio of 16 to 1 with gold sailed through the House of Representatives in November 1877. This measure deeply alarmed creditors because a standard silver dollar contained only about 90 cents worth of silver at the metal's current market price. Treasury officials fore-saw a flood of silver pouring in upon the mint, resulting not in increasing the currency but rather in driving gold into hiding. Private obligations would then be repaid in cheapened dollars, and specie resumption and refunding of the national debt would be indefinitely postponed. Accordingly, in the Senate, Republican William B. Allison of Iowa amended the Bland bill to restrict the issuance of new silver dollars to between 2 million and 4 million per month. Secretary Sherman recognized that in this form the measure was responsible in its content and beneficial to the Republican party in its principal effects. In view of the overwhelming congressional support, he wondered whether Hayes should not sign it, but Hayes sided with the gold monometallists, such as Schurz, and vetoed the bill on 28 February 1878, calling it "a grave breach of the public faith." Both houses easily overrode the veto the same day.

Hayes reassured investors that the government would continue to meet its obligations in gold, while Sherman concentrated on amassing a gold reserve that reached $130 million. Signs of economic recovery, combined with the growing likelihood that the treasury would in fact be able to redeem any legal-tender notes presented, increased public confidence in the use of paper currency. Two weeks before 1 January 1879, greenbacks at last achieved par with gold in private transactions. On the day set by law, more gold was presented to treasury offices in exchange for paper than paper for gold. Resumption of specie payments was thus achieved without disrupting the economy. Four months later, the refunding of the last Civil War bonds was also completed. Although hardly spectacular, the Hayes administrations' handling of these abstruse problems had certainly been effective.

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