CHAPTER XIX

THE ENCOURAGEMENT AND REGULATION OF COMMERCE.

_The purpose of this chapter is to explain what commerce is, how it is regulated, and what the government does to promote it._

[Sidenote: Who are engaged in commerce.]

=The Purposes of Commerce.=—The people of the world spend a large part of their energy in supplying their material wants, including food, clothing, and shelter. We commonly think of the farmer and the manufacturer as the ones chiefly engaged in this task, but if you stop to think of it you will quickly realize that the farmers could not feed the world nor could the manufacturers clothe it without the aid of another important class, which includes merchants, traders, transportation workers—in a word, all who are engaged in commerce. The purpose of commerce is not to create things but to put economic goods into the hands of those who need them. It places commodities where they are wanted at the time when they are wanted. [Sidenote: Commerce produces values.] In this sense commerce is a great producer, a producer of values. It fetches the raw material from the mines or agricultural areas to the industries. It brings the products of the factories to the merchant and from the merchant to the homes of the people. It helps to adjust the supply to the demand. Without commerce there would be an abundance of things in one place and a shortage in another. Commercial organization permits every part of the country, and indeed every part of the civilized world, to produce the things which it is best fitted to produce and to use these things in buying goods made elsewhere. Florida grows oranges and Massachusetts makes shoes, but through channels of commerce each secures what it needs from the products of the other.

[Sidenote: Commerce in its earliest forms.]

=The Development of Commerce.=—Now although the advantages of commerce are so easy to realize, the commercial system of the modern world took many centuries to develop. Primitive people did not have many wants and all of them they supplied by their own exertions. Each little group of people, each tribe or village, met its own needs. Then trade between different villages and tribes began. It grew slowly in the early ages because there were no easy means of transporting goods, and because neighboring tribes were so often hostile to each other. This early trade was conducted by barter, the direct exchange of one article for another, there being no general use of money as a medium of exchange.

As time went on the area of trade widened until it covered whole countries, and finally expanded into international trade or commerce between different countries. [Sidenote: Inventions which have helped commerce to grow.] This widening kept step with improvements in the methods of transportation from pack-horse to wagon, from wagon to railroad, and from sailing vessel to steamship. The expansion of trade was also aided by the growth of strong governments which protected the trader and made the paths of commerce safe. Likewise the general use of money facilitated the operations of trade; so did the creation of a system of commercial credit. Without railroads and steamships, law and order, money and credit, it would not be possible to carry on commerce as we have it today. If the world can feed and clothe and shelter an enormously greater population than it could two hundred years ago this is not because the people work harder; it is because they work more intelligently and because they have created that gigantic system of economic co-operation which we call commerce.

[Sidenote: Commerce includes exchange.]

=The Scope of Commerce.=—It is an error to suppose that commerce is concerned only with the transportation of goods. Its scope is far wider. Commerce includes not only the moving of goods but the whole process of buying and selling. Wholesalers, jobbers, retailers, together with all those who work for them are engaged in commerce. Not only are the steamship lines, the railroads, and the motor trucks entitled to be called agencies of commerce, but the telegraph and telephone systems as well. The pipe lines which carry oil from the depths of the earth to the great cities are instrumentalities of commerce; so are the gas mains in the streets, the subways, and the street cars. The postal service, likewise, is one of the most important factors in expediting commercial transactions.

[Sidenote: It depends upon currency and credit.]

Commerce cannot be carried on, at least in any large measure, without currency and credit. Hence the whole system of money and banking links itself up closely with commercial organization. Goods are bought on credit by the wholesaler, and sold on credit to the retail merchant who, in turn, often sells on credit to his customers. The banks and other credit institutions provide the money to carry on these operations of trade. So when one takes all these things into account it will be seen that a considerable proportion of the people are engaged in one or another of the various branches of commerce.

[Sidenote: Local, interstate, and international commerce.]

=The Three Fields of Commerce.=—In order to clarify the relations of government to commerce it is necessary, at the outset, to distinguish between three fields or types of commerce. The first is _local or intra-state_ commerce, which comprises all the trading operations carried on within the boundaries of a single state. Goods produced in Pittsburgh and marketed in Philadelphia are said to be within the sphere of local or intra-state commerce. As such they are wholly within the jurisdiction of the state of Pennsylvania. In the second place there is a large amount of commerce which, originating in one state, crosses into another. Shoes made in Massachusetts are shipped to Indiana; cotton grown in Georgia is sent to New York to be manufactured. This is called _national or inter-state_ commerce and it is under the jurisdiction of the federal government. Finally, trade is carried on between the United States and foreign countries and this is known as _international_ commerce. It also is subject to regulation by the federal government.

[Sidenote: The state governments control local commerce.]

=Local Commerce.=—Each state makes provision for the encouragement and regulation of commerce within its own territory. The communities and the state provide the improved roads which are essential for trade between country and town. The development of motor cars, motor trucks, and suburban trolley lines has greatly increased the facility with which this trade can be carried on. Each state, again, has control over the street railways, short-line railroads, and other channels of commerce within its own borders. This control is exercised through provisions of laws made by the state legislatures, but the enforcement of these regulations is usually placed in the hands of one or more boards, commonly known as public service commissions (see pp. 480-481). It is the duty of these commissions to see that the rates charged are reasonable and that adequate service is rendered. The jurisdiction of the state authorities, it should be repeated, does not extend over any commercial operations which are not strictly local; if the commerce concerns more than a single state it can be regulated only by the national government.

INTERSTATE COMMERCE AND THE RAILROADS

[Sidenote: Interstate commerce in early days.]

=Interstate Commerce.=—During the years which immediately followed the Revolutionary War the several states were free to make their own regulations for the encouragement and control of commerce. Accordingly they began to compete with one another for trade, each trying to increase its own prosperity at the expense of the others. This led to ill-feeling, of course, and finally to retaliation. One state would offer inducements to bring vessels into its ports; the others, in self-defence, held out even greater inducements. This rivalry soon got to the point where it looked as if some of the states might come to blows.[160] So, when the framers of the national constitution met at Philadelphia in 1787, they gave particular attention to the problem of ending this unwholesome rivalry by placing the regulation of all interstate and foreign commerce under a single, central authority.

[Sidenote: The constitution places interstate commerce under federal control.]

The national constitution, therefore, transferred this regulating power from the states to Congress, by vesting in it the power “to regulate commerce with foreign nations, and among the several states, and with the Indian tribes”. This is a very important provision in the supreme law of the land, and it has had a far-reaching influence in building up the commerce of the United States. One can realize what might have happened if every state had been left at liberty to put duties upon goods imported from other states and to bestow all sorts of advantages upon its own merchants. Under such an arrangement a closely-knit, unified country would have been impossible, for freedom of trade within a nation is an indispensable factor in bringing the whole people into close and friendly relations. The adoption of this clause in the national constitution meant that all trade, from one end of the land to the other, could be carried on freely, without let or hindrance, subject only to such uniform regulations as Congress might provide.

[Sidenote: This control is now very extensive.]

In the days when the national constitution was adopted, the carriers of commerce were few and primitive. Trade between different states was conducted by wagon and sailing vessels; there were no railroads, steamships, street cars, motor trucks, telegraphs, telephones, or parcels post. The cost of transporting goods was so great that it did not pay to ship them far. Goods were made almost wholly for the local market. But when the constitution endowed Congress with the power “to regulate commerce” it gave to this body a right which has been sufficiently broad to cover all the great developments of the past hundred years. Whatever comes within the term “commerce”, no matter howsoever carried on, is within the purview of Congress if it concerns more than a single state.

A large part of the commerce of the United States today does concern more than a single state. The great railroads traverse several states, sometimes a dozen or more of them. Goods sent from New York to Los Angeles pass through ten or twelve states on their journey. Even street car lines sometimes cross the state boundaries. To the trader a state boundary means nothing; it is only a mark on the map. Trade moves wherever the chance of profit appears. It pays no attention to political divisions within the country.

[Sidenote: What interstate commerce includes.]

Interstate commerce, then, includes all agencies of trade among the states: steamships, sailing vessels, railroads, street railways, motor trucks, telegraphs, telephone systems, oil pipelines, power lines, and all passengers, goods, messages, or anything else carried by them. All persons who have to do with such things are engaged in interstate commerce. But interstate commerce does not include the manufacture of goods in any state, even though they be intended for sale in other states. Commerce does not begin until the product is finished and started on its way. Once started on their way, with a destination in another state, the goods pass under the supervision of the national government. Passengers traveling from Chicago to St. Louis, or goods shipped from one of these cities to the other, or messages exchanged between them by telegraph, for example, are under the supervision of the national government from start to finish. Illinois and Missouri have nothing to do with them.

[Sidenote: Railroads and steamships were at first not regulated.]

=How Interstate Commerce is Regulated.=—For many years after the constitution was adopted there was no need for the regulation of interstate commerce because so little of it was carried on. Not until the era of steamships and railroads did commerce develop to a point where any strict regulation was necessary. The earliest railroads, moreover, were short lines constructed and operated wholly within single states. They were built by corporations under charters granted by the states. Frequently these charters were given for an indefinite term, and they placed no limits upon the rates which the railroad might charge for the transportation of passengers and goods. The chief concern of the people in those days was to get railroads built. As time went on, however, the state authorities became more strict in granting charters for the construction of railroads and, finally, most of them established commissions to protect passengers and shippers from unreasonable rates.

Meanwhile, however, another development was going on, namely, the consolidation of these small railroads into trunk lines or long stretches of railway. The reason for this consolidation was the opportunity to make larger earnings from through traffic and at the same time to give better service. The opening-up of the West led to the building of new trunk lines and to further consolidations, especially during the years immediately following the Civil War. In this way single railroads spread themselves far outside the territory of a single state; their tracks ran into many states. [Sidenote: But this freedom from control was abused.] The corporations controlling such trunk lines became big and powerful. They fixed rates to suit themselves and often favored one section of the country at the expense of others, or gave to large shippers an undue advantage over the smaller.[161] Where there was but one railroad in any district everyone was at its mercy. Exorbitant rates could be charged. On the other hand, where there were competing lines between two cities the rivalry of the roads often forced the rates down to a point where goods were carried at a loss. Sometimes the competing roads, realizing the folly of this competition, formed a “pool” or agreement to share the traffic proportionately, and then each put up its rates to a high level. These practices were inimical to the best interests of commerce. They gave rise to so much complaint that Congress eventually responded by placing the interstate railroads under government regulation. This it did by the Interstate Commerce Act of 1887.

[Sidenote: The beginnings of federal regulation.]

=The Interstate Commerce Act of 1887.=—By the provisions of this act and the various amendments which have been made to it during the past thirty-five years, all corporations engaged in interstate commerce (which includes not only railroad companies, but express, sleeping car, telegraph, and telephone companies) must maintain reasonable rates; must make these rates public; and must not discriminate in favor of any locality or shipper. The formation of “pools” is illegal; the granting of free passes to other than railroad officials is forbidden; and all the important activities of the railroads are subject to governmental supervision. These various provisions were not all enacted in 1887. The legislation of that date merely made a substantial beginning. Several amending laws, passed from time to time during the past thirty-five years, have steadily extended the scope of regulation and have also endeavored to secure greater safety in the operation of the railroads.

[Sidenote: Organization and work of the I. C. C.]

=The Interstate Commerce Commission.=—Congress realized in 1887 that it was not enough to pass a regulatory law; it must also provide some means of enforcing the regulations. So a board, known as the Interstate Commerce Commission, was established and it has now become one of the most powerful regulating bodies in the world. At the outset it had five members; now it has eleven. They are appointed by the President. The commission’s function is, in general, to see that the national laws relating to carriers of interstate commerce are strictly observed. It fixes the maximum rates, hears complaints, adjusts disagreements, and prevents discrimination. In the case of the railroads its powers have recently been widened by the provisions of the Transportation Act of 1920, as will be seen presently.

[Sidenote: Methods by which railroads consolidated.]

=Railroad Consolidation and the Sherman Act.=—There are at least three ways in which railroad consolidations have been effected in the United States. The first and simplest method has been outright purchase, one railroad buying up another. The second is by lease, one road leasing another for a long term of years, thus becoming the virtual owner. The third is by forming what is commonly called a “holding company” which steps in and takes the controlling ownership of both roads. In this case neither road buys or leases the other, but both put themselves into the control of a new corporation which proceeds to have the lines operated as though they formed a single road. The objection to these consolidations is that, in many cases, they stifle competition and create a monopoly.

[Sidenote: The Sherman Act.]

So Congress in 1890 enacted the Sherman Anti-Trust Act, a measure which although it was not primarily aimed at the railroads, prohibited all combinations in restraint of trade or commerce among the several states. [Sidenote: The Northern Securities Case.] For several years, however, this law was left unenforced, but in 1904 it was invoked in the Northern Securities Case to dissolve a combination of two great railroads, the Northern Pacific and the Great Northern, both of which had passed into the control of a holding company. The Supreme Court held the consolidation to be illegal and ordered that the roads should be restored to a competitive basis. The same process was applied to various other roads which had been merged in the years following 1890 and a general “unscrambling of omelets” took place.

Railroad competition, however, is often wasteful and actually results in higher rates. To consolidate two or more small railroads into a larger one may actually cheapen rather than increase the cost of transportation. The practical problem is to permit consolidation in such cases while preventing it in others. This was what the Supreme Court was endeavoring to do by a flexible enforcement of the Anti-Trust Act when the World War broke out and created new problems.

[Sidenote: Government operation of the railroads,1917-1920.]

=The Railroads in War Time.=—In 1917, when the United States entered the war, it seemed advisable that Congress should place in the hands of the President a wide range of authority in connection with the mobilization and transportation of troops and war supplies. By virtue of these powers President Wilson, in the closing days of the same year, took over the operation of all the important railroads in the country and placed them in charge of a director-general appointed by himself. The question of compensating the owners of the railroads was settled by providing that they should receive an annual payment equal to the average net earnings of the three preceding years. It was also stipulated that the railroads should be given back to their owners in as good physical condition as when they were taken over, this return to be made within twenty-one months after the close of the war.

[Sidenote: How this plan worked.]

During the whole of the years 1918-1919 the railroads were operated by the government. From the standpoint of profit-making, government operation did not prove a success. The cost of labor and materials rose enormously during the war and continued to rise after the fighting ended. But passenger and freight rates were not proportionally increased, hence there was a large deficit which had to be paid out of the government treasury. The service given to the public by the railroads while they were operated by the government, moreover, was not very satisfactory; although in partial explanation of this it must be remembered that the carrying of troops and supplies during 1918 placed a great strain upon the whole transportation system.

[Sidenote: The Plumb Plan.]

But if government operation was not altogether satisfactory to passengers and shippers, it was popular with the railroad employees. They were much more generously treated under government operation than they had been when the roads were in private hands. Some of their leaders accordingly brought forward a plan which proposed that the roads should not be handed back to private operation but should be purchased by the government and managed by joint boards representing the government, the employees, and the public. This proposal was commonly known as the Plumb Plan. It had the support not only of the railroad brotherhoods, or organizations of railroad employees, but of other labor bodies as well. Congress, however, did not fall in with this scheme and decided to deal with the railroads in an altogether different way.

[Sidenote: The return of the railroads to private operation.]

=The Transportation Act of 1920.=—The railroads were returned to private operation in the spring of 1920 under the provisions of the Transportation Act. This legislation gave the Interstate Commerce Commission complete authority over the fixing of railroad rates but stipulated that they should be high enough to enable the railroads in each section of the country to earn a net income of five and one-half per cent on their valuation and a further amount, not to exceed one-half of one per cent for improvements at the discretion of the commission for two years from March 1, 1921.[162] The act contained two new and very important provisions. [Sidenote: The Railway Labor Board.] It stipulated that a Railway Labor Board should be established, consisting of nine members appointed by the President. This board has the function of adjusting disputes between the railroads and their employees concerning wages or conditions of labor.[163] It also contained provisions allowing the consolidation of railroads in each section of the country with the consent of the Interstate Commerce Commission.

[Sidenote: The importance of the railroads to industry.]

=The Future of the Railroads.=—The railroads are the commercial arteries of the nation. Some idea of their importance may be gained from the fact that the railroads of the United States carry a billion passengers each year and nearly two billion tons of freight. Their mileage is greater than that of the railroads in the whole of Europe. If all the tracks of American railroads were placed end to end, they would girdle the earth eight or ten times. They represent a huge investment of capital—nearly twenty billions—or nearly as much as the entire national debt. It is true that a good deal of our commerce is now carried on by steamships, canal boats, motor trucks, and electric railways, but we still place greater dependence upon the railroads than upon all these other carriers put together. Reasonable freight rates and good service are essential to the progress of industry. This being the case, it is imperative that there should be governmental control in the interests of passengers and shippers. On the other hand the railroads, to perform their service adequately, must be assured a sufficient revenue and given due scope for the exercise of private initiative.

[Sidenote: Motor competition.]

The railroads have been compelled, in recent years, to face a new form of competition, that of motor cars and motor trucks. These have a great advantage in that they use highways which have been built entirely at the public expense, whereas the railroads have to buy the land on which their tracks are laid and pay the cost of maintaining their roadbed. The use of the public highways for freight-carrying by heavy motor trucks imposes a heavy cost upon the taxpayer for the repair of roads.[164]

INTERNATIONAL TRADE AND TARIFF POLICY

[Sidenote: The beginnings of American foreign trade.]

=International Commerce: Its Beginnings.=—Before the Revolution a considerable amount of trade was carried on between the American colonies and various European countries, chiefly Great Britain. After the winning of independence this foreign commerce began to grow rapidly because the hindrances that had formerly been imposed upon it were now removed. Moreover, the Napoleonic wars in Europe brought about an enormous increase in the demand for American foodstuffs. These wars retarded agriculture in Europe and forced the various countries to import supplies from overseas. American shipping developed greatly during the period 1790-1805, but it thereafter received a set-back owing to the blockades and the Embargo Act of 1807, followed a few years later by a four-years’ war with England.

=Tariff Policy.=—During the period immediately preceding the framing of the constitution each of the thirteen states was free to regulate its own commercial relations. Each determined for itself whether it would permit imports to come in freely from other states and other countries or whether it would impose duties on such imports. [Sidenote: The constitution empowers Congress to regulate foreign trade.] This arrangement proved altogether unsatisfactory and the constitution gave to Congress complete authority to control commerce with foreign countries and among the states. This action was taken primarily to afford Congress an adequate revenue in the way of taxes on imports, although it was also designed to put an end to undue commercial rivalry among the states themselves. In 1792, therefore, Congress passed our first tariff law, a measure designed mainly to bring forth income for the new federal government but also to afford protection to American industries. [Sidenote: This is done by tariffs.] This act of 1792 marks the beginning of a long line of tariff measures, some imposing high duties on imports and some setting these duties at lower rates.[165]

[Sidenote: The Tariff Commission.]

The making of the tariff is in the hands of Congress but the function of studying the industrial needs of the country is entrusted to a Tariff Commission of six members appointed by the President. This commission is empowered to make recommendations to Congress, but Congress is under no obligation to follow its advice nor has it usually done so. Tariff rates are fixed, for the most part, in obedience to political pressure.

[Sidenote: The case for protection.]

=The Argument for Protective Tariffs.=—Why should American industry be given protection by tariff duties against foreign competition? The answer to this question was first given by Alexander Hamilton in his famous _Report on Manufactures_ (1790) and it has been elaborated by many writers since Hamilton’s time. [Sidenote: 1. It develops young industries.] The chief arguments in favor of protection are that it helps home industry, develops a home market, raises wages and keeps them high, provides employment for a country’s own workmen, and makes a country independent of others. Protection, it is claimed, helps new industries or “infant industries” to get on their feet. These new industries, if not shielded against the pressure of foreign competition in their early stages would be unable to make headway, but if given adequate protection for a time they ultimately get well established and add to the nation’s industrial strength. This industrial growth, it is argued, helps the farmer by creating a home market for his agricultural produce. The growth of industry creates large cities and these centers of population form the farmer’s best market.

[Sidenote: 2. It keeps wages up.]

Those who favor the policy of protection also argue that if high duties were not imposed upon imports from other countries, the wages of the American workman would fall and many would be out of employment. Until recent years the general rate of wages in European countries has been much lower than in the United States, but since the World War the disparity has not been so great. The lower wages of labor in Europe have enabled goods to be produced more cheaply there than in America, and were it not for the protective tariff, the United States would be flooded with these products of underpaid European workers. In the end the American scale of wages would be forced down to the same level—so the protectionists argue.

[Sidenote: 3. It promotes an all-around economic development.]

Finally, there is the nationalist argument for protection. To be strong and independent a country ought to have an all-around economic development. Its people ought not to devote their entire energies to agriculture alone. All branches of economic life ought to be fostered together. A country should aim to provide, so far as possible, for all its own needs; it should not be dependent on other countries for its food supply, its manufactured goods, or its shipping. It is difficult for a country to reach this condition of affairs in any case, and even a near approach to it can only be achieved by the artificial nurture of the weaker economic activities, which is what the protective tariff endeavors to supply.

[Sidenote: The case against protection:]

=The Argument for Free Trade.=—Although the foregoing arguments for protection have carried great weight in the United States during the past fifty years there are many Americans who believe that trade with foreign countries ought to be free from all tariff duties, or, at any rate, free from all duties except such as may be needed to provide a revenue. [Sidenote: 1. It creates artificial economic conditions.] Those who believe in “free trade”, or in a “tariff for revenue only” make the point that every country ought to devote itself to those industries which it can carry on most advantageously and should not try to produce for itself the things which can more cheaply be imported from other countries. Protection, they claim, merely diverts capital and labor into industries for which a country is not naturally adapted, and thus makes production expensive. [Sidenote: 2. It keeps prices up.] It keeps wages up by keeping prices up, and thus deprives the workman of the advantage which high wages are supposed to bring. [Sidenote: 3. It fosters industrial monopolies.] The policy of protection is also criticised on the ground that it fosters the creation of great industrial combinations, leads to the establishment of monopolies, and encourages corruption in politics by giving particular industries a financial interest in governmental action. The free traders believe that there is no more reason for protective duties upon trade between different nations than there is for similar duties upon trade among the several states of the Union.

[Sidenote: Why foreign trade is important.]

=The Encouragement of Foreign Commerce.=—The work of the national government is not confined to the regulation and restriction of commerce; it is concerned with the encouragement and promotion of trade as well. This promotion of foreign trade is an important branch of the government’s work because the prosperity of the United States depends to a considerable extent upon its commerce with other countries. America produces a large surplus of grain, meat, cotton, and other merchandise which must be marketed abroad. On the other hand there are many commodities, such as sugar, tea, coffee, rubber, and silk which cannot be produced in sufficient quantities here and hence must be imported. The aim of the government is to help our exporters find the best foreign markets for their goods and to facilitate the acquisition of such foreign products as the country requires. This help is rendered in various ways, by making commercial treaties with foreign countries, by maintaining a consular service, by giving encouragement to American shipping, and by the creation of a Department of Commerce in the national administration.[166]

=Commercial Treaties.=—From time to time the United States has established, by treaty, commercial relations with other countries. These treaties are made for the mutual advantage of both parties. They usually provide that citizens of each country may carry on trade with one another subject to the established tariffs, and that there shall be no governmental discrimination against such trade.[167] They allow each country to maintain consuls in the territory of the other. On a few occasions the United States has concluded reciprocity treaties providing for reciprocal free trade, in whole or in part, with other countries. An arrangement of this sort was made with Canada in 1854 but was brought to an end twelve years later.

=The Consular Service.=—Commerce with foreign countries is assisted and facilitated by the consular service. The United States maintains consuls in all important foreign countries and these countries, in turn, send their consuls here. There are several classes of officials in the consular service; the more important are consuls-general, consuls, and consular agents. Consuls-general are stationed at the larger foreign ports and exercise a general supervision over consuls in their respective districts. Consuls and consular agents are maintained in less important foreign centers of trade. [Sidenote: How consuls are appointed.] All members of the American consular service are appointed by the President, but since 1906 the selections have been made by competitive examinations for the lower grades and by promotion for the higher.

[Sidenote: Their duties.]

Members of the consular service gather information concerning trade opportunities and send this information to Washington where it is printed and distributed to American merchants and manufacturers. Consuls verify the invoices of goods shipped to the United States so as to avoid delay at the custom house. They assist American citizens who may be traveling abroad, particularly those who go abroad to buy merchandise. In a word they are the sentinels of American foreign commerce.

Until 1906 the American consular service was not highly efficient because the appointment of consuls was usually made on political grounds. Men who had rendered service in party politics were often given important consular positions although possessed of no real qualifications for the work which they were expected to do. Moreover, whenever a change of administration took place in Washington many consuls were removed from office and new ones appointed. This injured the service by preventing the development of experienced officials. Since 1906 the situation has greatly improved because appointments and promotions have been made upon a basis of merit alone.

=The Merchant Marine.=—In order that a country may build up a profitable foreign trade it should have vessels of its own in which to carry exports and imports. Trade that depends entirely upon the use of foreign vessels is insecure, because the outbreak of war between two or more foreign countries may keep these ships at home. So the development of American maritime commerce has seemed to make desirable the maintenance of a merchant fleet under the American flag. [Sidenote: Early American shipping.] Since the Revolution there has always been such a fleet; sometimes it has been large, but more often it has been small.[168] After 1915, when the German submarine campaign resulted in the wholesale sinking of British and French merchant vessels, the demand for ships became acute. [Sidenote: The building of ships during the war.] American shipyards once more grew busy and expanded rapidly. In 1916, moreover, Congress passed a Shipping Act, designed to foster the growth of the merchant marine, and when the United States entered the war in 1917 an Emergency Fleet Corporation was created to build a great flotilla of vessels at the public cost and a Shipping Board to operate them. The work was not completed when the war came to an end, nevertheless several hundred vessels were added to the list of America’s ocean carriers. As a result of these efforts the merchant marine of the United States is once more the second largest in the world; but the problem now is to keep these ships busy. Foreign trade began to fall off after the American forces had been brought back from Europe and hundreds of the new ships have remained tied up in American harbors. Some have been sold to private companies; others have been operated by private companies under lease; still others are being operated directly by the Shipping Board.[169]

=The Bureau of Foreign and Domestic Commerce.=—The progress of foreign commerce depends not only upon ships and ports but upon the possession of accurate knowledge concerning the course of markets and prices abroad. Data on such matters are gathered, as has been pointed out, by the American consular service. [Sidenote: Statistics of trade—their value.] This is supplemented, however, by statistics collected for the Bureau of Foreign and Domestic Commerce at Washington, an office which is maintained to provide American business men with accurate and up-to-date information concerning every branch of foreign commerce. The bureau collects and translates the tariff laws of foreign countries, makes investigations into the cost of producing goods both in America and abroad, and studies all possible methods of making American foreign trade more profitable. It affords a good illustration of the way in which the government, without itself engaging in trade, may assist the private enterprises of the people.

=Future of Foreign Commerce.=—Ocean transportation has made enormous strides forward during the past twenty years. [Sidenote: What new inventions may do for trade.] Wireless communication now enables ships to keep in touch with each other and with the shore, thus making navigation safer. It has been demonstrated by naval experiments that great ships can be steered and their machinery controlled by radio apparatus in the hands of men several hundred miles away. Then there is the airship and the airplane, in both of which it has been shown to be possible to cross the Atlantic far above the surface without a stop. It seems to be beyond doubt that air carriers will, even within our own generation, be used to carry mail overseas as they are now being used on land, and probably passengers as well. The day may come when goods, also, will be ferried through the air from continent to continent in less than a single day. The march of invention in this as in other fields is so rapid that no one can tell today what the morrow may bring forth.[170] But of one thing we may be hopeful: that even as the era of rail transportation served to bring all parts of the country into more intimate relation, so may it come to pass that the world of the future will find all its distant parts brought into more friendly contact by the development of these twentieth-century miracles of rapid transit.

=Commerce and Peace.=—Commerce between countries helps to promote international good-feeling and friendship. It is true that commercial rivalries have sometimes inspired international jealousy and have even paved the way to war; but legitimate trade, honestly carried on between nations, is far more likely to prove a means of drawing them together. From their commercial intercourse nations derive mutual profit. By trading with one another they learn to understand each other. Isolation makes for suspicion and war. World commerce makes for peace.

General References

H. G. SELFRIDGE, _The Romance of Commerce_, pp. 230-239; 318-349;

C. F. CARTER, _When Railroads Were New_, pp. 33-74;

E. R. JOHNSON and F. W. VAN METRE, _Principles of Railroad Transportation_, pp. 492-534;

CLIVE DAY, _A History of Commerce_, pp. 485-517; 564-579;

E. R. JOHNSON, _American Railway Transportation_, 2d ed., pp. 52-68; 367-385;

ISAAC LIPPINCOTT, _Economic Development of the United States_, pp. 520-549; 611-634;

F. W. TAUSSIG, _Principles of Economics_, Vol. I, pp. 508-545 (Protection and Free Trade); Vol. II, pp. 363-396 (Railway Problems);

JAMES T. YOUNG, _The New American Government and Its Work_, pp. 119-140 (The Regulation of Commerce); 187-202 (Federal Power Over Interstate Commerce);

W. B. MUNRO, _Government of the United States_, pp. 246-264 (The Commerce Power);

H. R. BURCH, _American Economic Life_, pp. 273-296;

C. R. VAN HISE, _Concentration and Control_, pp. 4-34; 170-192;

I. L. SHARFMAN, _The American Railroad Problem_, pp. 100-186.

Group Problems

=1. The problem of American railroads—government operation—the Plumb plan—the Transportation Act—what of the future?= The growth of American railroads. Railroad consolidation. Development of government supervision. The Interstate Commerce Commission and its work. Why railroads were not permitted to consolidate. The government’s experience with the railroads, 1917-1920. The Adamson law. Government operation. Labor problems under government operation. The Plumb plan. Why it was not adopted. The provisions of the Transportation Act (Esch-Cummins law). Difficulties now being encountered by the railroads. Proposed consolidations. The outlook for railroad transportation. =References=: JOHN MOODY, _The Railroad Builders_, pp. 211-241; J. J. HILL, _Highways of Progress_, pp. 114-139; C. F. CARTER, _When the Railroads Were New_, pp. 226-258; E. R. JOHNSON and F. W. VAN METRE, _Principles of Railroad Transportation_, pp. 564-577; W. Z. RIPLEY, _Railroads, Rates and Regulation_, pp. 441-455; 457-521; OTTO H. KAHN, _Our Economic Problems_, pp. 67-118; I. L. SHARFMAN, _The Railroad Problem_, pp. 382-464.

=2. What is commerce and how is it regulated?= =References=: _The Federalist_, Nos. 7, 11, 12, 22, 42; JOHN FISKE, _Critical Period of American History_, pp. 134-162; C. A. BEARD, _Readings in American Government and Politics_, pp. 343-358; EVERETT KIMBALL, _National Government of the United States_, pp. 480-520; O. W. KNAUTH, _The Policy of the United States towards Industrial Monopoly_, pp. 66-92; L. H. HANEY, _Business Organization and Combination_, pp. 383-414; 419-437 (The Sherman Act); A. H. WALKER, _History of the Sherman Law_, _passim_.

=3. The American Merchant Marine.= How can it be developed? =References=: CLIVE DAY, _History of Commerce_, pp. 481-483; 492-494; 513-515; 545-546; N. S. SHALER, _The United States_, Vol. I, pp. 538-558; W. W. BATES, _American Navigation_, pp. 234-299; 335-350; W. L. MARVIN, _The American Merchant Marine_, _passim_.

=4. How the tariff has helped the nation as a whole.= =References=: F. W. TAUSSIG, _Tariff History of the United States_, pp. 194-229; D. R. DEWEY, _Financial History of the United States_, pp. 80-84; 161-164; 176-196; 237-238; 249-251; 262-266; 438-439; 463-464 and _passim_; IDA M. TARBELL, _The Tariff in Our Times_, pp. 294-330; E. STANWOOD, _American Tariff Controversies_, Vol. II, pp. 243-295; E. R. JOHNSON, _Ocean and Inland Water Transportation_, pp. 257-310; _Cyclopedia of American Government_, Vol. III, pp. 476-481.

=5. Our consular service: its present value and future development.= =References=: P. S. REINSCH, _Readings on American Federal Government_, pp. 651-675; C. L. JONES, _The Consular Service of the United States: Its History and Activities_, _passim_; F. VAN DYNE, _Our Foreign Service_, pp. 117-177; 217-284; F. J. HASKIN, _The American Government_, pp. 14-26; GAILLARD HUNT, _The Department of State_, pp. 331-349; A. H. WASHBURN, “Some Evils of Our Consular Service,” in _Atlantic Monthly_, Vol. LXXIV, pp. 241-252.

Short Studies

1. =The commerce of colonial America.= GEORGE L. BEER, _The Commercial Policy of England toward the American Colonies_, especially pp. 66-90; J. R. H. MOORE, _Industrial History of the American People_, pp. 163-208.

2. =The commercial relations of the states under the Confederation.= JOHN FISKE, _The Critical Period of American History_, pp. 134-162.

3. =The embargo and non-intercourse policy of the years 1807-1811.= EDWARD CHANNING, _History of the United States_, Vol. IV, pp. 379-400; 415; 421.

4. =The clipper ships.= A. H. CLARK, _The Clipper Ship Era_, pp. 173-194; R. D. PAINE, _The Old Merchant Marine_, pp. 154-184.

5. =Some great railroad builders.= JOHN MOODY, _The Railroad Builders_, pp. 165-178 (James J. Hill); 193-210 (E. H. Harriman).

6. =Railroads and land grants.= E. L. BOGART, _Economic History of the United States_, pp. 348-360; J. B. SANBORN, _Congressional Grants of Land in Aid of Railways_, pp. 62-75.

7. =Railroad rate discrimination.= W. Z. RIPLEY, _Railroads, Rates and Regulation_, pp. 195-209.

8. =The work of the Interstate Commerce Commission.= P. S. REINSCH, _Readings on American Federal Government_, pp. 517-527.

9. =The Sherman Act and the Northern Securities Case.= JAMES T. YOUNG, _The New American Government and Its Work_, pp. 141-164.

10. =Our foreign trade today.= J. H. HAMMOND and J. W. JENKS, _Great American Issues_, pp. 195-209.

11. =The effects of the tariff on trade.= F. W. TAUSSIG, _Some Aspects of the Tariff_, pp. 3-49; J. H. HAMMOND and J. W. JENKS, _Great American Issues_, pp. 174-194.

12. =Our river and lake commerce.= G. S. CALLENDER, _Economic History of the United States_, pp. 313-326.

13. =International trade.= H. R. BURCH, _American Economic Life_, pp. 372-384.

14. =The Panama Canal.= F. A. OGG, _National Progress_, pp. 266-277; P. L. HAWORTH, _The United States in Our Own Times_, pp. 300-309; F. J. HASKIN, _American Government_, pp. 209-220.

15. =The Shipping Board and Emergency Fleet Corporation.= W. F. WILLOUGHBY, _Government Organization in War Time and After_, pp. 121-165.

16. =American commerce during the World War.= F. A. CLEVELAND and JOSEPH SCHAFER, _Democracy in Reconstruction_, pp. 397-419.

17. =Government operation of the Railroads.= 1918-1920. I. L. SHARFMAN, _The American Railroad Problem_, pp. 100-131.

Questions

1. Explain the various ways in which a bushel of wheat could be transported from Albany to New York City in 1750; in 1850; in 1920. State the approximate time required in each case.

2. What commercial functions are now performed by wholesalers, jobbers, retailers, agents, brokers, and money-lenders, respectively.

3. Apportion the following into three columns according to whether they figure, for the most part, in the local, the interstate, or the foreign commerce of the United States: bread, tea, oranges, milk, spices, firewood, brick, dyestuffs, automobiles, shoes, paper, tin, jute, gravel, glass, straw, potash, poultry.

4. Name the successive stages in the development of agencies for the transportation of (_a_) passengers; (_b_) goods; (_c_) information. State their relative merits in regard to speed, dependability, and cost.

5. What objections would there be to giving Congress authority over _local_ commerce? Will the new agencies of transportation increase the power of Congress or of the local authorities?

6. Is there in your state a commission with authority over local commerce? How is it appointed and what are its powers?

7. What sort of cases come before the Interstate Commerce Commission? The Railway Labor Board? Give an example in each case.

8. Among the various arguments for protection which one appears to be the strongest? Which seems the strongest argument for free trade? Can you suggest any argument on either side in addition to those given in the text?

9. Make a list of the reasons why the United States should have a large merchant marine, putting them in the order of their importance. Should the government sell or operate its ships?

10. If you were planning to fit yourself for the consular service, what subjects would you study? Show how each study would be of help to you in performing your duties as a consul. Why are appointments to the consular service made by competitive examination?

11. Explain what is meant by the following statements and give illustrations: “Trade follows the flag”; “Commerce makes for peace”; “Trade rivalries lead to war”; “Commerce does not create goods but values”.

12. During the World War, and for a time thereafter, the exports of the United States greatly exceeded the imports. What effects do you think this had (_a_) upon prices in this country; (_b_) upon our stock of gold; (_c_) upon tariff policy?

13. Suggest any ways, not already utilized, in which the national government could help the development of (_a_) interstate commerce; (_b_) foreign commerce.

Subjects for Debate

1. The national government should own and operate the railways.

2. Our protective policy has benefited (or injured) the farmer.

3. The national government should operate its own ships even if it must operate them at a loss.

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THE SPIRIT OF VULCAN

By Edwin A. Abbey

From a mural decoration in the Pennsylvania State Capitol at Harrisburg.

In this crowded and clanging hive of industry, where no semblance of order appears visible to the onlooker, Vulcan sits aloft on the clouds of smoke and steam directing the actions and energies of the workers to a common end. It is the co-operation of the toilers, the guidance of their skill and strength, that makes their work productive. Like a mentor the mythical patron of industry, Vulcan, presides over the busy centers of human toil.

The general impression which the artist has sought to convey is that of industry reaching its results, not through the unguided work of individuals, but by mutual effort under wise and kindly direction.

[Illustration:

THE SPIRIT OF VULCAN. By Edwin A. Abbey

_Copyright by Edwin A. Abbey. From a Copley Print, copyright by Curtis & Cameron, Boston. Reproduced by permission._ ]

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