Modern Principles Microeconomics 3rd

Edition Cowen Solutions Manual

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8
Price Ceilings and Floors

Learning Objectives
After completing this chapter, students should:
> be able to explain why price ceilings cause shortages, reductions in product quality,
wasteful lineups and other search costs, and deadweight loss (lost gains from trade).
They should also be able illustrate these on a diagram.
> understand how price ceilings cause a misallocation of resources in the controlled
market and potentially other markets throughout the economy.
> be able to explain why price floors cause surpluses, deadweight loss, and wasteful
increases in product quality. They should also be able to illustrate these on a diagram.
> understand why price floors cause a misallocation of resources.

Chapter Outline
Price Ceilings
Shortages
Reductions in Quality
Wasteful Lines and Other Search Costs
Lost Gains from Trade (Deadweight Loss)
Misallocation of Resources
Advanced Material: The Loss from Random Allocation
Misallocation and Production Chaos
The End of Price Ceilings
Rent Controls (Optional Section)
 CHAPTER 8 • Price Ceilings and Floors • 2

Shortages
Reductions in Product Quality
Wasteful Lines, Search Costs, and Lost Gains from Trade
Misallocation of Resources
Rent Regulation
Arguments for Price Controls
Universal Price Controls
Price Floors
Surpluses
Lost Gains from Trade (Deadweight Loss)
Wasteful Increases in Quality
The Misallocation of Resources
Takeaway

Chapter Narrative
This chapter covers price ceilings and price floors in more depth than most textbooks. All
of the major effects of these price controls are covered extensively. The chapter starts
with price ceilings and addresses the universal price control system put in place by the
Nixon administration in August 1971 and then focuses on the effects in the market for oil.
Rent control, a commonly cited price ceiling, is also covered. The chapter then uses the
minimum wage and airline regulation as examples of price floors.

Price Ceilings
A price ceiling is a maximum price allowed by law. We call it a ceiling because prices are
not allowed to rise above it. Price ceilings have five important effects:
1. Shortages
2. Reductions in product quality
3. Wasteful lineups and search costs
4. Lost gains from trade (deadweight loss)
5. Misallocation of resources

Shortages
When price is held below equilibrium, the quantity demanded exceeds the quantity
supplied. The shortage is measured by the difference between these two points. Draw a
simple supply and demand diagram with an effective price ceiling and illustrate the
shortage to the students graphically.
Potential Pitfall: When students graph a price ceiling on their own, they are
often tempted to draw it above the equilibrium price, where it will, at least
initially, have no effect. They seem to think, “Ceilings are high, so I’ll graph
this above equilibrium.” It’s worth stressing to them now that ceilings prevent
 CHAPTER 8 • Price Ceilings and Floors • 3

you from going up. Try drawing one above equilibrium for them to illustrate
that it will not have the same effect.
When there were universal price controls in the 1970s, increased demand in the
building industry made price controls hit that sector particularly hard. There were
shortages of lumber, steel bar, and toilets. By 1973, shortages of wool, copper, aluminum,
vinyl, denim jeans, paper, plastic bottles, and many more things were common.

Reductions in Quality
When price controls cause a shortage, sellers have more customers than goods. Rather
than cutting price, it’s much easier to evade the price control and still sell all of their
goods by cutting quality. During the 1970s, price controls caused books to be printed on
poor-quality paper, 2″ × 4″ lumber shrank to 1⅝″ × 3⅝″, new cars got fewer coats of
paint, and newspaper publishers conserved paper by printing in smaller fonts. Service can
also decrease with price controls. In states where do-it-yourself pumping was legal,
gasoline price controls made full-service stations disappear.

Wasteful Lines and Other Search Costs

A line is a classic sign of a shortage, and lines for gasoline were common during the
1970s. Lines raise the real price that consumers pay for a good—they may pay only $1 in
currency, but they also pay with the value of their wasted time standing in line. Figure 8.2
in the text illustrates the value of wasted time.

Figure 8.2 Price ceilings create wasteful lines

 CHAPTER 8 • Price Ceilings and Floors • 4

Buyers still compete with buyers, but now, since they cannot compete by bidding up
the price, they compete by waiting in line. At the restricted quantity supplied they will
wait in line until the total monetary and waiting cost exceeds the value of the product to
them. This is found by tracing up to the demand curve from the supply curve at the
restricted quantity. The total value of wasted time equals that vertical distance times the
quantity.
Buyers may also resort to bribery to ensure receiving the goods. If the buyers used
bribes, the box in Figure 8.2 would simply be “total paid in bribes” rather than “total
value of wasted time.” In either case, the competition among buyers makes them pay
much more than the controlled price, with the total price higher than the market-clearing
price would have been.
Teaching Tip: Students are likely to think that waiting in line is preferable to
bribing as a rationing mechanism. It’s important to emphasize that no one
gains the lost value of waiting in line. It’s a cost borne without providing
anyone with a benefit. At least with bribes, the money lost by the consumer
ends up with the seller, so it is more efficient than lines.
Teaching Tip: This is also a good time to point out to students that even in the
face of a government-regulated price, the market price still prevailed. The
government may be able to set the sticker price, but that does not paralyze
market forces; it just slows them down.

Lost Gains from Trade (Deadweight Loss)

Price ceilings prevent buyers and sellers from engaging in mutually beneficial exchanges.
Draw a supply and demand diagram like Figure 8.3 in the text and illustrate the triangle
where demanders place a higher value on the goods than the sellers’ cost, but yet, because
the supply curve is above the price ceiling in this range, the buyers and sellers are
prohibited from engaging in these mutually beneficial exchanges. Any price above the
supply curve and below the demand curve could have generated gains from trade. You
can show how much consumer and producer surplus is lost because of the price ceiling.
The deadweight loss is this lost consumer and producer surplus.

Misallocation of Resources
Prices convey information, so when price ceilings are imposed, they distort the market’s
signals and lead to a misallocation of resources. During the cold winter of 1972–1973 the
price controls on oil prevented people with a cold home on the East Coast from bidding
oil away from the West Coast. As a result, pools were heated in California (a relatively
low-value use of oil) while homes remained cold on the other side of the country (a
higher-value use of oil).
You can illustrate the potential loss of value from misallocated resources with a graph
like Figure 8.5 in the text.
Gains from trade are maximized only when goods flow to their highest-value uses.
Yet the portion of the demand curve that is to the left of the quantity supplied is relatively
 CHAPTER 8 • Price Ceilings and Floors • 5

Figure 8.3 A price celling reduces the gains from trade

Figure 8.5 When prices are controlled, resources do not flow to their highest value uses

small compared to the length of the demand curve that is to the right of the quantity supplied
but still above the price-controlled price. With price controls there is no way to guarantee that
the higher-value demanders get the goods. Each time one of these lower-value demanders
gets a good, there is a misallocation of resources. The next subsection gives an example of
how to quantify this misallocation.
 CHAPTER 8 • Price Ceilings and Floors • 6

Advanced Material: The Loss from Random Allocation

If there were no misallocation, then the total consumer surplus with a price ceiling would
be the area between the demand curve and the price up to the quantity supplied. But since
these demanders are not guaranteed to get the product, anyone with a demand above the
price may get the goods. The text suggests showing how much consumer surplus would
be lost if the goods were randomly allocated between high- and low-value uses.
Use a figure like Figure 8.7 in the text with a straight-line demand and supply curve.
If there is an equal probability of satisfying each use between the maximum value of the
demand curve and the value of the controlled price, the average good traded will have a
value halfway between these two levels. With a random allocation of goods, more than
half of the potential consumer surplus at a controlled price is eaten up by misallocation.

Figure 8.7 Shorter consumer surplus falls under random allocation

Misallocation and Production Chaos

Remind students how markets are linked, as shown in Chapter 7. You can then
demonstrate that if there is a shortage because of a price control in one market, that
shortage will cause disruptions in other markets even if those other markets do not have
price controls. In 1973 million-dollar construction projects were delayed because a few
thousand dollars of steel bar was unavailable. Shortages of steel drilling equipment made
it difficult to expand oil production even though the United States was in a severe energy
crisis.
In-Class Exercise: You can illustrate the linked nature of markets with
some simple supply and demand diagrams. Take the example of steel. Start by
placing a price control on steel and illustrate the shortage. Then draw a supply
and demand diagram for automobiles. Ask what happens to the automobile
market as a result of the steel shortage. (Supply decreases and prices rise.)
 CHAPTER 8 • Price Ceilings and Floors • 7

Then ask your students to suggest some other high-demand items, such as
apartments near the university or close to public transport. Illustrate what
happens in these markets. Take the chain as far as you like.

The End of Price Ceilings

The price controls on most goods in the United States were lifted by April 1974. Oil price
controls remained, however, and were eased over the next seven years. When Ronald
Reagan took office as president in 1981, his first act was to eliminate the last of the price
controls on oil. As could be anticipated, at first the monetary price of oil rose (after
accounting for shorter lines, it’s quite possible the total price of oil decreased), but the
shortage disappeared overnight. Within a year prices began to fall as supply increased,
and within a few years prices were below 1979 levels.

Rent Controls (Optional Section)

Since rent control is a price ceiling on housing, everything covered on price ceilings
applies to rent controls.
Note to Instructor: The textbook and this instructor’s manual cover rent
control more quickly than in the previous section. We introduce one new
graph to distinguish between short- and long-run effects. Each subsection on
rent control has some facts from the text and points out any differences
between rent control and other price controls.

Shortages
Rent controls usually begin with a freeze at the current market rate, but they are usually
implemented in cities where rents are increasing quickly, so the price control soon results
in a shortage. Because apartments, unlike oil, are a long-lasting good that cannot be
shipped elsewhere, owners of apartments can do little in the short run except absorb the
lower price. The short-run supply of apartments is rather inelastic.
Over the long run, fewer new apartment buildings are built and older units are turned
into condominiums or commercial space or are torn down to make room for
nonresidential structures. The long-run supply curve is more elastic. You can use a graph
like Figure 8.8 in the text to illustrate the initial short-run shortage and then the longer-
run shortage that develops with rent controls.
 CHAPTER 8 • Price Ceilings and Floors • 8

Figure 8.8 Rent control creates larger shortages in the long run than in the short run

Ontario, Canada, provides a good illustration of how the long-run supply is more
elastic. Rent control was put into place in 1975. In the five years prior to this, about
28,000 new apartments were built per year. In the five years after rent control was put in
place, only about 5,500 apartments per year were built. The drop in construction began
when rent control was being debated but before it was actually implemented. It’s unlikely
the drop was due to other factors such as the state of the economy, because non-rent-
controlled single-family housing starts and apartment starts were similar before the rent
control, yet only apartment construction decreased after the rent control. Single-family
construction remained high. (See Figure 8.9 in text.)

Reductions in Product Quality

Housing quality deteriorates with rent control because there are surplus demanders at the
controlled price. Lawns are mowed less often, and lightbulbs and broken appliances are
replaced more slowly. Low-quality apartments tend to deteriorate even more
dramatically. In Manhattan, 18% of rent-controlled housing is dilapidated or
deteriorating, a much higher percentage than in the uncontrolled sector.
Economist Assar Lindbeck once said, “Rent control is the most effective method we
know for destroying a city, except for bombing it.” However, Vietnam’s foreign minister
said in 1989, “The Americans couldn’t destroy Hanoi [by bombing it], but we have
destroyed our city by very low rents.”

Wasteful Lineups, Search Costs, and Lost Gains from Trade

Finding a rent-controlled apartment often involves costly search rather than lining up.
One method of finding apartments in New York City is to read the obituary columns, find
out where the deceased lived, and try to race to the landlord before someone else does.
 CHAPTER 8 • Price Ceilings and Floors • 9

Because there is a surplus of renters, landlords can easily discriminate against

someone who they believe isn’t an ideal tenant. This can take the form of racial
discrimination. It also may come in the form of a bias against younger families or those
with small children and pets. Because there are surplus renters, landlords can discriminate
without worrying about losing revenue by doing so. In a free market they would have to
pay (lose revenue) to engage in discrimination.
Bribes are illegal but can be disguised. A rent-controlled apartment may come with
$5,000 worth of “furniture” that you must purchase from the landlord. Tie-in sales such
as these are sometimes referred to as “key money.”

Misallocation of Resources
Apartments under rent control do not go to their highest-valued use. Because apartments
can be hard to find, renters often stay in their apartment longer than they want to. They
also stay because they don’t pay the full market value to rent. Often you’ll find an older
couple staying in a large space after their children move out even though they don’t need
the space, while at the same time young families who could use the larger apartment are
stuck in cramped living quarters. Glaeser and Luttmer (2003) found that as many as 21%
of renters in New York City would choose to live in an apartment with more or fewer
rooms if not for rent controls.

Rent Regulation
Rent regulation, unlike rent controls, doesn’t place an absolute ceiling on rents. Rent
regulation usually begins with the current market rate and caps how quickly rents can
increase, for example 5% per year. Rent regulations also typically allow landlords to pass
along some of their costs if they make improvements to the property.

Arguments for Price Controls

If price controls were the only way to help poor people consume oil or housing, then
some people might accept all of the negative consequences and still support price
controls. However, price controls are rarely the only way to help the poor. In general,
policies to increase supply can help the poor and avoid these negative consequences.
Reduced taxes on oil exploration or opening up government land for exploration could
make oil more affordable. Reduced restrictions on new housing construction could
encourage supply and lower housing prices.
The textbook suggests that the best case for price controls is when they are placed on
a monopoly that would otherwise restrict output to raise price. (Monopoly is covered later
in the textbook.) In that case a price control could actually increase production.
People complain when prices increase. Politicians often blame foreigners, specula-
tors, or other scapegoats. Legislating a maximum price seems like an obvious response.
People who have not studied economics rarely make the connection between the price
control and the negative consequences. So ignorance is often a reason people support
price controls. But as the next section shows, it’s also in some people’s self-interest to
keep price controls even though they cause shortages.
 CHAPTER 8 • Price Ceilings and Floors • 10

Universal Price Controls

A command economy like the former Soviet Union has permanent and universal price
controls. Hedrick Smith pointed out that among the facts of life in the Soviet Union was
that scarce items “are not permanently out of stock, but their appearance is unpredictable
. . . Leningrad can be overstocked with cross-country skis and yet go several months
without soap . . . The accepted norm is that the Soviet woman daily spends two hours in
line, seven days a week.” Price controls are often not eliminated even when they would
make most people better off. Shortages benefited the party elite who controlled prices.
Those who controlled scarce goods could gain favors and connections, blat, in exchange
for their goods. They could use blat to obtain things for themselves. Those who benefited
from shortages wanted to keep price controls.
This is true even in the United States, which by world standards has relatively little
corruption. During the 1973–1974 oil crisis the Federal Energy Office controlled the
allocation of oil. Firms began to hire former politicians and bureaucrats to use their
political connections to get more oil for their firms. Today about half of federal politicians
become lobbyists when they leave office.

Price Floors
A price floor, which is a minimum price allowed by law, has four important effects:
1. Surpluses
2. Lost gains from trade (deadweight loss)
3. Wasteful increases in quality
4. Misallocation of resources

Surpluses
An effective minimum wage is above the equilibrium wage. This results in a surplus, or
more specifically when we’re discussing labor, unemployment. This can be shown in a
graph like Figure 8.10 in the text.
Potential Pitfall: It’s useful to remind students that a price floor prevents
prices from going down, just as the floor of the classroom prevents them from
falling into the basement. For a price floor to be effective, it has to be above
the equilibrium. Try drawing a floor below the equilibrium to illustrate that it
won’t have any effect. Many students, when left to graph on their own,
mistakenly think, “Put ceiling high on the graph; put floor low on the graph.”
How much unemployment a minimum wage will cause depends on how high it’s set.
At $100 an hour, a minimum wage would cause a great deal of unemployment. The 2009
federal minimum wage of $7.25 won’t cause much unemployment because more than
95% of hourly employees earn more than that anyway. It can cause unemployment
among the low-skilled, who tend to be young workers. About a quarter of workers
earning the minimum wage are teenagers, and about half are under 25 years old.
 CHAPTER 8 • Price Ceilings and Floors • 11

Figure 8.10 A price war creates a surplus (minimum wages create unemployment)

Lost Gains from Trade (Deadweight Loss)

Draw a supply and demand diagram with a minimum wage like Figure 8.11 in the text to
illustrate the lost gains from trade. At prices below the minimum wage there are
demanders (firms) who would like to hire more labor, and there are workers willing to
supply the labor. Any wage between the demand and supply curve at quantities to the left
of equilibrium could make both demanders and suppliers better off. Illustrate the lost
consumer and producer surplus compared to what an equilibrium wage would generate.
Potential Pitfall: Students are used to thinking of firms constituting the supply
curve and individual consumers constituting the demand curve. In labor
markets this is of course reversed. It’s worth taking a minute to remind them
that the individual workers are supplying the labor and it is the firms that are
demanding workers.
Even though the minimum wage causes unemployment and lost gains from trade, the
effect in the United States is rather small. Even though it is mostly young people who
earn the minimum wage, 93.9% of those under 25 earn more than the minimum wage.
That doesn’t mean that the minimum wage is unimportant. Because Puerto Rico is a
U.S. territory, it was bound to obey the first federal minimum wage when it was passed in
1938 under the Fair Labor Standards Act. The act set the federal minimum at 25 cents an
hour. The average wage in the United States was 62.7 cents an hour in 1938, so the wage
had a relatively small impact here. But in Puerto Rico, where productivity was much
lower, the average wage was only 3 to 4 cents an hour. Because of the minimum wage
many Puerto Rican firms went bankrupt and there was massive unemployment.
Eventually Congress granted Puerto Rico an exemption to the minimum wage law.
 CHAPTER 8 • Price Ceilings and Floors • 12

Figure 8.11 A price floor reduces the gains from trade

France combines a high minimum wage (nearly twice as high as that in the United
States relative to the median wage) with laws that make it difficult to fire workers. Not
coincidentally, about 23% of French workers under 25 years old were unemployed in
2010–2012.

Wasteful Increases in Quality

The Civil Aeronautics Board (CAB) regulated entry, exit, prices, and routes of the airline
industry from 1938 to 1978, and it set price floors above market-clearing levels. The CAB
had authority to regulate only flights between states. Flights within states did not face the
price controls. As a result, a flight between Boston and Washington, D.C., cost nearly
twice as much as a similar-distance flight between San Francisco and Los Angeles.
Figure 8.12 in the text illustrates the CAB price floor above the market-clearing price
and also above the price that is needed to encourage suppliers to sell given the quantity
demanded. At first the box between the regulated price and the sellers’ willingness to
provide flights was windfall profits to the airlines, but because each firm wanted the
customers for itself, the firms began to compete against each other in ways that were not
regulated. They offered fancy meals, nice china, frequent flights, large seats, and so on.
Eventually the windfall profits were eliminated by increases in costs related to wasteful
quality improvements. Unions also demanded a share of the profits, further eroding the
windfall. By 1978, airlines were no longer benefiting from regulation and were willing to
deregulate. Since deregulation, air travel quality has decreased, but so have prices.
 CHAPTER 8 • Price Ceilings and Floors • 13

Figure 8.12 A price floor creates quality waste

Teaching Tip: Most students will be happy to complain about crowded, low-
quality airline travel. Encourage them to. Then point out that many airlines
offer first class and business class seats at higher prices but with better quality.
Ask how many of them are willing to purchase the more expensive tickets.
Few are likely to raise their hands. You can then point out that this is what
made the quality competition wasteful under regulation: the quality of all
flights was more like first class, but so were the prices. Because consumers
prefer the cheaper prices to the higher quality, the quality competition under
regulation was wasteful.

The Misallocation of Resources

The CAB limited the entry of airlines into the industry because more firms would put
pressure on prices to decrease. There were 10 major airlines in 1974 (there were 16 in
1938) despite 79 requests to enter. This was a misallocation of resources because low-
cost airlines like Southwest were kept out of the national market until deregulation in
1978. Southwest didn’t just increase the supply of flights; it also brought new ways of
doing business, like consistently using the same aircraft to lower maintenance costs,
increasing the use of smaller airports like Chicago’s Midway, and hedging its long-term
fuel costs. Deregulation didn’t just lower consumer prices. It also decreased costs and
increased innovation, leading to a better allocation of resources.

Takeaway
Students should understand and be able to explain the five main effects of price ceilings:
shortages, reductions in product quality, wasteful lineups and other search costs, a loss of
gains from trade, and a misallocation of resources. They should also be able to graph a
 CHAPTER 8 • Price Ceilings and Floors • 14

shortage, the wasteful losses from waiting in line, and the lost gains from trade.
Likewise, students should be able to use supply and demand to explain why a price
floor causes a surplus, a deadweight loss, and a wasteful increase in quality, and they
should be able to label these on a graph. They should also be able to explain how price
floors cause resources to be misallocated.

In- and Out-of-Class Activities

If you chose to conduct the equilibrium experiment suggested after Chapter 4, it is very
easy to continue that experiment now. You can use the same materials and setup you did
in the initial equilibrium experiment. (See the end of Chapter 4 in this instructor’s
manual.) To conserve time, you can use the same cards and equilibrium price as before.
You should again get equilibrium outcomes within a couple of rounds.
Now impose a price ceiling anywhere below 10. Buyers and sellers will quickly find
that there is a shortage and that they are unable to make mutually beneficial exchanges. It
should take only a round or two to illustrate this.
Next, impose a price floor, explaining that no trades will be allowed at a price less
than (pick a number above 10). You should immediately get a surplus and again have
dissatisfied potential traders.
The experiment will probably be more useful before you cover the material in Chapter
8; otherwise your students will be inclined to believe they were just illustrating what they
have been taught. If you do the experiment before you cover the material, you can show
how economic theory describes the way they behave even when they don’t know the
economic laws.
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evidences of the public debt, and by authority of law $10,575,738 was
redeemed by the issue of certificates of funded stock, bearing interest
at from 6 to 7 per cent. per annum, redeemable at any time after
1824.
“During the years 1812–13 the sum of $2,984,747 of the old 6 per
cent. and deferred stocks were refunded into new 6 per cent. stock
redeemable in twelve years; and by an act approved March 31, 1814,
Congress having authorized a settlement of the ‘Yazoo claims’ by an
issue of non-interest-bearing stock, payable out of the first receipts
from the sale of public lands in the Mississippi territory, $4,282,037
was issued for this purpose. On the 24th of February, 1815, Secretary
Dallas reported to Congress that the public debt had been increased,
in consequence of the war with Great Britain, $68,783,122, a large
portion of which was due and unpaid, while another considerable
proportion was fast becoming due. These unpaid or accruing
demands were in part for temporary loans, and the balance for
Treasury notes either due or maturing daily. To provide for their
payment a new loan for the full amount needed was authorized by
act of March 3, 1815, and six per cent. stock redeemable in fifteen
years, was issued in the sum of $12,288,148. This stock was sold at
from 95 per cent. to par, and was nearly all redeemed in 1820 by
purchases made by the Commissioners of the Sinking Fund.
“The Government became a stockholder in the second Bank of the
United States, to the amount of 70,000 shares, under the act of
incorporation, approved April 10, 1816. The capital stock was limited
to $35,000,000, divided into 350,000 shares of $100 each. The
Government subscription was paid by the issue of 5 per cent. stock to
the amount of $7,000,000, redeemable at the pleasure of the
Government. This was a profitable investment for the United States,
as in addition to $1,500,000 which the bank paid as a bonus for its
charter, the net receipts over and above disbursements amounted to
$4,993,167. The available funds in the Treasury on the 1st of
January, 1820, were less than $250,000, and the estimated
deficiency for the year amounted to nearly $4,000,000. This state of
affairs was owing partly to the disastrous effects of the commercial
crisis of 1819, heavy payments for the redemption of the public debt,
continued through a series of years, and large outstanding claims,
amounting to over $30,000,000, resulting from the late war with
Great Britain. To meet the emergency, a loan was authorized by act
of May 15, 1820, and $999,999.13 was borrowed at 5 per cent.,
redeemable in twelve years, and $2,000,000 at 6 per cent.,
reimbursable at pleasure, this latter stock realizing a premium of 2
per cent. By act of March 3, 1821, 5 per cent. stock amounting to
$4,735,276 was issued at a premium of over 5½ per cent., and the
proceeds used in payment of the principal and interest of the public
debt falling due within the year.
“An effort was made in 1822 to refund a portion of the 6 per cent.
war loans of 1812–14 into 5 per cents., but only $56,705 could be
obtained. Two years later the Government was more successful, and,
under the act of May 26, 1824, 6 per cent. stock of 1813 to the
amount of $4,454,728 was exchanged for new stock bearing 4½ per
cent. interest, redeemable in 1833–34. During the same year
$5,000,000 was borrowed at 4½ per cent. to provide for the
payment of the awards made by the Commissioners under the treaty
with Spain of February 22, 1819, and a like amount, at the same rate
of interest, to be applied in paying off that part of the 6 per cent.
stock of 1812 redeemable the following year. The act of March 3,
1825, authorized a loan of $12,000,000, at 4½ per cent. interest, the
money borrowed to be applied in paying off prior loans, but only
$1,539,336 was exchanged for an equal amount of 6 per cent. stock
of 1813.
“In the year 1836 the United States was, for the first time in the
history of the country, practically out of debt. Secretary Woodbury,
in his report of December 8, 1836, estimated the amount of public
debt still outstanding at about $328,582, and this remained unpaid
solely because payment had not been demanded, ample funds to
meet it having been deposited in the United States Bank and loan
offices. The debt outstanding consisted mainly of unclaimed interest
and dividends, of claims for services and supplies during the
Revolution, and of old Treasury notes, and it is supposed that
payment of these had not been asked for solely because the evidences
of the debt had been lost or destroyed. The estimates showed the
probability of a surplus of at least $14,000,000 in the Treasury at the
close of the year 1836, and this estimate proved to be far below the
truth. In this favorable condition of the public finances, Congress
adopted the extraordinary resolution of depositing the surplus over
$5,000,000 with the several States, and under the act of June 23,
1836, surplus revenue amounting to $28,101,644.91 was so
deposited.
“In 1837, however, the state of the country had changed. The
‘flush’ times of 1835 and 1836 had been succeeded by extraordinary
depression, which ultimately produced a panic. In May most of the
banks suspended specie payments. The sales of public lands, and the
duties on the importations of foreign goods, which had helped to
swell the balance in the Treasury to over $42,000,000, had fallen off
enormously. Even on the goods that were imported it was difficult to
collect the duties, for the law compelled them to be paid in specie,
and specie was hard to obtain. It had become impossible not only to
pay the fourth installment of the surplus at the end of 1836 to the
several States, but even to meet the current expenses of the
Government from its ordinary revenues. In this emergency the
Secretary of the Treasury suggested that contingent authority be
given the President to cause the issue of Treasury notes. This
measure was generally supported on the ground of absolute
necessity, as there was a large deficit already existing, and this was
likely to increase from the condition of the country at that time. The
measure was opposed, however, by some who thought that greater
economy in expenditures would relieve the Treasury, while others
denounced it as an attempt “to start a Treasury bank.”
“However, an act was approved October 12, 1837, authorizing an
issue of $10,000,000 in Treasury notes in denominations not less
than fifty dollars, redeemable in one year from date, with interest at
rates fixed by the Secretary, not exceeding 6 per cent. These notes, as
usual, were receivable in payment of all duties and taxes levied by the
United States, and in payment for public lands. Prior to 1846, the
issue of notes of this character amounted to $47,002,900, bearing
interest at rates varying from one tenth of one per cent. to 6 per cent.
To provide in part for their redemption, authority was granted for
the negotiation of several loans, and $21,021,094 was borrowed for
this purpose, bonds being issued for a like sum, bearing interest at
from 5 to 6 per cent., redeemable at specified dates. These bonds
were sold at from 2½ per cent. discount to 3¾ per cent. premium,
and redeemed at from par to 19¼ per cent. advance.
 “War with Mexico was declared May 13, 1846, and in order to
provide against a deficiency a further issue of $10,000,000 in
Treasury notes was authorized by act of July 22, 1846, under the
same limitations and restrictions as were contained in the act of
October, 1837, except that the authority given was to expire at the
end of one year from the passage of the act. The sum of $7,687,800
was issued in Treasury notes, and six per cent. bonds having ten
years to run were issued under the same act to the amount of
$4,999,149. These were sold at a small advance, and redeemed at
various rates from par to eighteen and two-thirds per cent. premium.
“The expenses incurred on account of the war with Mexico were
much greater than the original estimates, and the failure to provide
additional revenues sufficient to meet the increased demands made a
new loan necessary, as well as an additional issue of notes, which had
now become a popular method of obtaining funds. Under the
authority granted by act of January 28, 1847, Treasury notes to the
amount of $26,122,100 were issued at par, redeemable one and two
years from date, with interest at from 5– ⅖ to 6 per cent. More
money still being needed, a 6 per cent. loan, having twenty years to
run, was placed upon the market, under the authority of the same
act, and bonds to the amount of $28,230,350 were sold at various
rates, ranging from par to 2 per cent. premium. Of this stock the sum
of $18,815,100 was redeemed at an advance of from 1½ to 21¼ per
cent., the premium paid (exclusive of commissions) amounting to
$3,466,107. Under the act of March 31, 1848, 6 per cent. bonds,
running twenty years, were issued to the amount of $16,000,000,
and sold at a premium ranging from 3 to 4.05 per cent. This loan was
made for the same purpose as the preceding one, and $7,091,658
was redeemed by purchase at an advance ranging from 8 to 22.46
per cent., the premium paid amounting to $1,251,258.
“The widespread depression of trade and commerce which
occurred in 1857 was severely felt by the Government, as well as by
the people, and so great was the decrease in the revenues from
customs that it became absolutely necessary to provide the Treasury
with additional means for meeting the demands upon it. Treasury
notes were considered as preferable to a new loan, and by the act of
December 23, 1857, a new issue was authorized for such an amount
as the exigencies of the public service might require, but not to
exceed at any one time $20,000,000. These notes were receivable in
payment for all debts due the United States, including customs, and
were issued at various rates of interest, ranging from 3 to 6 per cent.,
to the amount of $52,778,900, redeemable one year from date, the
interest to cease at the expiration of sixty days’ notice after maturity.
In May, 1858, the Secretary of the Treasury informed Congress that,
owing to the appropriations having been increased by legislation
nearly $10,000,000 over the estimates, while the customs revenue
had fallen off to a like amount, it would be necessary to provide some
means to meet the deficit. In these circumstances, a new loan was
authorized by act of June 14, 1858, and 5 per cent. bonds amounting
to $20,000,000, redeemable in fifteen years, were sold at an average
premium of over 3½ per cent. Under the act of December 17, 1873,
$13,957,000 in bonds of the loan of 1881, and $260,000 in bonds of
a loan of 1907, were issued in exchange for a like amount of bonds of
this loan.
“The act of June 22, 1860, authorized the President to borrow
$21,000,000 on the credit of the United States, the money to be used
only in the redemption of Treasury notes, and to replace any amount
of such notes in the Treasury which should have been paid in for
public dues. Only $7,022,000 was borrowed at 5 per cent. interest,
the certificates selling at from par to 1.45 per cent. premium. The
failure to realize the whole loan was caused by the political troubles
which culminated in the civil war. In September, bids were invited
for $10,000,000, and the whole amount offered was speedily taken.
It soon became evident, however, that war was inevitable, and a
commercial crisis ensued, during which a portion of the bidders
forfeited their deposits, and the balance of the loan was withdrawn
from the market. Authority was granted by the act of December 17,
1860, for a new issue of Treasury notes, redeemable in one year from
date, but not to exceed $10,000,000 at any one time, with interest at
such rates as might be offered by the lowest responsible bidders after
advertisement. An unsuccessful attempt was made to pledge the
receipts from the sale of public lands specifically for their
redemption. The whole amount of notes issued under this act was
$10,010,900, of which $4,840,000 bore interest at 12 per cent.
Additional offers followed, ranging from 15 to 36 per cent., but the
Treasury declined to accept them.
 “Up to this period of our national existence the obtaining of the
money necessary for carrying on the Government and the
preservation inviolate of the public credit had been comparatively an
easy task. The people of the several States had contributed in
proportion to their financial resources; and a strict adherence to the
fundamental maxim laid down by Hamilton had been maintained by
a judicious system of taxation to an extent amply sufficient to
provide for the redemption of all our national securities as they
became due. But the time had come when we were no longer a united
people, and the means required for defraying the ordinary expenses
of the Government were almost immediately curtailed and
jeopardized by the attitude of the States which attempted to secede.
The confusion which followed the inauguration of the administration
of President Lincoln demonstrated the necessity of providing
unusual resources without delay. A system of internal revenue
taxation was introduced, and the tariff adjusted with a view to
increased revenues from customs. As the Government had not only
to exist and pay its way, but also to provide for an army and navy
constantly increasing in numbers and equipment, new and
extraordinary methods were resorted to for the purpose of securing
the money which must be had in order to preserve the integrity of the
nation. Among these were the issue of its own circulating medium in
the form of United States notes[37] and circulating notes,[38] for the
redemption of which the faith of the nation was solemnly pledged.
New loans were authorized to an amount never before known in our
history, and the success of our armies was assured by the
determination manifested by the people themselves to sustain the
Government at all hazards. A brief review of the loan transactions
during the period covered by the war is all that can be attempted
within the limited space afforded this article. The first war loan may
be considered as having been negotiated under the authority of an
act approved February 8, 1861. The credit of the Government at this
time was very low, and a loan of $18,415,000, having twenty years to
run, with 6 per cent. interest, could only be negotiated at a discount
of $2,019,776.10, or at an average rate of $89.03 per one hundred
dollars. From this time to June 30, 1865, Government securities of
various descriptions were issued under authority of law to the
amount of $3,888,686,575, including the several issues of bonds,
Treasury notes, seven-thirties, legal tenders and fractional currency.
The whole amount issued under the same authority to June 30,
1880, was $7,137,646,836, divided as follows:

Six per cent. bonds $1,130,279,000

Five per cent. bonds 196,118,300
Temporary loan certificates 969,992,250
Seven thirty notes 716,099,247
Treasury notes and certificates of indebtedness 1,074,713,132
Old demand notes, legal tenders, coin certificates and
fractional currency 3,050,444,907

Total $7,137,646,836

“This increase may be readily accounted for by the continued issue

of legal tenders, compound interest notes, fractional currency and
coin certificates, together with a large amount of bonds issued in
order to raise the money necessary to pay for military supplies, and
other forms of indebtedness growing out of the war. The rebellion
was practically at an end in May, 1865, yet the large amount of
money required for immediate use in the payment and disbandment
of our enormous armies necessitated the still further negotiation of
loans under the several acts of Congress then in force, and it was not
until after the 31st of August, 1865, that our national debt began to
decrease. At that time the total indebtedness, exclusive of the “old
funded and unfunded debt” of the Revolution, and of cash in the
Treasury, amounted to $2,844,646,626.56. The course of our
financial legislation since that date has been constantly toward a
reduction of the interest, as well as the principal of the public debt.
“By an act approved March 3, 1865, a loan of $600,000,000 was
authorized upon similar terms as had been granted for previous
loans, with the exception that nothing authorized by this act should
be made a legal tender, or be issued in smaller denominations than
fifty dollars. The rate of interest was limited to 6 per cent. in coin, or
7.3 per cent. in currency, the bonds issued to be redeemable in not
less than five, nor more than forty, years. Authority was also given
for the conversion of Treasury notes or other interest-bearing
obligations into bonds of this loan. An amendment to this act was
passed April 12, 1866, authorizing the Secretary of the Treasury, at
his discretion, to receive any Treasury notes or other obligations
issued under any act of Congress, whether bearing interest or not, in
exchange for any description of bonds authorized by the original act;
and also to dispose of any such bonds, either in the United States or
elsewhere, to such an amount, in such manner, and at such rates as
he might deem advisable, for lawful money, Treasury notes,
certificates of indebtedness, certificates of deposit, or other
representatives of value, which had been or might be issued under
any act of Congress; the proceeds to be used only for retiring
Treasury notes or other national obligations, provided the public
debt was not increased thereby. As this was the first important
measure presented to Congress since the close of the war tending to
place our securities upon a firm basis, the action of Congress in
relation to it was looked forward to with a great deal of interest. The
discussion took a wide range, in which the whole financial
administration of the Government during the war was reviewed at
length. After a long and exciting debate the bill finally passed, and
was approved by the President. Under the authority of these two
acts, 6 per cent, bonds to the amount of $958,483,550 have been
issued to date. These bonds were disposed of at an aggregate
premium of $21,522,074, and under the acts of July 14, 1870, and
January 20, 1871, the same bonds to the amount of $725,582,400
have been refunded into other bonds bearing a lower rate of interest.
The success of these several loans was remarkable, every exertion
being used to provide for their general distribution among the
people.
“In 1867 the first issue of 6 per cent. bonds, known as five-
twenties, authorized by the act of Feb. 25, 1862, became redeemable,
and the question of refunding them and other issues at a lower rate
of interest had been discussed by the Secretary of the Treasury in his
annual reports, but the agitation of the question as to the kinds of
money in which the various obligations of the Government should be
paid, had so excited the apprehension of investors as to prevent the
execution of any refunding scheme.
“The act to strengthen the public credit was passed March 18,
1869, and its effect was such as secured to the public the strongest
assurances that the interest and principal of the public debt
outstanding at that time would be paid in coin, according to the
terms of the bonds issued, without any abatement.
“On the 12th of January, 1870, a bill authorizing the refunding and
consolidation of the national debt was introduced in the Senate, and
extensively debated in both Houses for several months, during which
the financial system pursued by the Government during the war was
freely reviewed. The adoption of the proposed measure resulted in an
entire revolution of the refunding system, under which the public
debt of the United States at that time was provided for, by the
transmission of a large amount of debt to a succeeding generation.
The effect of this attempt at refunding the major portion of the public
debt was far more successful than any similar effort on the part of
any Government, so far as known.
“The act authorizing refunding certificates convertible into 4 per
cent. bonds, approved February 26, 1879, was merely intended for
the benefit of parties of limited means, and was simply a
continuation of the refunding scheme authorized by previous
legislation.
“The period covered precludes any attempt toward reviewing the
operation by which the immediate predecessor of the present
Secretary reduced the interest on some six hundred millions of 5 and
6 per cent. bonds to 3½ per cent. It is safe to say, however, that
under the administration of the present Secretary there will be no
deviation from the original law laid down by Hamilton.”
 James A. Garfield.

James A. Garfield and Chester A. Arthur were publicly inaugurated

President and Vice-President of the United States March 4, 1881.
President Garfield in his inaugural address promised full and
equal protection of the Constitution and the laws for the negro,
advocated universal education as a safeguard of suffrage, and
recommended such an adjustment of our monetary system “that the
purchasing power of every coined dollar will be exactly equal to its
debt-paying power in all the markets of the world.” The national debt
should be refunded at a lower rate of interest, without compelling the
withdrawal of the National Bank notes, polygamy should be
prohibited, and civil service regulated by law.
An extra session of the Senate was opened March 4. On the 5th,
the following cabinet nominations were made and confirmed:
Secretary of State, James G. Blaine, of Maine; Secretary of the
Treasury, William Windom, of Minnesota; Secretary of the Navy,
William H. Hunt, of Louisiana; Secretary of War, Robert T. Lincoln,
of Illinois; Attorney-General, Wayne MacVeagh, of Pennsylvania;
Postmaster-General, Thomas L. James, of New York; Secretary of the
Interior, Samuel J. Kirkwood, of Iowa.
In this extra session of the Senate Vice-President Arthur had to
employ the casting vote on all questions where the parties divided,
and he invariably cast it on the side of the Republicans. The evenness
of the parties caused a dead-lock on the question of organization, for
when David Davis, of Illinois, voted with the Democrats, the
Republicans had not enough even with the Vice-President, and he
was not, therefore, called upon to decide a question of that kind. The
Republicans desired new and Republican officers; the Democrats
desired to retain the old and Democratic ones.
 Republican Factions.

President Garfield, March 23d, sent in a large number of

nominations, among which was that of William H. Robertson, the
leader of the Blaine wing of the Republican party in New York, to be
Collector of Customs. He had previously sent in five names for
prominent places in New York, at the suggestion of Senator
Conkling, who had been invited by President Garfield to name his
friends. At this interview it was stated that Garfield casually
intimated that he would make no immediate change in the New York
Collectorship, and both factions seemed satisfied to allow Gen’l
Edwin A. Merritt to retain that place for a time at least. There were
loud protests, however, at the first and early selection of the friends
of Senator Conkling to five important places, and these protests were
heeded by the President. With a view to meet them, and, doubtless,
to quiet the spirit of faction rapidly developing between the Grant
and anti-Grant elements of the party in New York, the name of Judge
Robertson was sent in for the Collectorship. He had battled against
the unit rule at Chicago, disavowed the instructions of his State
Convention to vote for Grant, and led the Blaine delegates from that
State while Blaine was in the field, and when withdrawn went to
Garfield. Senator Conkling now sought to confirm his friends, and
hold back his enemy from confirmation; but these tactics induced
Garfield to withdraw the nomination of Conkling’s friends, and in
this way Judge Robertson’s name was alone presented for a time.
Against this course Vice-President Arthur and Senators Conkling and
Platt remonstrated in a letter to the President, but he remained firm.
Senator Conkling, under the plea of “the privilege of the Senate,”—a
courtesy and custom which leaves to the Senators of a State the right
to say who shall be confirmed or rejected from their respective States
if of the same party—now sought to defeat Robertson. In this battle
he had arrayed against him the influence of his great rival, Mr.
Blaine, and it is presumed the whole power of the administration. He
lost, and the morning following the secret vote, May 17th, 1881, his
own and the resignation of Senator Platt were read. These
resignations caused great excitement throughout the entire country.
They were prepared without consultation with any one—even Vice-
President Arthur, the intimate friend of both, not knowing anything
of the movement until the letters were opened at the chair where he
presided. Logan and Cameron—Conkling’s colleagues in the great
Chicago battle—were equally unadvised. The resignations were
forwarded to Gov. Cornell, of New York, who, by all permissible
delays, sought to have them reconsidered and withdrawn, but both
Senators were firm. The Senate confirmed Judge Robertson for
Collector, and General Merritt as Consul-General at London, May
18th, President Garfield having wisely renewed the Conkling list of
appointees, most of whom declined under the changed condition of
affairs.
These events more widely separated the factions in New York—one
wing calling itself “Stalwart,” the other “Half-Breed,” a term of
contempt flung at the Independents by Conkling. Elections must
follow to fill the vacancies, the New York Legislature being in
session. These vacancies gave the Democrats for the time control of
the United States Senate, but they thought it unwise to pursue an
advantage which would compel them to show their hands for or
against one or other of the opposing Republican factions. The extra
session of the Senate adjourned May 20th.
The New York Legislature began balloting for successors to
Senators Conkling and Platt on the 31st of May. The majority of the
Republicans (Independents or “Half-breeds”) supported Chauncey
M. Depew as the successor of Platt for the long term, and William A.
Wheeler as the successor of Conkling for the short term, a few
supporting Cornell. The minority (Stalwarts) renominated Messrs.
Conkling and Platt. The Democrats nominated Francis Kernan for
the long term, and John C. Jacobs for the short term; and, on his
withdrawal, Clarkson N. Potter. The contest lasted until July 22, and
resulted in a compromise on Warner A. Miller as Platt’s successor,
and Elbridge G. Lapham as Conkling’s successor. In Book VII., our
Tabulated History of Politics, we give a correct table of the ballots.
These show at a single glance the earnestness and length of the
contest.
 The factious feelings engendered thereby were carried into the Fall
nominations for the Legislature, and as a result the Democrats
obtained control, which in part they subsequently lost by the refusal
of the Tammany Democrats to support their nominees for presiding
officers. This Democratic division caused a long and tiresome dead-
lock in the Legislature of New York. It was broken in the House by a
promise on the part of the Democratic candidate for Speaker to favor
the Tammany men with a just distribution of the committees—a
promise which was not satisfactorily carried out, and as a result the
Tammany forces of the Senate joined hands with the Republicans.
The Republican State ticket would also have been lost in the Fall of
1881, but for the interposition of President Arthur, who quickly
succeeded in uniting the warring factions. This work was so well
done, that all save one name on the ticket (Gen’l Husted) succeeded.
The same factious spirit was manifested in Pennsylvania in the
election of U. S. Senator in the winter of 1881, the two wings taking
the names of “Regulars” and “Independents.” The division occurred
before the New York battle, and it is traceable not alone to the bitter
nominating contest at Chicago, but to the administration of
President Hayes and the experiment of civil service reform.
Administrations which are not decided and firm upon political
issues, invariably divide their parties, and while these divisions are
not always to be deplored, and sometimes lead to good results, the
fact that undecided administrations divide the parties which they
represent, ever remains. The examples are plain: Van Buren’s,
Tyler’s, Fillmore’s, Buchanan’s, and Hayes’. The latter’s indecision
was more excusable than that of any of his predecessors. The
inexorable firmness of Grant caused the most bitter partisan
assaults, and despite all his efforts to sustain the “carpet-bag
governments” of the South, they became unpopular and were rapidly
supplanted. As they disappeared, Democratic representation from
the South increased, and this increase continued during the
administration of Hayes—the greatest gains being at times when he
showed the greatest desire to conciliate the South. Yet his
administration did the party good, in this, that while at first dividing,
it finally cemented through the conviction that experiments of that
kind with a proud Southern people were as a rule unavailing. The
reopening of the avenues of trade and other natural causes,
apparently uncultivated, have accomplished in this direction much
more than any political effort.
In Pennsylvania a successor to U. S. Senator Wm. A. Wallace was
to be chosen. Henry W. Oliver, Jr., received the nomination of the
Republican caucus, the friends of Galusha A. Grow refusing to enter
after a count had been made, and declaring in a written paper that
they would not participate in any caucus, and would independently
manifest their choice in the Legislature. The following is the first vote
in joint Convention:
 OLIVER.
Senate 20
House 75

Total 95

GROW.
Senate 12
House 44

Total 56

BREWSTER.
Senate
House 1

Total 1

M’VEAGH.
Senate
House 1

Total 1

WALLACE.
Senate 16
House 77

Total 93

AGNEW.
Senate 1
House

Total 1
 BAIRD.
Senate
House 1

Total 1

Whole number of votes cast, 248; necessary to a choice, 125.

On the 17th of January the two factions issued opposing addresses.
From these we quote the leading ideas, which divided the factions.
The “Regulars” said:
“Henry W. Oliver, jr., of Allegheny county, was nominated on the
third ballot, receiving 79 of the 95 votes present. Under the rules of
all parties known to the present or past history of our country, a
majority of those participating should have been sufficient; but such
was the desire for party harmony and for absolute fairness, that a
majority of all the Republican members of the Senate and House was
required to nominate. The effect of this was to give those remaining
out a negative voice in the proceedings, the extent of any privilege
given them in regular legislative sessions by the Constitution. In no
other caucus or convention has the minority ever found such high
consideration, and we believe there remains no just cause of
complaint against the result. Even captious faultfinding can find no
place upon which to hang a sensible objection. Mr. Oliver was,
therefore, fairly nominated by the only body to which is delegated
the power of nomination and by methods which were more than just,
which, from every standpoint, must be regarded as generous; and in
view of these things, how can we, your Senators and Representatives,
in fairness withhold our support from him in open sessions; rather
how can we ever abandon a claim established by the rules regulating
the government of all parties, accepted by all as just, and which are
in exact harmony with that fundamental principle of our
Government which proclaims the right of the majority to rule? To do
otherwise is to confess the injustice and the failure of that principle—
something we are not prepared to do. It would blot the titles to our
own positions. There is not a Senator or member who does not owe
his nomination and election to the same great principle. To profit by
its acceptance in our own cases and to deny it to Mr. Oliver would be
an exhibition of selfishness too flagrant for our taste. To
acknowledge the right to revolt when no unfairness can be truthfully
alleged and when more than a majority have in the interest of
harmony been required to govern, would be a travesty upon every
American notion and upon that sense of manliness which yields
when fairly beaten.”
The “Independent” address said:
“First. We recognize a public sentiment which demands that in the
selection of a United States Senator we have regard to that dignity of
the office to be filled, its important duties and functions, and the
qualifications of the individual with reference thereto. This
sentiment is, we understand, that there are other and higher
qualifications for this distinguished position than business
experience and success, and reckons among these the
accomplishments of the scholar, the acquirements of the student, the
mature wisdom of experience and a reasonable familiarity with
public affairs. It desires that Pennsylvania shall be distinguished
among her sister Commonwealths, not only by her populous cities,
her prosperous communities, her vast material wealth and
diversified industries and resources, but that in the wisdom, sagacity
and statesmanship of her representative she shall occupy a
corresponding rank and influence. To meet this public expectation
and demand we are and have at all times been willing to subordinate
our personal preferences, all local considerations and factional
differences, and unite with our colleagues in the selection of a
candidate in whom are combined at least some of these important
and essential qualifications. It was only when it became apparent
that the party caucus was to be used to defeat this popular desire and
to coerce a nomination which is conspicuously lacking in the very
essentials which were demanded, that we determined to absent
ourselves from it. * * *
“Second, Having declined to enter the caucus, we adhere to our
determination to defeat, if possible, its nominee, but only by the
election of a citizen of unquestioned fidelity to the principles of the
Republican party. In declaring our independency from the caucus
domination we do not forget our allegiance to the party whose
chosen representatives we are. The only result of our policy is the
transfer of the contest from the caucus to the joint convention of the
two houses. There will be afforded an opportunity for the expression
of individual preferences and honorable rivalry for an honorable
distinction. If the choice shall fall upon one not of approved loyalty
and merit, the fault will not be ours.”
After a long contest both of the leading candidates withdrew, and
quickly the Regulars substituted General James A. Beaver, the
Independent Congressman, Thomas M. Bayne. On these names the
dead-lock remained unbroken. Without material change the
balloting continued till February 17th, when both Republican
factions agreed to appoint conference committees of twelve each,
with a view to selecting by a three-fourths vote a compromise
candidate. The following were the respective committees: For the
Independents: Senators Davis, Bradford; Lee, Venango; Stewart,
Franklin; Lawrence, Washington; Representatives Wolfe, Union;
Silverthorne, Erie; Mapes, Venango; McKee, Philadelphia; Slack,
Allegheny; Stubs, Chester; Niles, Tioga; and Derickson, Crawford.
For the Regulars: Senators Greer, Butler; Herr, Dauphin; Smith,
Philadelphia; Keefer, Schuylkill; Cooper, Delaware; Representatives
Pollock, Philadelphia; Moore, Allegheny; Marshall, Huntingdon;
Hill, Indiana; Eshleman. Lancaster; Thomson, Armstrong; and
Billingsley, Washington.
The joint convention held daily sessions and balloted without
result until February 22d, when John I. Mitchell, of Tioga,
Congressman from the 16th district, was unanimously agreed upon
as a compromise candidate. He was nominated by a full Republican
caucus on the morning of February 23d, and elected on the first
ballot in joint convention on that day, the vote standing: Mitchell,
150; Wallace, 92; MacVeagh, 1; Brewster, 1.
The spirit of this contest continued until fall. Senator Davies, a
friend of Mr. Grow, was a prominent candidate for the Republican
nomination for State Treasurer. He was beaten by General Silas M.
Baily, and Davies and his friends cordially made Baily’s nomination
unanimous. Charles S. Wolfe, himself the winter before a candidate
for United States Senator, was dissatisfied. He suddenly raised the
Independent flag, in a telegram to the Philadelphia Press, and as he
announced was “the nominee of a convention of one” for State
Treasurer. After a canvass of remarkable energy on the part of Mr.
Wolfe, General Baily was elected, without suffering materially from
the division. Mr. Wolfe obtained nearly 50,000 votes, but as almost
half of them were Democratic, the result was, as stated, not seriously
affected.
The Independents in Pennsylvania, however, were subdivided into
two wings, known as the Continental and the Wolfe men—the former
having met since the election last fall, (State Senator John Stewart,
chairman) and proclaimed themselves willing and determined to
abide all Republican nominations fairly made, and to advocate
“reform within the party lines.” These gentlemen supported Gen.
Baily and largely contributed to his success, and as a rule they regard
with disfavor equal to that of the Regulars, what is known as the
Wolfe movement. These divisions have not extended to other States,
nor have they yet assumed the shape of third parties unless Mr.
Wolfe’s individual canvass can be thus classed. Up to this writing
(March 10, 1882,) neither wing has taken issue with President Arthur
or his appointments, though there were some temporary indications
of this when Attorney General MacVeagh, of Pennsylvania, persisted
in having his resignation accepted. President Arthur refused to
accept, on the ground that he desired MacVeagh’s services in the
prosecution of the Star Route cases, and Mr. MacVeagh withdrew for
personal and other reasons not yet fully explained. In this game of
political fence the position of the President was greatly strengthened.
Singularly enough, in the only two States where factious divisions
have been recently manifested in the Republican ranks, they effected
almost if not quite as seriously the Democratic party. There can be
but one deduction drawn from this, to wit:—That a number in both
of the great parties, were for the time at least, weary of their
allegiance. It is possible that nothing short of some great issue will
restore the old partisan unity, and partisan unity in a Republic,
where there are but two great parties, is not to be deplored if relieved
of other than mere political differences. The existence of but two
great parties, comparatively free from factions, denotes government
health; where divisions are numerous and manifest increasing
growth and stubbornness, there is grave danger to Republican
institutions. We need not, however, philosophize when Mexico and
the South American Republics are so near.