IN a populous town there was once placed a cage of wild beasts, and in the very beginning the frailty of the bars gave timid people considerable alarm; but the mere fact that the creatures did not get out convinced passers-by, in the course of years, that there was really no danger, after all, and men hurried past the animals, hearing the sounds of their baffled ferocity, but gave them no great attention. Therefore, when, on an uncomfortable day in late winter, an attendant of the beasts casually remarked that the bars of the cage were almost gnawed through (he was sorry he could not help it), and asked the bystanders what they thought of it, it is not to be wondered at that a sudden paroxysm of alarm seized even sensible men, and that there ensued a general attempt to put a barrier between them and possible harm.

When, in 1878, the owners of silver, supported by the class who in former years had been in favor of dishonest repudiation and depreciated paper money, induced Congress to pass an act by which an amount of silver purchasable for about eighty-six cents was to receive the familiar name of dollar, and the government was to give it out as an equivalent for one hundred cents in gold, so that the treasury should thereby gain fourteen cents on every dollar it issued, it looked very much as if the state had descended to help the silver owners in a questionable attempt to raise the market value of their commodity, and in return to receive a profit of fourteen cents on each dollar coined. It was one method of increasing the revenues of the state, to be sure; but a very stupid way, of course, when the Secretary of the Treasury, knowing all about government move

1 From July 1, 1878, to June 30, 1883, the profits of silver coinage were $16,860,310 (including subsidiary coins).

By this pro

ments, might have taken the idle balances lying in the vaults, speculated in stocks on Wall Street, "bulling" and "bearing" the market in a way to make the oldest operator green with envy, and "made the fortune" of the United States! The difficulty with this unholy partnership between the state and the "bulls" of the silver market 2 was that when the bill passed the House and reached the Senate the friends of business prosperity and a sound currency in that body struck out the "free-coinage" clause of the act. vision any private person could have brought eighty-six cents' worth of silver to the United States mint, and had it changed (at no expense for seignorage) into a coin which should be of legal value with one hundred cents in gold, and have equal power in paying off debts. This would have been a boon indeed to bankrupts and dishonest debtors, for it would have reduced their debts by fourteen per cent., and cheated their creditors of that amount of their loans. This is the reason why the bill was supported by those who had formerly advocated a depreciated paper dollar as an easier means of paying off existing indebtedness. It was an attractive thing to men of a weak conscience. Imagine the nice satisfaction of the rogues who had broken-down wagons worth eightysix dollars, on being told by Congress that they had been too often overlooked by legislation, and that if any of them owed another man one hundred dollars he might take one of his depreciated wagons, settle the whole debt, and let his creditor lose the other fourteen dollars! That is what, in effect, Congress would have said to owners of silver, had

2 A "bull" is one who tries by speculative pur chases to raise the price of a commodity or stock, in order to sell it for more than he gave.

not the "free-coinage" clause been stricken out. The Senate, however, permitted itself to consent to what was nothing less than class legislation, by saying, "We will stand by you silver owners, but only to the extent of taking $2,000,000 of your commodity a month; and if no one will give us one hundred cents in exchange for the eighty-six cents of silver (which shall be a legal tender to any amount), we will store it away, draw that amount from the market, and help you to that extent in raising the value of your depreciated article." So the treasury long enjoyed that miser's pleasure of seeing bright new dollars filling up its own vaults without getting into circulation; nor did this legislation raise the value of silver. So far the situation resembled the cage of wild animals placed in the busy streets of our quondam city. They were shut in now, but the conviction that the slender bars would not always keep them in rendered cautious people apprehensive. What if the silver dollars got out?

To the present time silver dollars have given no trouble to the general public, and it is now six years since the passage of the Bland Bill. Why, then, has not the evil been felt long ago? In answer to this, it is clear that, while the government was the only purchaser of silver who could, under the act, have it coined into dollars, so long as the Secretary was able and willing to make his payments in gold, and did not pay out these false dollars (not receivable by foreign countries) in disbursements for appropriations, or for interest and principal of the public debt, silver would not get into general circulation. In a paroxysm of brotherly kindness for the silver owners the government was storing away siiver in its vaults, paid for every month by $2,000,000 taken in taxes from the people of the whole country.

1 The trade dollar contains 378 grains of pure silver; the Bland dollar, 371.25 grains of pure silver; a dollar of subsidiary silver, 345.6 grains of

But, in spite of this, it is not well understood how successful the treasury has been in passing out silver; for they of fer it at the sub-treasuries to any one willing to take it. By October 1, 1883, there had been coined by the United States $154,370,899 of the short dollars, of which $114,587,372 were in the treasury, and $39,783,527 in the banks and general circulation; but $78,921,961 of the dollars held by the government had been deposited, and silver certificates to that amount issued upon them, so that $118,705,488 in silver and certificates were virtually in circulation. Although each piece contains less pure silver than the depreciated trade dollar,1 the "short dollars" would be received in limited amounts for two reasons: (1.) Silver dollars serve as change equally with small bills, and a considerable number can be absorbed in this way without depreciation. Yet, some may say, if worth only eighty-six cents, why should they be received? Of those it would be asked, Why do we take subsidiary silver coinage (halves, quarters, and dimes) at full value, when a dollar of it contains less pure silver than the Blaud dollar? So long as silver dollars circulate in quantities sufficient only for "change" (instead of small bills), they will pass full face value on the same principle as the lesser silver coins. (2.) It is to be remembered also that silver certificates are given for silver dollars deposited at the treasury in denominations as low as ten dollars, which are "receivable for customs, taxes, and all public dues." ($ 3, Act February 28, 1878.) Just such an amount, then, as could be used by merchants in paying duties and taxes would be able to remain in circulation without depreciating; but while gold alone is desirable for foreign payments, men will keep back the gold, and pay silver into the treasury. This acts to

for

pure silver. That is, two half dollars are worth more than six per cent. less than a Bland dollar piece.

fill the treasury with the silver it may have just issued, and to that extent cuts off the only means of obtaining gold for ordinary purposes. It is authoritatively stated at the present time (March, 1884) that twenty-five per cent. of the customs collected are paid into the United States in silver, while, as we know, the treasury, in its payments through the New York Clearing House, constantly disburses gold in full. Of course it is the policy of the government to pay out silver dollars, for this reason, whenever persons will accept them; and that it has been very successful in getting them out is to be seen by the subjoined table.1 The United States owns no more silver dollars now than it did a year ago: that is, by last year's experience. the dollars get out in the form of certificates practically as fast as they are coined. At present writing the treasury owns only 36.9 millions of silver.

It is scarcely realized that it is only in the form of certificates that silver

1 The condition of the United States Treasury during the last year is seen by the following figures, which show the amount of silver dollars and of gold coin and bullion less the outstanding certificates. [00,000 omitted.]

passes out more readily, since the cumbrous coin is not handled. The certificates, by being received for customs and public dues (although not legal tender), undergo practically a process of redemption as long as there is a use for them at par; and, still more, they have increased so much that they are in quite general circulation, and by custom have been taken in common with bank-notes. Bank-notes are redeemable in legal tenders (at present equal to gold); while silver certificates are based only upon silver dollars. November 1, 1881, outstanding silver certificates were $66. mills.; November 1, 1882, outstanding silver certificates were $65.5 mills.; November 1, 1883, outstanding silver certificates were $85.3 mills.

From this it will be seen that for the year ending November 1, 1882, all the dollars coined were heaped up in the United States treasury, and the general impression is that this is the present movement also. But in fact, during the last year (to November 1, 1883), almost all the coinage is represented by an issue of silver certificates. People scarcely realize how near the pushing flood of silver is coming. Yet other events are bringing the possibility still nearer us.

So far the Secretary has offered, not forced, silver payments; for six years he has postponed the obligatory issue of silver, and has adhered to the gold basis on which we resumed specie payments in 1879. To a late date, then, the wild beasts to go back to our illustration - have been so kept that alarm had quite subsided. But on the 21st of February, 1884, one of the sub-keepers carelessly sauntered in front of the cage, and began to discuss the probability of opening the doors. The expression of seriousness under the assumed carelessness of the sub-keeper's manner seemed to imply that he was acting under directions from his superior, and that it meant something. The alarm spread at once. The sub-keeper of the fable

was, in fact, Mr. Acton, the sub-treasurer in New York city, who addressed the manager of the Clearing House Association on the probable effect of his paying government balances at the Clearing House in silver. The Clearing House is only the chief paying counter of the United States. And it may be well to state that when the treasury joined the association it agreed to give thirty days' notice of any change in its method of payment.

Some months after the passage of the Bland Bill, the Clearing House Association (November 15, 1878) decided not to receive silver dollars for balances, a decision which was met by counter legislation in 1882,1 aiming to prevent the national banks from cbserving the rule; and inasmuch as national banks formed almost the entire Clearing House Association, they repealed their prohibition July 14, 1882. The same was probably done in other cities; so that if the treasury now orders it, nothing exists to prevent payments in silver.

The situation, however, is an interesting one to every student of finance. It seems probable that the Secretary has no intention of paying entirely in silver at the present time; but the fright given by Mr. Acton brings us face to face with what must inevitably come, if not to-day, at least in the near future. We are, if the silver coinage is continued, about to see before our very eyes the great commercial nation of the United States change its standard of payments, and unwillingly adopt the medium of semi-civilized countries. It is a dangerIt is a dangerous experiment. Of course, every one knows that if silver coined at the obso

1 Act July 12, 1882, § 12. . . . "Such [gold] certificates, as also silver certificates, when held by any national banking association, shall be counted as part of its lawful reserve; and no national banking association shall be a member of any clearing house in which such certificates shall not be receivable in the settlement of clearinghouse balances." It will be noticed that in this act the banks are forbidden to join clearing-houses in which "such certificates" are not received.

lete ratio of 1 to 15.98 (the one adopted for conditions existing in 1834, while the market ratio is now about 1 to 17 or 18) were put into general circulation gold would be driven out. This is not a matter of discussion between bimetallists and monometallists, since both admit that this is what will happen. The interest centres now in the practical effects on business, as the process advances. If the Secretary orders silver payments, what will be the effect on gold? It is asserted by some that the present amount of gold, greenbacks, national bank-notes, and silver certificates, making up our total circulation, is all needed by trade to-day; for, if not, gold would go abroad, and reduce the quantity. This theory denies that there can be a premium on gold until silver has gone into circulation sufficient to drive out the whole of our 600 million dollars of gold. It must certainly be admitted that the recent rumors of a premium on gold arose probably from attempts of stock-jobbers to lower prices. It is quite possible, however, that individual cases have occurred where exporters, looking forward to meeting gold payments in the near future, have feared that they might be shut off from getting gold at the sub-treasuries, and so paid something for the right to "call" gold during the next year. In short, our immediate danger is chiefly concerned with our exports, with the demand for bills of exchange, and with the shipment of gold abroad. For some time the price paid for a claim to a pound sterling in London ($4.90) has been so much above par ($4.8666) that it is more profitable to send gold than to "Such certificates," however, may be used to refer specifically to gold certificates, described at length in the previous part of the section. A question, consequently, has been already raised whether this prohibition can be strictly held to include silver certificates.

2

2 A transaction is reported of a payment of one fourth of one per cent. for the privilege of calling gold at 101 during the year.

buy claims to gold (that is, bills of exchange). Naturally, the gold has been withdrawn from the sub-treasuries. If our exports were to fall off, bills of exchange would remain high, and all persons having remittances to make would be obliged to secure themselves against possible difficulties in getting gold when they might want it. Such difficulties will arise the moment that silver alone (and not gold) can be got from the government vaults. For then the only accessible stock of gold will be in the reserves of the banks. At present, it is true, the reserves are protected by an unusually large excess above the legal requirement; but every banker knows what the effect would be of a great pressure on the reserves, caused by large shipments of gold abroad. Gold is now the basis of banking credit and of all business operations. Suppose silver coinage to be persisted in; silver alone to be paid by the Secretary for redemption of greenbacks, for appropriations, or for interest and principal of the debt; and then a default in our cotton and cereal products, a European war, or any movement which would cause a drain of gold to Europe. This would deplete the gold reserves of the banks, reduce the ratio of gold to cash liabilities, shake credit, and oblige them to suspend gold payments; and there would be no cause for it whatever but the insane silver policy. Then still another influence would begin to operate. The effect upon our national credit of paying interest and principal in a dollar fourteen per cent. less in value than that now used will put the United States treasury in company with the repudiators of Virginia and Tennes

1 One method of protection is interesting, in the theory of exchanges. As is known, long bills sell for less than sight bills. A, who wishes to anticipate danger, buys a long bill now, and remits the bill to his correspondent in Europe to lie to his credit. The banker who sold the bill to A draws gold, and sends it abroad to meet the coming demand on the maturity of the bill. When it has matured it is worth as much as a sight bill, and can be sold VOL. LIII. -NO. 319. 44

see. The very possibility will work to send our bonds home from Europe, multiply the demand for bills, and increase the tendency to ship gold. For homecoming bonds require additional remittances in gold to be made in payment for them, and so add momentum to forces already in action, which will strip us of gold.

Moreover, as soon as silver certificates, and dollars also, become much more plentiful than they now are, and if a general belief should arise that they must eventually depreciate, cautious people will hesitate to keep them on hand; and of course banks will not receive them on long deposits. This feeling, if it were suddenly to assume the character of a general panic, might discredit all certificates and dollars now out and bring them below par at once. Good sense will doubtless prevent this; but even if gold is not at a premium, silver will then be below par, which amounts to the same thing. This might contract our currency, and vitally affect credit. If it be remembered that a contraction of national

bank-notes has been gradually going on through a calling in of bonds on which their circulation is based, it certainly does not seem to be a safe time for Congress to permit a change in our standard of payments while trade is in its present critical condition. A serious responsibility rests upon our national legislature to save the business community from any further complications by an instant repeal of the Coinage Act of 1878. Every member of Congress who does not move in this matter to save the business interests of the country ought to be defeated at the next election.

at an advance on the price paid about equal to the Bank of England rate of discount for that time. By this means A hoarded gold against the coming emergency, and at the same time saved himself from loss of interest. During the flurry about March 1, 1884, a movement toward the buying of long bills for this reason was distinctly visible, and aided the impulse towards gold shipments.

J. Laurence Laughlin.