108. OBJECTIONS TO RESUMPTION OF SPECIE PAYMENTS1 BY BENJAMIN BUTLER

If resumption of specie payments could be accomplished it would cause the greatest depreciation of values in every species of property except debts held against the Government and individuals. Every bond and note would be appreciated, say 30 per cent. All other property would be depreciated the same amount as compared with the present rate of valuation. Such an unsettling of values the world has never seen nor any nation endured. It would be equivalent to confiscation by legislative act of one-third of the value of all the property in the country, excepting only that held by the creditor class.

But could resumption in fact be accomplished? The sole alleviation yet suggested is that such confiscation might be extended over a considerable period of time, say two years and a half, so that we might meanwhile be preparing ourselves for it; in other words, the Government ought to deprive the large majority of the middle and laboring classes of its people of 12 per cent annually of their values until one-third of them are absorbed for the benefit of the small minority, who are owners of capital loaned at interest.

I will not insult the intelligence of the House by any argument upon the feasibility or practicability of these schemes. The better way to test them is to call attention to one or two of the methods by which it is proposed to accomplish so gigantic an undertaking. One says, "The way to resume specie payments is to resume." Suppose the physician should say to the sick man, "The way not to be sick is to be well," might not the patient ask his doctor, How am I to get well? So, a few years ago, one may remember that the way proposed for the Union armies to get to Richmond was "On to Richmond"; and I trust I may not be considered malicious in calling to mind that our armies found some difficulties in carrying out that suggestion, which resulted in such disaster that it was to be hoped those who blindly advocated it would never again dogmatize upon any subject the difficulties of which they neither appreciated nor understood.

Another proposition, coming from a source we much respect in some other of the branches of political science, is that we pass a law that specie payments shall be resumed on the 1st day of July next,

1 Adapted from speech in Congress, January 12, 1869, Congressional Globe, 40th Congr., 3d sess., pp. 304-5.

but we are not told how the law is to be executed if passed. It was jocosely said many years ago that while an act of Parliament was omnipotent yet it could not make one's uncle his aunt. I fancy there would be an equally insuperable difficulty in compelling by act of Congress the payment at par of $700,000,000 of debts due on demand when there are but $100,000,000 capable of being used for that purpose. Another learned, able, and intelligent gentleman, for whom all entertain the highest regard, in a speech of great power, supports a bill embodying a plan for the relief of our financial difficulties which would be perfect were it not impossible. Stripped of the halo thrown around it by his logic and learning, it proposes that the Government and banks shall return to specie payments by hoarding gold enough with which to do it. Granted: but where is the gold to be got? By borrowing simply. For although the Government may hoard the gold it receives for its duties on imports, yet that gold is in fact obtained by its merchants by borrowing it with Government notes at 35 per cent discount. Whatever deficit of gold to carry out this scheme cannot be obtained by this process is to be borrowed on the Government notes for thirty years, sold at such rate of discount as foreign bankers may choose to impose. Now, specie payments, if they can be maintained, it will be admitted, will make all our public debt with its high rates of interest equal to par, if not at a premium in gold. The fault in the plan seems to be that we are not told how many greenbacks we must sell at 35 per cent less than their face, and how many bonds we must negotiate at a like rate of discount on thirty years, to place ourselves in condition to pay both greenbacks and the bonds, which we thus sell at par. Differential calculus might work out the problem, but plain arithmetic is entirely inadequate to the task. Besides, as upon the best authorities there are only about fifteen hundred millions of specie currency in circulation in all the nations where our bonds have been or will be taken as an investment, or, indeed, in the civilized world, if we should succeed in locking up $350,000,000 of that, or 20 per cent of the whole currency of the world, should we not make what in technical phrase is known as a "corner" on the rest of mankind, in comparison with which the late performance in that line of the Erie Railroad and New York bankers. would sink into merited insignificance?

Time will not permit me further examination of this and cognate plans for the resumption of specie payments. If a return to specie values is the only remedy for our financial evils, then there is but

one plan, in my judgment, by which it can be accomplished: we must wait and grow to it. By the industry and economy of our people; by the development of our resources; by the enterprise of our business; by the extension of our commerce; by the production of the precious metals; by reducing importations, the only method by which we can keep specie at home; by retrenchment of the expenses of government, both State and national; by the relinquishment of all hazardous and doubtful enterprises, we must accumulate sufficient surplus wealth to bring back the $600,000,000 of our national bonds held abroad, to which may be added an equal like amount of State and railroad bonds also held there, and thus stop the annual drain of more than seventy millions of bullion now sent abroad year by year to meet interest alone. When this is done we may with wisdom return to specie values and specie payments without serious financial disaster and commercial ruin. But this time will come only when gold and silver from the plenitude of its production will have depreciated to our values, not we appreciate them to the present value of gold and silver:

109. THE RESUMPTION OF SPECIE PAYMENTS1
BY ALEXANDER D. NOYES

As Secretary of the Treasury, Mr. Sherman fixed upon 40 per cent as "the smallest reserve at which resumption could be prudently commenced and successfully maintained." In pursuance of this policy he had accumulated by December 31, 1878, $114,193,000 in gold, which was a trifle over 40 per cent of the United States notes then outstanding. Of this gold reserve $95,500,000 had been obtained through the sale of bonds, part of the coin being procured in Europe.

The accomplishment and maintenance of specie payments, however, was not a simple task. The danger to the Treasury's redemption fund lay, as everyone understood, in possible gold exports. As it happened, there was no gold movement in progress at the time of specie resumption; but foreign exchange was only a trifle below the normal gold-exporting point, and no spring season for eighteen years had passed without gold shipments. In the first half of 1877, nearly twenty millions of gold had been exported from New York, chiefly obtained from the city banks. On January 1, 1879, these New York banks held in specie only $19,781,400, but they held twice as much

Adapted from Forty Years of American Finance, pp. 45-57. (G. P. Putnam's Sons, 1898.)

in legal-tender notes, redeemable at the Treasury in gold. Supposing, then, a further rise in exchange and a heavy export of gold, there was not the least doubt about what would happen to the Treasury

reserve.

The general industrial situation in 1879 foreboded trouble. Domestic markets were unfavorable, wage reductions were pending in the cotton goods industry, and the iron trade, a traditional barometer of industrial situations, opened the year with so little activity that prices fell below the normal average cost of production. With hardly an exception the country's staple industries sank, during the early months of 1879, into complete stagnation. In February, the most experienced international bankers, including the Rothschilds, who had placed the bulk of recent American loans, predicted that gold was about to move in quantity from the United States to Europe. By the middle of March, the Secretary was disturbed enough to set on foot an inquiry into the possibility of controlling specie exports through sales of Government exchange. Such recourse, Mr. Sherman plainly intimated, might become necessary "in preventing popular alarm." Not even this expedient was feasible; sterling continued to advance, and finally in the second week of June a million and a quarter gold was shipped. This gold was obtained from the Treasury in exchange for notes; it reduced to precisely that extent the Govern

ment reserve.

The wheat harvest of 1878, in England and on the European continent, had been one of the largest on record. When 1879 was well advanced, wheat from English farms was still moving in quantity to storage points. At the close of March, the stock of wheat at Liverpool was larger than at any time within five years; the same was true of every cereal product. Frosty weather and heavy rains in England had indeed advanced the price of wheat sixpence a bushel, and it was admitted that the English crop of 1878 would not be duplicated. But meantime the reserve supply was ample, demand from consumers was only moderate, and early in March observers of the market predicted that prices had reached their high level for the year.

Little by little the foreign situation changed. As is usual with highly speculative markets, the news was contradictory, and the truth developed slowly. But it was evident in May, while the outlook for this country's harvest was steadily improving, that the European grain markets were beginning to stir with apprehension. In France snow fell heavily late in the spring; in England, after a late and

destructive frost, rain set in and continued almost incessantly through the summer. It was literally a sunless season. At the opening of July, people were wearing heavy overcoats in London, and in the country all the crops were moulding. By this time the impending harvest failure had begun to assume the dimensions of a national calamity. On Sunday, July 6th, by the Archbishop of Canterbury's direction, prayers for fair weather were offered in the English churches. In another month the time was past when even favorable weather would help, and by August it was made clear to all markets that, while the United States would yield the largest harvest in its history, every growing crop in the British Islands was practically ruined. No such disaster had befallen English agriculture within the memory of living men. The actual decrease in the wheat crop especially, as compared with 1878, was 54 per cent; the total yield was smaller by thirty million bushels than in the leanest recorded year since the middle of the century. Nor was this Europe's only agricultural catastrophe. Until midsummer, there had been favorable news from the continental crops. But the blight which fell on England's harvest did equal damage beyond the Channel. France, Austria, Germany, and Russia yielded, in 1879, the smallest and poorest wheat crops in ten years; the whole continental harvest fell off 15 per cent from the average of the three preceding years. European states, which usually exported wheat, had not raised enough to feed their own people. "It is the American supply alone," wrote one contemporary critic, "which has saved Europe from a great famine."

All circumstances seemed to conspire in favor of this country. Sunny and favorable "farmer's weather," with the due proportion of rains, prevailed throughout the season. The wheat fields under cultivation had increased over 1878 by half a million acres. The average yield per acre has never but twice been exceeded in this country, and the total crop exceeded by 28,000,000 bushels the crop of any previous year. The positive news of Great Britain's crop failure carried the price up no less than forty cents a bushel within six weeks. Along with this advance in prices, exports of wheat rose to wholly unprecedented volume. The foreign buying was so urgent that the country's wheat shipments, which even in 1878 did not run beyond two million bushels weekly, averaged, in September, 1879, a million bushels daily, a volume of grain exports equalled only twice in the country's subsequent history. The crop of Indian corn was the largest on record; this, too, found a ready and profitable export