48

44

131. GREENBACK AND TREASURY NOTE REDEMPTION AND GOLD EXPORTS, 1879-971

36

40

40

32

28

24

20

16

12

8

4

1882 1883 1884 1885

1886 1887 1888 1889 1890 1891 1892 1893 1894 1895 1896 1897 'Chart taken from Report of Monetary Commission of the Indianapolis Convention (1898), p. 431

240

230

220

210

200

190

180

170

160

150

140

130

120

132. NET GOLD RESERVE IN THE TREASURY 1879-981 1879 1880 1881 1882 1883 1884 1885 1886 1887 1888 1889 1890 1891 1892 1893 1894 1895 1896 1897 1898

133. THE SILVER SITUATION AND THE PANIC OF 18932

The act of 1890 had scarcely been passed when gold exports began to increase. These gold exports coincided very nearly with redemptions of the United States notes presented to the Treasury.

Chart taken from W. M. Burke, "Bond Issues and the Gold Reserve," Sound Currency, VI (1899), 21.

Adapted from Report of the Monetary Commission of the Indianapolis Convention (1898), pp. 436-40.

There were three chief causes for these unusual withdrawals of gold: (1) demands arising out of trade conditions; (2) demands due to withdrawals of foreign investments; (3) interest payments on foreign capital.

The demands for gold which arose from the general condition of trade were the result of a long series of events. Business in the United States prior to 1890-93 had been exceedingly active, profits had been high, overconfidence and speculative enterprise were common. The result of all these had been a tendency to extravagant expenditure and had resulted in large importations of goods. At the same time, our ability to pay had been considerably diminished. A considerable portion of the annual indebtedness of the United States is liquidated by the shipment of agricultural products. The price of these products had been steadily declining in the markets of the world and, our income being decreased, our ability to pay had in this way been diminished. The result could only be a transfer of capital, in the form either of specie or of obligations to pay specie."

The second of the causes which have been mentioned, namely, the withdrawal of investments by foreigners, was the real difficulty in the whole situation. The fact that we had been spending more than we earned and importing more than we could pay for would have been of no permanent importance to a wealthy country like the United States had foreigners continued to be willing to loan us capital. The excess of expenditures over income would easily have corrected itself through the operation of the usual mechanism of trade and industry. Just at the time, however, when we most needed capital, a step had been taken which destroyed the confidence of foreign investors in our intention to settle with them honestly. We are normally indebted to foreigners to an extent which is estimated at from $100,000,000 to $350,000,000 annually. But during the latter part of 1892 and during 1893 and the earlier portion of 1894, it is estimated that about $300,000,000 of securities were returned to us by the foreigners who had purchased them. The securities were placed upon the American market and the remittance of the proceeds necessarily resulted in gold shipments. But the worst of the situation was not in a mere temporary sale of our securities, but in the fact that the willingness of foreign investors to loan had received a shock.

This brings us to the third point noted above. Foreigners, being no longer willing to invest their capital in the United States, demanded remittances of money due them on interest account and refused to reinvest this with us. It thus became necessary for us to ship gold

for all three of the reasons mentioned. All these, however, depended on one single fact, the fear of payment of debts by the United States in silver instead of gold.

There was another side to the withdrawals of gold from the Treasury of the United States. The foreign demand has already been considered and it has been shown that this was largely due to distrust of our monetary policy. The same thing occurred at home. Those who had maturing debts which must be liquidated in gold, and those who had government promises to pay coin in their hands, fearing that the word coin might be interpreted to mean silver, brought government notes to the Treasury and obtained gold for the purpose of hoarding it to meet future obligations.

From all sides, then, both domestic and foreign, the Treasury was being drained of its gold, just as would have been the case with a bank whose solvency, or ability to liquidate immediately, was doubted. At the same time its supplies of gold were cut off. Normally this, or any other, government has but one way of obtaining money, that is, by taking it from the people through taxation. And of all our taxes the sort from which we obtain the largest quantities of gold is the customs. But, as we have seen, a decrease in importations was taking place both because of our too great expenditures in the past and of the curtailment of our supplies of purchasing power. The aggregate revenue of the Treasury, depending as it did on our tariff duties, was thus suddenly reduced. This was not the worst. A marked change in the kind of money received in payment of import duties was noticeable. From the very moment of the passage of the Sherman Act, gold receipts at New York in payment of tariff dues began to decrease, and silver and government obligations to pay gold-principally the former-took its place. The gold reserve of the Treasury was thus weakened in several different ways at the same moment. Its obligations were presented for payment; its aggregate of receipts was decreased; and the percentage of gold in these receipts largely fell off, while the percentage of the government's own obligations and of silver largely increased.

134. OUR FINANCIAL DISEASE1

BY GROVER CLEVELAND

In July, 1890, an act had been passed directing larger governmental monthly purchases of silver than had been required under Adapted from the message of President Cleveland to Congress, December 2,

I

previous laws, and providing that in payment for such silver Treasury notes of the United States should be issued payable on demand in gold or silver coin, at the discretion of the Secretary of the Treasury. It was, however, declared in the act to be "the established policy of the United States to maintain the two metals on a parity with each other upon the present legal ratio, or such ratio as may be provided by law." In view of this declaration it was not deemed permissible for the Secretary of the Treasury to exercise the discretion in terms conferred on him, by refusing to pay gold on these notes when demanded, because by such discrimination in favor of the gold dollar the so-called parity of the two metals would be destroyed, and grave and dangerous consequences would be precipitated by affirming or accentuating the constantly widening disparity between their actual values under the existing ratio.

It thus resulted that the Treasury notes issued in payment of silver purchases under the law of 1890 were necessarily treated as gold obligations, at the option of the holder. These notes on the Ist day of November, 1893, when the law compelling the monthly purchase of silver was repealed, amounted to more than $155,000,000. The notes of this description now outstanding, added to the United States notes still undiminished by redemption or cancellation, constitute a volume of gold obligations amounting to nearly $500,000,000. These obligations are the instruments which, ever since we have had a gold reserve, have been used to deplete it.

This reserve had fallen in April, 1893, to $97,011,330. It has from that time to the present, with very few and unimportant movements, steadily decreased, except as it has been temporarily replenished by the sale of bonds.

Among the causes for this constant and uniform shrinkage in this fund may be mentioned the great falling off of exports under the operation of the tariff law until recently in force, which crippled our exchange of commodities with foreign nations and necessitated to some extent the payment of our balances in gold; the unnatural infusion of silver into our currency, and the increasing agitation for its free and unlimited coinage, which have created apprehension as to our disposition or ability to continue gold payments; the consequent hoarding of gold at home and the stoppage of investments of foreign capital, as well as the return of our securities already sold abroad; and the high rate of foreign exchange, which induced the shipment of our gold to be drawn against as a matter of speculation.