and to $93,000,000 in 1886, at which time over half of the large available cash reserve in the Treasury was in silver dollars.

In 1886, the Treasury, for its protection against the threatening danger that it would itself have to accept and care for the entire further coinage of silver dollars, secured the enactment of legislation permitting the issue of silver certificates in denominations of $1, $2, and $5. By the use of these certificates it has since been possible to keep in actual circulation, irrespective of the bank reserves, the larger part of the silver coinage.

132. NET GOLD RESERVE IN THE TREASURY 1879-98* 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.

2

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