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 DISEASE

BY GROVER CLEVELAND

In July, 1890, an act had been passed directing larger governmental monthly purchases of silver than had been required under

I Adapted from the message of President Cleveland to Congress, December 2,

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.

In consequence of these conditions the gold reserve on the 1st day of February, 1894, was reduced to $65,438,377, having lost more than $31,000,000 during the preceding nine months, or since April, 1893. Its replenishment being necessary, and no other manner of accomplishing it being possible, resort was had to the issue and sale of bonds provided for by the Resumption Act of 1875. Fifty millions of these bonds were sold, yielding $58,633,295.71, which was added to the reserve fund of gold then on hand. As a result of this operation this reserve, which had suffered constant and large withdrawals in the meantime, stood on the 6th day of March, 1894, at the sum of $107,446,802. Its depletion was, however, immediately thereafter so accelerated that on the 30th day of June, 1894, it had fallen to $64,873,025, thus losing by withdrawals more than $42,000,000 in five months and dropping slightly below its situation when the sale of $50,000,000 in bonds was effected for its replenishment.

This depressed condition grew worse, and on the 24th day of November, 1894, our gold reserve being reduced to $57,669,701, it became necessary to again strengthen it. This was done by another sale of bonds amounting to $50,000,000, from which there was realized $58,538,500, with which the fund was increased to $111,142,021, on the 4th day of December, 1894.

Again disappointment awaited the anxious hope for relief. There was not even a lull in the exasperating withdrawals of gold. On the contrary, they grew larger and more persistent than ever. Between the 4th day of December, 1894, and early in February, 1895, a period of scarcely more than two months after the second reinforcement of our gold reserve by the sale of bonds, it had lost by such withdrawals more than $69,000,000 and had fallen to $41,340,181. Nearly $43,000,000 had been withdrawn within the month immediately preceding this situation.

In anticipation of impending trouble, I had on the 28th day of January, 1895, addressed a communication to the Congress, fully setting forth our difficulties and dangerous position, and earnestly recommending that authority be given the Secretary of the Treasury to issue bonds bearing a low rate of interest, payable by their terms in gold, for the purpose of maintaining a sufficient gold reserve, and also for the redemption and cancellation of outstanding United States notes and the Treasury notes issued for the purchase of silver under the law of 1890. This recommendation did not, however, meet with legislative approval.

In February, 1895, therefore, the situation was exceedingly critical. With a reserve perilously low and refusal of congressional aid, everything indicated that the end of gold payments by the Government was imminent. The results of prior bond issues had been exceedingly unsatisfactory, and the large withdrawals of gold immediately succeeding their public sale in open market gave rise to a reasonable suspicion that a large part of the gold paid into the Treasury upon such sales was promptly drawn out again by the presentation of the United States notes or Treasury notes and found its way to the hands of those who had only temporarily parted with it in the purchase of bonds.

In this emergency, and in view of its surrounding perplexities, it became entirely apparent to those upon whom the struggle for safety was devolved not only that our gold reserve must, for the third time in less than thirteen months, be restored by another issue and sale of bonds bearing a high rate of interest and badly suited to the purpose, but that a plan must be adopted for their disposition promising better results than those realized on previous sales. An agreement was therefore made with a number of financiers and bankers whereby it was stipulated that bonds described in the Resumption Act of 1875, payable in coin thirty years after their date, bearing interest at the rate of 4 per cent per annum, and amounting to about $62,000,000, should be exchanged for gold, receivable by weight amounting to a little more than $65,000,000.

This gold was to be delivered in such instalments as would complete its delivery within about six months from the date of the contract, and at least one-half of the amount was to be furnished from abroad. It was also agreed by those supplying this gold that during the continuance of the contract they would by every means in their power protect the Government against gold withdrawals. The contract also provided that if Congress would authorize their issuance, bonds payable by their terms in gold and bearing interest at the rate of 3 per cent per annum might within ten days be substituted at par for the 4 per cent bonds described in the agreement.

On the day this contract was made its terms were communicated to Congress by a special Executive message, in which it was stated that more than $16,000,000 would be saved to the Government if gold bonds bearing 3 per cent interest were authorized to be substituted for these mentioned in the contract.

The Congress having declined to grant the necessary authority to secure this saving, the contract, unmodified, was carried out, resulting in a gold reserve amounting to $107,571,230 on the 8th day of July, 1895. The performance of this contract not only restored the reserve, but checked for a time the withdrawals of gold and brought on a period of restored confidence and such peace and quiet in business circles as were of the greatest possible value to every interest that affects our people. I have never had the slightest misgiving concerning the wisdom or propriety of this arrangement, and am quite willing to answer for my full share of responsibility for its promotion. I believe it averted a disaster the imminence of which was, fortunately, not at the time generally understood by our people.

Though the contract mentioned stayed for a time the tide of gold withdrawal, its good results could not be permanent. Recent withdrawals have reduced the reserve from $107,571,230 on the 8th day of July, 1895, to $79,333,966. How long it will remain large enough to render its increase unnecessary is only a matter of conjecture, though quite large withdrawals for shipments in the immediate future are predicted in well-informed quarters. About $16,000,000 has been withdrawn during the month of November.

The foregoing statement of events and conditions develops the fact that after increasing our interest-bearing bonded indebtedness more than $162,000,000 to save our gold reserve we are nearly where we started, having now in such reserve $79,333,966, as against $65,438,377 in February, 1894, when the first bonds were issued.

Though the amount of gold drawn from the Treasury appears to be very large, as gathered from the facts and figures herein presented, it actually was much larger, considerable sums having been acquired by the Treasury within the several periods stated without the issue of bonds. On the 28th day of January, 1895, it was reported by the Secretary of the Treasury that more than $172,000,000 of gold had been withdrawn for hoarding or shipment during the year preceding. He now reports that from January 1, 1879, to July 14, 1890, a period of more than eleven years, only a little over $28,000,000 was withdrawn, and that between July 14, 1890, the date of the passage of the law for an increased purchase of silver, and December 1, 1895, or within less than five and a half years, there was withdrawn nearly $375,000,000, making a total of more than $403,000,000 drawn from