MONETARY AND FINANCIAL PROBLEMS
The critical monetary and financial situation during Cleveland's second
administration is understandable only in the light of a series of acts
which were passed between 1878 and 1893. It will be remembered that in
the former year the Bland-Allison act had provided for the purchase and
coinage of two million to four million dollars' worth of silver bullion
per month, and that the force behind the measure had been found chiefly
among westerners who wished to see the volume of the currency increased
and among mine owners who were producing silver.
The passage of the law did not end all opposition to the greater use of
silver, nor did it solve all our monetary difficulties. In the first
place, the United States sent delegates to an International Monetary
Conference in Paris, in conformity with one of the provisions of the
Bland-Allison act, to discuss a project for the utilization of silver
through an agreement among the commercial nations of the world. No
tangible results were obtained, however, so that it was plain that for
the time, at least, the United States would be alone in its attempt to
bring about the greater use of the white metal. In the meantime the law
was put into operation, and the secretary of the treasury exercised his
option by purchasing the minimum amount, two million dollars' worth of
bullion. It was impossible to keep the coins in circulation, however,
mainly because of their weight, and the policy was therefore adopted
of storing part of the silver in the government vaults and issuing
paper "silver certificates" in its place. As these were of small
denominations and circulated on a par with gold, no immediate
difficulty was experienced in making them part of the currency supply
of the country.
The currency question, nevertheless, remained as complicated as ever
and the differences of opinion upon it as diverse as before. The market
price of silver steadily declined through the eighties and the bullion
value of the metal in a dollar sank from ninety-three cents in 1878 to
less than seventy-one cents in 1889. Both Republican and Democratic
secretaries of the treasury gave warning that the inflow of silver into
the currency supply was too great. President Arthur urged the repeal of
the Bland-Allison act in his first annual message; President Cleveland
again and again reiterated the same advice, warning Congress of the
danger that silver would be substituted for gold. The argument of the
opponents of silver could hardly be stated in more concise or complete
terms. As soon as the supply of currency became too great, he asserted,
the unnecessary portion would go out of circulation;[1] it was the
experience of nations that the more desirable coin--gold, in this
case--would be hoarded by banks and speculators; it would then become
apparent that the bullion value of the gold dollar was greater than
that of the silver dollar and the two coins would part company; those
who, in such a contingency, could get gold dollars would demand a
premium for them, while the laboring man, unable to demand gold, would
find his silver dollar sadly shrunken in value.
Although the coinage of silver in the twelve years during which the
Bland-Allison act was in force amounted to $378,000,000, the danger
that Cleveland's prophecy would come to pass was lessened by several
facts. The country was, in the first place, passing through a period of
industrial expansion that required an enlarged circulating medium; the
revenues of the government were exceeding expenditures, and part of the
surplus was being stored in the vaults in Washington; and the volume of
the national bank notes shrank more than $158,000,000 between 1880 and
1890. Falling prices for agricultural products continued to keep
western discontent alive and far from being convinced by Cleveland's
warnings, western conventions and representatives in Congress continued
to urge legislation to increase the amount of silver to be coined, and
free-coinage bills were constantly introduced and frequently near
passage. Manifestly the demand that something more be done for silver
was not at an end.
Although agitation over the use of silver currency resulted in no
further important legislation for the time being, the general financial
situation was complicated by a series of important acts. During the
eighties the federal revenues mounted to an unprecedented height and as
expenses did not increase proportionately, a surplus of large and
finally of embarrassing and dangerous size appeared.
[Illustration:
Financial Operations, 1875-1897 in millions]
Between 1880 and 1890 it averaged more than $100,000,000 annually.
Although part of it was used to reduce the public debt, the remainder
began to accumulate in the treasury and thereby seriously reduced the
amount of currency available for the ordinary needs of business. In
1888, for example, the surplus in the treasury was one-fourth as great
as the entire estimated sum outside. The one device for doing away with
the surplus upon which all leaders could unite was the reduction of the
national debt. Between 1879 and 1890 over $1,000,000,000 were thus
disposed of. Yet even this process raised difficulties. Although a
portion of the debt came due in 1881 and could be redeemed at the
pleasure of the government, other bonds were not redeemable until 1891
and 1907, unless the federal authorities chose to go into the market
and buy at a premium. Eventually this was done for a time, although
prices were thereby forced up to 130 in 1888, and as a result the
redemption of $95,000,000 during the year cost more than $112,000,000.
The treasury also adopted the expedient of depositing surplus funds in
banking institutions, but the plan was open to serious objections. In
order to qualify for receiving government deposits the banks had to
present United States bonds as security, but these were already at a
high premium because of purchase by the treasury itself. There
remained, therefore, two general policies which might be
followed--reduction of revenue or enlargement of expenditure.
Both parties were theoretically committed to the economical conduct of
the nation's business, but Republican advocacy of a high tariff tended
to restrict that party's answer to the surplus problem. The revenue
came largely from tariff and internal taxes. The latter were reduced,
as has been seen, by the tariff act of 1883, but the redundant income
continued. The Republicans then faced the alternative of lowering the
customs or turning to the policy of increased expenditure. The latter
policy would delay the reduction of duties and was in line with the
Republican tendency toward increased federal activity. For the
Democrats the problem was easier. Since the party was tending toward
advocacy of low customs duties, had constantly condemned Republican
extravagance in administration and was traditionally the party of a
restricted national authority, it was logical to turn to severe
reduction of revenue in order to solve the problem of the surplus.
President Cleveland's political and personal philosophy led toward
economy in expenditure and therefore toward revenue reduction. By
nature he was frugal; in politics, a strict constructionist. In vetoing
an appropriation bill he succinctly set forth his creed:
A large surplus in the Treasury is the parent of many ills, and
among them is found a tendency to an extremely liberal, if not
loose, construction of the Constitution. It also attracts the gaze
of States and individuals with a kind of fascination, and gives
rise to plans and pretensions that an uncongested Treasury never
could excite.
The Republicans were becoming committed to the policy of large
expenditures. President Harrison, to be sure, in his first annual
message urged the reduction of receipts, declaring that the collection
of money not needed for public use imposed an unnecessary burden upon
the people and that the presence of a large surplus in the treasury was
a disturbing element in the conduct of private business. Nevertheless
such party leaders as Reed and McKinley, who effectively controlled the
legislation of the Harrison administration, acted on the philosophy of
Senator Dolph:
If we were to take our eyes off the increasing surplus in the
Treasury and stop bemoaning the prosperity of the country, ... and
to devote our energies to the development of the great resources
which the Almighty has placed in our hands, to increasing (our
products) ... to cheapening transportation by the improving of our
rivers and harbors, ... we would act wiser than we do.
Congress was more inclined to follow the policy suggested by Dolph than
that proposed by Cleveland. One project was the return of the direct
tax which had been levied on the states at the outbreak of the Civil
War. At that time Congress had laid a tax of $20,000,000 apportioned
among the states according to population. About $15,000,000 had been
collected, mainly, of course, from the northern states. It was
suggested that the levy be returned, a plan which would give the
northern states a return in actual cash and the southern states "the
empty enjoyment of the remission from a tax which no one now dared to
suggest was ever to be made good." President Cleveland had vetoed such
a bill, during his first administration, believing it unconstitutional
and also objectionable as a "sheer, bald gratuity." Under the Harrison
administration the scheme was revived and carried to completion, March
2, 1891.
Pension legislation was even more successful as a method of reducing
the unwieldy surplus. Garfield had declared in 1872, when introducing
an appropriation bill in the House of Representatives, "We may
reasonably expect that the expenditures for pensions will hereafter
steadily decrease, unless our legislation should be unwarrantably
extravagant," and in fact the cost of pensions for 1878 had been lower
by more than $7,000,000 than in 1871. The Arrears act of 1879 had given
a decided upward tendency to pension expense, which amounted to over
$20,000,000 more in 1880 than in 1879. The surplus was a constant
invitation to careless generosity. Liberality to the veteran was a
patriotic duty which lent itself to the fervid stump oratory of the
time and presented an opportunity to the undeserving applicant to place
his name on the rolls of pensioners along with his more worthy
associates. Besides, an administration which seemed niggardly in its
attitude toward the veterans was certain to lose the soldier vote, and
neither party was willing to incur such a risk. Hence, despite
Cleveland's vetoes of private pension legislation, hundreds of such
measures passed during his first term. The Harrison administration
proceeded upon the President's theory that it "was no time to be
weighing the claims of old soldiers with apothecary's scales." A
dependent pension bill like that which President Cleveland vetoed in
1887 was passed in 1890. The list of pensioners more than doubled in
length; the number of applications for aid increased tenfold in two
years. It became necessary for President Harrison to displace his
over-liberal commissioner of pensions, but the mischief was already
done. The total yearly pension expenditure quickly mounted beyond the
one hundred million mark, where it has remained ever since. Indeed, the
cost of pensions in 1872 when Garfield made his prophecy was less than
one-sixth as great as in 1913. Large pension expenditure was clearly a
permanent charge.
The improvement of the rivers and harbors of the country has always
been a ready means of disposing of any embarrassing surplus and of
assisting Congressmen to get money into their districts. "Promoters of
all sorts of schemes, beggars for the widening of rivulets, the
deepening of rills" clustered about the treasury during the eighties.
During the early seventies expenditure on this account had not reached
$6,500,000 annually, although in 1879 it exceeded $8,000,000. In 1882,
the year of the mammoth surplus, Congress passed over Arthur's veto a
bill carrying appropriations which amounted to almost nineteen million
dollars.[2] Expenditures were somewhat reduced in the years
immediately following, and Cleveland continued the repressive policy of
his predecessor. Harrison in his first message to Congress in December,
1889, recommended appropriations for river and harbor improvement,
although deprecating the prosecution of works not of public advantage.
The recommendation fell upon willing ears and appropriations for
undertakings of this sort at once increased again. Expenditure for
rivers and harbors, like that for pensions, remained at a high level,
the wise and necessary portions of such measures being relied upon to
carry the unwise and unnecessary ones.
A project which lacked many of the unpleasant features of river and
harbor legislation was the Blair educational bill, which proposed to
distribute a considerable portion of the surplus among the states. As
discussion of the Blair bill proceeded, it became clear that its
results might be more far-reaching than had been anticipated. A gift
from the national government seemed sure to retard local efforts at
raising school funds and would initiate a vicious tendency to rely on
federal bounty. Hence although the Senate passed the bill in 1884, 1886
and 1888, it never commended itself sufficiently to the House and
eventually was dropped.
A small portion of the increased expenditure in the eighties was due to
improvements in the navy, in which both parties shared. Presidents
Arthur and Cleveland urged upon Congress the need of modern defences.
Progress was slow and difficult. Although the day of steel ships had
come, the American navy was composed of wooden relics of earlier days.
The manufacture of armor and of large guns had to be developed, and
skill and experience accumulated. Results began to appear in the late
eighties when the number of modern steel war vessels increased from
three to twenty-two in four years. Expenditures mounted from less than
$14,000,000 in 1880 to over $22,000,000 in 1890.
As effective as new expenditure was the McKinley tariff act of 1890,
the details of which from the point of view of tariff history have
already been noted.[3] The extremely high rates levied under that
legislation caused a slight reduction in customs revenue in 1891 and a
sharp decline in 1892. Moreover the coincidence of instability in the
currency system, business depression and the relatively high
Wilson-Gorman tariff schedules of 1894 continued the decline of income
from customs during the middle nineties.
In the meantime the silver agitation, which had been somewhat repressed
by the well-known attitude of Cleveland during his first administration
revived with increased vigor. The election of 1888, it will be
remembered, had turned wholly on the tariff and had been a victory for
the Republicans. The western states had almost uniformly supported
Harrison in the election and during 1889 four more were admitted to the
Union. Their representatives in Congress were mainly silver advocates.
In his first message to Congress the President declared that the evil
anticipations which had accompanied the use of the silver dollar had
not been realized but he feared nevertheless that either free coinage
or any "considerable increase" of the present rate of coinage would be
"disastrous" and "discreditable." He announced that a plan would be
presented by the Secretary of the Treasury, to which he had been able
to give only a hasty examination. The scheme for expanding the silver
coinage which the Secretary, William Windom, presented was not
acceptable to Congress, but the result of the agitation was the law
generally known as the Sherman silver purchase act, which was passed on
July 14, 1890. It directed the secretary of the treasury to purchase
4,500,000 ounces of silver bullion per month and to issue in payment
"Treasury notes of the United States." These notes were legal tender
for all debts and were receivable for customs and all public dues.
Further, the secretary was directed to redeem the notes in gold or
silver at his discretion, "it being the established policy of the
United States to maintain the two metals on a parity with each other."
[Illustration:
Total Silver Coinage, 1873-1894, in millions of dollars]
The silver to be purchased was substantially the total output of the
American mines. Fearing the strength of the silver element in the
Senate and doubtful of the position which the President might take,
former Secretary Sherman, now in the Senate, supported the act,
although confessing that he was ready to vote for repeal at any time
when it could be done without substituting free coinage. The provision
for the purchase of four and one-half million ounces instead of four
and one-half million dollars' worth was introduced at Sherman's
suggestion. This clause kept the amount to be absorbed at a uniform
level, whereas the purchase of a fixed number of dollars' worth would
have increased the coinage when the price of bullion fell. The vote on
the Sherman act was strictly partisan--no Republicans opposing it and
no Democrats favoring it when the measure was finally passed, although
116 members of the House failed to answer to their names on the
roll-call.
In view of the fact that the industrial and commercial countries of
Europe were almost universally reducing their silver coinage, the
passage by the United States of an act which substantially doubled
the amount of silver purchased under the Bland-Allison law seems
extraordinary. Moreover, only six years later a presidential campaign
was fought almost wholly on the silver issue and at that time the
Republican party resolutely opposed free coinage. It is obvious that
powerful forces must have been at work to align the party so unitedly
in behalf of the Sherman law. It was to be expected that western
Republicans would support it, but the eastern members were found
voting for it as well. Doubtless many things contributed to the
result. Some perhaps agreed with Sherman that the silver advocates
were so strong that free coinage would result in case Congress refused
to pass legislation of any kind. Some may have feared with Platt of
Connecticut, that a party split would ensue unless the wishes of the
westerners were acceded to--hence an act which gave liberal assistance
to silver to please the West and South but stopped short of free
coinage so as to please the East. That opportunist politics had an
influence with certain members is indicated by the remarks of a
Massachusetts Republican representative who later favored the gold
standard:
It is pure politics, gentlemen; that is all there is about it.
We Republicans want to come back and we do not want you (to
the Democratic side) to come back in the majority, because,
on the whole, you must excuse us for thinking we are better
fellows than you are. That is human nature, that is all there
is in this silver bill (laughter on the Republican side); pure
politics.
A Democrat who favored free coinage denounced the act as "Janus-Faced,"
moulded so as to look like silver to the West and gold to the East.
Important, also, seems to have been the attitude of the western members
on the tariff. The party had returned to power on the tariff issue and
it seemed necessary to pass some sort of legislation on the subject.
Yet the party majority in Senate and House was slight and the
westerners were understood to be ready to defeat the McKinley bill
which was then pending, unless something was done for silver. Harrison
seems to have been unwilling to endanger successful tariff legislation
by opposing the considerable extension of the coinage of silver.[4]
Contrary to the expectations of the proponents of the act, the price of
silver fell gradually until the value of the bullion in a dollar was
sixty cents in 1893 and forty-nine cents in 1894. They who had opposed
the law saw their fears verified; as they had prophesied, silver began
to replace gold in circulation; the latter was hoarded and used for
foreign shipments; customs duties, which had hitherto been paid largely
in gold, were now paid in paper currency; since gold was now more
desired than silver, large amounts of paper were presented to the
government for redemption in the more valuable metal. To be sure, the
Sherman law allowed the secretary of the treasury to redeem the
treasury notes of 1890 in gold or silver at his discretion, but it
contained a proviso that the established policy of the United States
was to maintain the two metals on a parity or equality. The secretary
believed that if he refused to redeem the treasury notes in whatever
coin the holder desired, that is if he insisted on redemption in silver
only, a discrimination would be made in favor of gold and the equality
of the two metals would be destroyed. Parity would be maintained, the
government held, only when any kind of money could be exchanged for any
other kind, at the option of the holder.
For the redemption of the greenbacks, the government had since 1879
maintained a fund known as the gold reserve. No law fixed its amount,
but custom had set $100,000,000 as the minimum. Hitherto a negligible
amount of paper had been presented for redemption, but as soon as the
Sherman law came into effective operation the demand for gold became
increasingly great and the level of the reserve promptly fell. Between
July 1, 1890, and July 15, 1893, the supply of gold in the treasury
decreased more than $132,000,000, while the stock of silver increased
over $147,000,000. Evidently silver was replacing gold in the treasury,
and it was equally clear that a continuation of the process would
result in forcing the government to pay its obligations in silver and
to refuse to redeem paper in gold--in other words, go upon a silver
standard.
The situation when Cleveland's second administration began on March 4,
1893, was complex and critical. The annual expenditures had increased
by $119,000,000 between 1880 and 1893, while the revenue had expanded
by only half that amount; the surplus had decreased every year during
Harrison's administration and a deficit had been avoided only by the
cessation of payments on the public debt; the supply of currency in
circulation was being heavily increased by the operation of the Sherman
law; and the gold reserve had been kept at the traditional amount only
through extraordinary efforts on the part of Harrison's Secretary of
the Treasury as the administration came to a close.
Cleveland's attitude toward the Sherman law was well-known. He had long
urged the repeal of the Bland-Allison act; before the election of 1892
he had predicted disaster in case the nation entered upon "the
dangerous and reckless experiment of free, unlimited, and independent
silver coinage"; it was his belief that the distresses under which the
country labored were due principally to the Sherman silver purchase
law. He therefore called a special session of Congress for August 7,
(1893), sent a message giving a succinct account of the operation of
the law and urged its immediate repeal.[5] In the House, repeal was
voted with surprising promptness, although a strong free-silver element
fought vigorously to prevent it. That party lines were broken was
indicated by the fact that two-thirds of the Democrats and four-fifth
of the Republicans voted in accord with the President's request.
In the Senate the silver advocates were stronger. The entire history of
coinage was discussed at length. Members who favored repeal disliked to
overturn the tradition of the Senate which allowed unlimited debate,
and the silver senators therefore filibustered through the summer and
early fall. Senator Jones of Nevada made a single speech that filled a
hundred dreary pages of the _Congressional Record_. Senator Allen of
Nebraska quoted more than thirty authorities, ranging from the Pandects
of Justinian to enlivening doggerel poetry. Feeling ran high. In the
West, Jones, Allen and others were looked upon as heroes; in the East,
as villains. To a satirical onlooker it seemed that the nation had
become insanely obsessed with the question of repeal:
All men of virtue and intelligence know that all the ills of
life--scarcity of money, baldness, the comma bacillus, Home
Rule, ... and the Potato Bug--are due to the Sherman Bill. If it
is repealed, sin and death will vanish from the world, ... the
skies will fall, and we shall all catch larks.
Not until October 30 were the silver supporters overcome. Including
members who were paired, twenty-two Democrats and twenty-six
Republicans favored repeal, and twenty-two Democrats, twelve
Republicans and three Populists opposed. Again the West and South were
aligned against the North and East. The Democratic party was divided
and charges and countercharges had been made that augured ill for party
success, as has been seen, in dealing with the tariff and other
important problems.[6] Worst of all, the chief question--the volume
and content of the currency--was still unanswered. Something had been
done for silver--and undone--but there was no scientific settlement of
the problem.
The disastrous financial and industrial crisis of 1893 made yet more
complex the already tangled skein of economic history during President
Cleveland's second administration. The catastrophe has been ascribed to
a variety of causes but the relative importance of the various factors
is still a matter of disagreement. Rash speculation on the part of
industrial interests here and abroad seems to have made weak links in
the international commercial chain; financial conditions both in
Germany and in Great Britain were precarious during the early part of
1890; the collapse of the Philadelphia and Reading Railroad in
February, 1893, and of the National Cordage Company soon afterwards
were warnings of what was to follow; the silver purchase law produced
widespread fear that the United States would not be able to continue
the redemption of paper currency; and the change of political control
had produced the usual feeling of uncertainty. The dwindling of the
gold reserve, which has already been mentioned, assisted in causing a
critical situation. Foreign investors, fearful of financial conditions
here, sold their American railroad and other securities and received
payment in gold. The one place where the yellow metal could be readily
obtained was the United States treasury and upon it the strain
centered. People attempted to turn property of all kinds into gold
before the existing standard should change to a depreciated silver
basis. At the same time there was a rush to the banks to withdraw
funds, and the visible supply of currency therefore was seriously
reduced. "Under these conditions gold seemed scarce. In reality gold
was only relatively scarce in comparison with the abnormal offering of
property for sale on account of the fear of the silver standard." In an
incredibly short time, currency became so scarce as to create a genuine
panic and was purchased like any commodity at premiums ranging from one
to three per cent. In order to enable their families to pay the running
expenses of every day at the summer resorts, business men were
compelled to buy bills and coin and send them in express packages. The
national banks were unable to supply the demand for currency so
quickly, and 158 of them failed in 1893 and hundreds of state and
private financial institutions were forced to close their doors.
Industrial firms were affected by the uncertainty and panic and over
15,000 failures resulted, with liabilities amounting to $347,000,000 in
the single year. Production of coal and iron fell sharply; railway
construction nearly ceased and the value of securities shrank to a
fraction of their former value. The distress among the wage-earners
became extreme; unemployment was common; strikes, like that beginning
in Pullman in 1894, were bitter and prolonged. "Coxey's army," composed
of unemployed workmen, marched to Washington with a petition for
relief.
As is usually the case in our politics, the blame for the industrial
disturbance was laid at the door of the party in power. The argument of
an Ohio congressman in the debate over the repeal of the Sherman law
typified the political use made of the crisis of 1893. Until November,
1892, the orator declared, prosperity was undimmed. "Iron furnaces
throughout the country were in full blast, and their cheerful light was
going up to heaven notifying the people of the United States of
existing prosperity and warning them against change of conditions."
Then came the election of the party "which had declared war on the
system upon which our whole industrial fabric had been erected." "One
by one the furnaces went out, one by one the mines closed up, one after
another the factories shortened their time." Business interests, he
asserted, were fearful of Democratic rule and especially of tariff
reform; hence prosperity and confidence could be renewed only by
leaving the Sherman law intact and by refusing to undertake any
sweeping revision of the protective tariff.
[Illustration:
Net Gold in the Treasury, by months,
Jan., 1883 to Feb., 1896, in millions of dollars]
Further to complicate the financial trials of the burdensome mid-nineties,
the depletion of the gold reserve demanded immediate attention. During
the closing months of President Harrison's administration, in fact, the
Secretary of the Treasury had ordered the preparation of plates for
engraving an issue of bonds by which to borrow sufficient gold to
replenish the redemption fund. By a personal appeal to New York bankers,
however, he was able to exchange paper for gold and so keep the level
above the one hundred million mark, and when Cleveland succeeded to
the chair, the reserve was $100,982,410. In the meantime the scarcity
of gold continued, and the combination of large expenditures and
slender income severely embarrassed the government in its attempts to
obtain a sufficient supply of gold to keep the reserve intact. The
administration, indeed, was all but helpless. Paper presented for
redemption in gold had to be paid out to meet expenses and was then
turned in for gold again. Hence, as Cleveland ruefully reminded
Congress, "we have an endless chain in operation constantly depleting
the Treasury's gold and never near a final rest." On April 22, 1893,
the reserve fell momentarily below $100,000,000 and later in the year
it was apparent that the reduction was likely to become permanent.
By January, 1894, the reserve was less than $70,000,000, while
$450,000,000 in paper which might be presented for redemption were in
actual circulation. Only one resource seemed available--borrowing gold.
The treasury therefore sold bonds to the value of $50,000,000. Even
this, however, did not remedy the ill. Bankers obtained gold to
purchase bonds by presenting paper currency to the government for
redemption. Relief was temporary. On the last day of May the reserve
amounted to only $79,000,000; in November, to $59,000,000. Another
issue of bonds was resorted to in November, but the results were not
better than before. At the same time the Pullman strike during the
summer months, the Wilson-Gorman tariff fiasco and an unfortunate
harvest seemed to indicate that man and nature were determined to make
1894 a year of ill-omen.
By February, 1895, the treasury found itself confronted with a reserve
of only $41,000,000. It seemed useless to attempt borrowing under the
usual conditions, and Cleveland therefore resorted to a new device. A
contract was made with J.P. Morgan and a group of bankers for the
purchase of 3,500,000 ounces of gold to be paid for with United States
four per cent. bonds. In order to protect the reserve from a renewed
drain, the bankers agreed that at least half the gold should be
obtained abroad, and they promised to exert all their influence to
prevent withdrawals of gold from the treasury while the contract was
being filled. The terms of the contract were favorable to the bankers,
but the President defended the agreement on the ground that the
promise to protect the reserve entitled the bankers to a favorable
bargain. The fact, however, that the Morgan Company was able to market
the bonds with the public and make a large profit, increased the
demand that the administration sell directly to the people and make
the profit itself. In January, 1896, occurred a fourth sale--to the
public, this time--and 4,640 bids were received, for a total several
times greater than the $100,000,000 called for. By this time, business
conditions were improving, confidence was restored among the financial
classes and gold again began to flow out of hiding and into the
treasury. The endless chain was broken.
The denunciation which Cleveland received for the untoward monetary and
industrial events of his administration was unusual even for American
politics in the middle nineties. Such extreme silver men as Senator
Stewart of Nevada declared that Cleveland's second administration was
probably the worst administration that ever occurred in this or any
other country; that he was a bold and unscrupulous stock-jobber; that
he deliberately caused the panic of 1893 and that he sent the Venezuela
message in order to divert the attention of the people from the silver
question. The New York _World_ described the transaction between the
government and the Morgan Company as a "bunco" game, and charged that
Cleveland had dishonest, dishonorable and immoral reasons for bringing
about the transaction and that he did it for a "consideration."
Representative W.J. Bryan, who belonged to the President's party and
who ordinarily was chivalrous to his opponents, declared that Cleveland
could no more escape unharmed from association with the Morgan
syndicate than he could expect to escape asphyxiation if he locked
himself up in a room and turned on the gas. The Democratic party, he
thought, should feel toward its leader as a confiding ward would feel
toward a guardian who had squandered a rich estate, or as a passenger
would feel toward a trainman who opened a switch and precipitated a
wreck.
BIBLIOGRAPHICAL NOTE
The standard works, mentioned under Chapter V, by Dewey, Hepburn and
Noyes continue valuable. The attitude of Hayes and of succeeding
Presidents is found in J.D. Richardson, _Messages and Papers of the
Presidents_; F.W. Taussig, _The Silver Situation in the United States_
(1892), is concise; _Political Science Quarterly_, III, 226, discusses
the surplus revenue; _Quarterly Journal of Economics_, III, 436, on the
direct tax; W.H. Glasson, _Federal Military Pensions_, has already been
mentioned. W.J. Lauck, _Causes of the Panic of 1893_ (1907), lays the
blame for the industrial distress of 1893 wholly on the silver law of
1890. On the gold reserve, consult Grover Cleveland, _Presidential
Problems_; D.R. Dewey, _National Problems_ (1907); _Political Science
Quarterly_, X, 573; and _Quarterly Journal of Economics_, XIII, 204.
"The Silver Debate of 1890," in _Journal of Political Economy_, I, 535,
contains a detailed account of the discussion in Congress. W.J. Bryan,
_First Battle_ (1897), should be consulted.
* * * * *
[1] According to the principle known as Gresham's law, bad money tends
to drive out good; or overvalued money to drive out undervalued money.
If the face value of a coin is more than its worth as bullion, it is
"overvalued." Thus, if coins of equal face value, but of different
bullion value, circulate side by side, there will be a tendency for the
possessors of the coins to pass on the currency with the smaller
bullion value and to withdraw the others for sale as bullion and for
use in the arts.
[2] Above, p. 164.
[3] Above, pp. 238-240.
[4] The law remained in force about three years. During that interval
nearly $156,000,000 worth of silver bullion was purchased with the new
treasury notes. The government began retiring these notes in 1900.
[5] The call for the extra session, together with news of the
suspension of free-coinage in India, sent the bullion price of silver
down twenty-one cents per ounce in two weeks. The President was
seriously handicapped at this time by a cancerous growth in the jaw,
necessitating an operation, news of which was withheld from the public
for fear of its ill effect on the financial situation. Cf. _Saturday
Evening Post_, 22 Sept., 1917.
[6] Above, p. 274.