I
The sales of United States bonds in the years 1894, 1895, and 1896 for
the purpose of replenishing the stock of gold in the public Treasury
have been greatly misunderstood by many honest people, and often
deliberately misrepresented.
My conviction that a love of fairness still abides with the masses of
our people has encouraged me to give a history of these transactions
for the benefit of those who are uninformed or have been misled
concerning them. In undertaking this task I shall attempt to avoid
unprofitable and tiresome explanation; but I shall, nevertheless,
indulge in the recital of details to such an extent as may appear
necessary to an easy understanding of the matter in hand. I desire,
above all things, to treat the subject in such a way that none who
read my narrative will be confused by the use of obscure or technical
language.
The Government’s gold reserve, as it is usually known, originated under
the provision of an act of Congress passed January 14, 1875, entitled,
“An Act to provide for the resumption of specie payments.” This law
contemplated the redemption in gold and the retirement of the currency
obligations legally known as United States notes, but commonly called
greenbacks; and it provided that such notes in excess of $300,000,000
should be redeemed and retired prior to January 1, 1879, and that after
that date all the remainder of such notes should be likewise redeemed
and canceled. This law further provided that “to enable the Secretary
of the Treasury to prepare and provide for such redemption” he should
have the authority “to issue, sell and dispose of” bonds of the United
States which were therein particularly specified. Of course this
authority was given to the Secretary of the Treasury in order that, by
the sale of Government bonds, he could accumulate a sufficient gold
fund or reserve to meet the demands of the gold redemption provided
for, and accomplish the ultimate retirement of all the United States
notes in circulation.
In compliance with this act, the sum of about $92,000,000 in gold was
realized by the sale of bonds, and about $41,000,000, in addition,
was obtained from surplus revenue; and thereupon the contemplated
redemption was entered upon. But after the retirement and cancelation
of only about $30,000,000 of these notes, and on the thirty-first day
of May, 1878, this process was interrupted by the passage of an act
forbidding their further retirement or cancelation, and providing that
any such notes thereafter redeemed should not be canceled or destroyed,
but should be “reissued and paid out again and kept in circulation.”
At the time this act was passed the United States notes uncanceled
and still outstanding amounted to $346,681,016. It will be observed
that though the actual retirement of these notes was prohibited, their
redemption in gold was still continued, coupled with the condition
that, though thus redeemed, they should be still kept on foot and again
put in circulation as a continuing and never-ending obligation of the
Government, calling for payment in gold--not once alone, but as often
as their reissue permitted, and without the least regard to prior
so-called redemptions. It will be also observed that this prohibition
of cancelation intervened seven months prior to January 1, 1879, the
date when the general and unrestricted redemption and retirement of
all these outstanding notes was, under the terms of the act of 1875,
to commence. At the time when their further cancelation was thus
terminated there remained of the gold which had been provided as a
reserve for their redemption about $103,000,000. This is the fund which
has since then been called the “gold reserve.”
In point of fact, this reserve was thereafter made up of all the net
gold held by the Government; and its amount at any particular date was
ascertained by deducting from the entire stock of gold in the Treasury
the amounts covered by outstanding gold certificates, which instruments
resemble a bank’s certificate of deposit, and are issued by the
Secretary of the Treasury to those making with the Government specific
deposits of gold, to be returned to the holders of the certificates on
demand. Of course the gold thus held for certificate-holders is not
available for the redemption of United States notes.
In the year 1882 a law was passed by Congress which provided that
the Secretary of the Treasury should suspend the issue of these gold
certificates “whenever the amount of gold coin and gold bullion in the
Treasury, reserved for the redemption of United States notes, falls
below $100,000,000.” Whatever may have been the actual relationship
between gold certificates representing gold deposited for their
redemption, and the gold kept on hand for the redemption of United
States notes, the provision of law just quoted seems to have been
accepted as a statutory recognition of the fact that our gold reserve
for note redemption should have for its lowest limit this sum of
$100,000,000. It is a singular circumstance that until very lately,
when this reserve was increased and fixed at $150,000,000, no Act of
Congress actually provided, or in any way expressly stated, what the
limits of this gold reserve for redemption purposes should be; and it
is no less singular that this provision in the law of 1882 fixed its
lowest safe limit as perfectly and authoritatively in the understanding
of our people as it could have been done by a distinct legislative
requirement. At the time this reserve was created, as well as when
the actual cancelation of United States notes after redemption was
prohibited, it evidently was thought by those directing our nation’s
financial affairs that the sum of $100,000,000 in net gold actually in
hand, especially with such additions as might naturally be expected to
reach the fund by way of surplus revenue receipts, or otherwise, would
constitute a sufficient gold reserve to redeem such of these notes
still left outstanding as might be presented, and that the assurance
of their gold redemption when presented would keep them largely in
circulation. This scheme seemed for a time to be abundantly vindicated
by the people’s contentment with the sufficiency of the redemption
reserve, and by their willingness to keep in circulating use these
United States notes as currency more convenient than gold itself.
Another most important condition of mind among the people, however,
grew out of, or at least accompanied, their acceptance of the
redemptive sufficiency of the gold reserve as constituted. The popular
belief became deep-seated and apparently immovable that the reduction
of this gold reserve to an amount less than $100,000,000 would, in some
way, cause a disastrous situation, and perhaps justify an apprehension
concerning our nation’s financial soundness. Thus a gold reserve
containing at all times at least $100,000,000 came to be regarded by
the people with a sort of sentimental solicitude, which, whatever else
may be said of it, was certainly something to be reckoned with in
making our national financial calculations.
That the plans thus set on foot for the so-called redemption of the
United States notes outstanding promised to be adequate and effective
is seen in the fact that the gold reserve, starting at the end of
June, 1878, with about $103,500,000, never afterward fell as low as
$100,000,000 until April, 1893, and that sometimes in its fluctuations
during this interval of twenty-five years it amounted to upward of
$200,000,000. Under conditions then existing popular confidence was
well established, the reserve satisfactorily endured the strain of
all redemption demands, and United States notes were kept well in
circulation as money.
In an evil hour, however, a legislative concession was made to a
mischievous and persistent demand for the free and unlimited coinage
of silver. This concession was first exhibited in an act of Congress
passed in 1878, directing the expenditure of not less than $2,000,000
nor more than $4,000,000 each month by the Secretary of the Treasury in
the purchase of silver bullion, and the coinage of such bullion into
silver dollars. Though this act is not in itself so intimately related
to my subject as to require detailed explanation, it was the forerunner
of another law of Congress which had much to do with creating the
financial conditions that necessitated the issuance of Government
bonds for the reinforcement of the gold reserve.
This law was passed in 1890, and superseded the provision of the law
of 1878 directing the purchase and coinage of silver. In lieu of
these provisions the Secretary of the Treasury was thereby directed
to purchase silver bullion from time to time in each month to the
aggregate amount of 4,500,000 ounces, or as much as might be offered,
at the market price, not to exceed, however, a limit therein fixed.
It was further provided that there should be issued, in payment of
such purchases of silver bullion, Treasury notes of the United States
in denominations not less than one dollar nor more than $1000; that
such notes should be redeemable in coin, and should “be a legal tender
in payment of all debts, public and private, except where otherwise
expressly stipulated in the contract, and should be receivable for
customs, taxes and all public dues”; and that when they were redeemed
or paid into the Treasury they might be reissued. The Secretary of
the Treasury was directed to coin into silver dollars in each month
until the first day of July, 1891, 2,000,000 ounces of the silver so
purchased, and thereafter so much as might be necessary to provide for
the redemption of the notes issued in payment for the silver from time
to time purchased under the act.
I have recited these provisions by way of leading up to the proposition
that, under the law of 1890, the burden upon the gold reserve was
tremendously enlarged. It will be readily seen that it forced larger
monthly purchases of silver than were required under the prior act,
and that, instead of providing for silver dollars, which as coins, or
certificates of deposit representing such coins, should circulate as
silver currency, unredeemable in gold as was done under the act of
1878, it directed that in payment of such purchases a new obligation of
the Government, redeemable in coin, should be issued and added to our
circulating medium.
It is, however, only when we examine the specific provision for the
redemption of these notes that we discover in its full extent the
harmful relationship of this new device to the integrity of the gold
reserve. At its outset the redemption clause of the act courageously
and manfully gave to the Secretary of the Treasury the authority to
redeem such notes in gold or silver _at his discretion_; but in its
ending it fell down a pitiful victim of the silver craze. The entire
clause is in these words: “That upon demand of the holder of any of
the Treasury notes herein provided for, the Secretary of the Treasury
shall, under such regulations as he may provide, redeem such notes in
gold or silver coin at his discretion, _it being the established policy
of the United States to maintain the two metals at a parity with each
other upon the present legal ratio, or such ratio as may be provided by
law_.”
According to the legal ratio then existing, which has never been
changed, the average intrinsic gold value of a silver dollar as
compared with a gold dollar was, during the year 1891, about
seventy-six cents, during 1892 a trifle more than sixty-seven cents,
and during 1893 about sixty cents.
It is hardly necessary to say that the assertion in the act of “the
established policy of the United States to maintain the two metals at
a parity” had the effect of transferring the discretion of determining
whether these Treasury notes should be redeemed in gold or silver, from
the Secretary of the Treasury to the holder of the notes. Manifestly,
in the face of this assertion of the Government’s intention, a demand
for gold redemption on the part of the holders of such notes could not
be refused, and the acceptance of silver dollars insisted upon, without
either subjecting to doubt the good faith and honest intention of the
Government’s professions, or creating a suspicion of our country’s
solvency. The parity between the two metals could not be maintained,
but, on the contrary, would be distinctly denied, if the Secretary of
the Treasury persisted in redeeming these notes, against the will of
the holders, in dollars of silver instead of gold.
Therefore it came to pass that the Treasury notes issued for the
purchase of silver under the law of 1890 took their place by the side
of the United States notes, commonly called greenbacks, as demands
against our very moderate and shifting gold reserve.
It should have been plainly apparent to all who had eyes to see that
the monetary scheme, thus additionally burdened, was adequate and safe
only in smooth financial weather, and was miserably calculated to
resist any disturbances in public confidence, or the rough waves of
business emergencies. The proof of this was quickly forthcoming.
The new Treasury notes made their first appearance as part of our money
circulation in August, 1890; and at the close of that month the gold
reserve amounted to $185,837,581. During the next month it fell off
about $38,000,000, reducing the amount on the last day of September
to nearly $148,000,000; and with a few slight spasmodic rallies it
continued to decrease until the sale of bonds for its replenishment.
In the latter part of 1892 and the first months of 1893, these Treasury
notes having, in the meantime, very greatly multiplied, the withdrawals
of gold from the Treasury through the redemption of these as well
as the United States notes strikingly increased; and the fact that
by far the larger part of the gold so withdrawn was shipped abroad
plainly showed that foreign investors in American securities had grave
apprehensions as to our ability to continue to redeem all these notes
in gold and thus maintain the integrity and soundness of our financial
condition.
I succeeded Mr. Harrison in the Presidency on the fourth day of
March, 1893; and on the seventh of that month Mr. Carlisle became
Secretary of the Treasury. The gold reserve on that day amounted to
$100,982,410--only $982,410 in excess of the sum that had come to
be generally regarded as indicating the danger line. The retiring
Secretary of the Treasury, appreciating the importance of preventing
the fall of the reserve below this limit, had just before his
retirement directed the preparation of plates for the engraving of
bonds so that he might by their sale obtain gold to reinforce the
fund. I have heard him say within the last few years that he expected
before the close of his term to resort to bond sales for the purpose
of such reinforcement, unless prevented at the last moment by the
President’s disapproval. Of course it is but natural that any one
directing the affairs of the Treasury Department should be anxious to
avoid such an expedient; and Secretary Foster avoided it, and barely
saved the reserve from falling below the $100,000,000 mark during his
term, by effecting arrangements, in January and February, 1893, with
certain bankers in New York, by which he obtained from them in exchange
for United States notes, or on other considerations, something over
$8,000,000 in gold, which enabled him to escape the sale of bonds in
aid of the reserve.
With the gold reserve lower than it had ever been since its creation
in 1878, and showing an excess of less than $1,000,000 above the
supposed limit of disaster, and with the demand for gold redemption
of Government currency obligations giving no sign of abatement,
the prospect that greeted the new administration was certainly not
reassuring. In our effort to meet the emergency without an issue of
bonds Secretary Carlisle immediately applied to banks in different
localities for an exchange with the Government of a portion of their
holdings of gold coin for other forms of currency. This effort was so
far successful that on the 25th of March the gold reserve amounted
to over $107,000,000, notwithstanding the fact that considerable
withdrawals had been made in the interval. The slight betterment
thus secured proved, however, to be only temporary; for under the
stress of continued and augmented withdrawals, the gold reserve, on
the twenty-second day of April, 1893, for the first time since its
establishment, was reduced below the $100,000,000 limit--amounting on
that day to about $97,000,000.
Though this fall below the minimum theretofore always maintained was
not followed by any sudden and distinctly new disaster, it had the
effect of accelerating withdrawals of gold. It became apparent that
there had intervened a growing apprehension among the masses of our
own people concerning the Government’s competency to continue gold
redemption, with the result that a greatly increased proportion of the
amount withdrawn from the gold reserve, instead of going abroad to
satisfy the claims of foreigners or as a basis of commercial exchange,
was hoarded by our citizens at home as a precaution against possible
financial distress. In the meantime, nearly the entire gold receipts
in payment of customs and other revenue charges had ceased. To meet
this situation strenuous efforts were made by the Secretary of the
Treasury to improve the condition by resorting again to the plan of
exchanging for gold other forms of currency, with some success, while
in the month of August, 1893, gold revenue receipts were temporarily
considerably stimulated. Thus a fleeting gleam of hope was given to the
dark surroundings.
In these troublous times those charged with the administration of the
Government’s financial affairs could not fail to recognize in the law
of 1890, directing the monthly purchase of silver and the issuance in
payment therefor of Treasury notes in effect redeemable in gold, a
prolific cause of our financial trouble. Accordingly, a special session
of Congress was called to meet on the seventh day of August, 1893, to
repeal this law, and thus terminate the creation of further demands
upon our already overburdened and feeble gold reserve. The repealing
act was quite promptly passed in the House of Representatives on the
twenty-eighth day of August; but, on account of vexatious opposition
in the Senate, the repeal was not finally effected until the first day
of November, 1893, and then only after there had been added to the act
an inopportune repetition of the statement concerning the Government’s
intention to maintain the parity of both gold and silver coins.