The effect of this repeal in its immediate results failed to quiet the
fear of impending evil now thoroughly aroused; nor were all the efforts
thus far made to augment the gold reserve effective as against the
constant process of its depletion.
On the seventeenth day of January, 1894, the Government was confronted
by a disquieting emergency. The gold reserve had fallen to less than
$70,000,000, notwithstanding the most diligent efforts to maintain it
in sounder condition. Against this slender fund gold demands amounting
to not less than $450,000,000 in United States notes and Treasury notes
were in actual circulation, and others amounting to about $50,000,000,
in addition, were temporarily held in the Treasury subject to
reissue--the entire volume, by peremptory requirement of law, remaining
uncanceled even after repeated redemption; nor was there any promise
of a cessation of the abnormal and exhausting drain of gold then fully
under way. Another factor in the situation, most perplexing and
dangerous, was the distrust, which was growing enormously, regarding
the wisdom and stability of our scheme of finance. As a result of these
conditions there loomed in sight the menace of the destruction of our
gold reserve, the repudiation of our gold obligations, the humiliating
fall of our nation’s finances to a silver basis, and the degradation of
our Government’s high standing in the respect of the civilized world.
There was absolutely but one way to avert national calamity and our
country’s disgrace; and this way was adopted when, on the seventeenth
day of January, 1894, the Secretary of the Treasury issued a notice
that bids in gold would be received until the first day of February
following for $50,000,000 in bonds of the United States, redeemable in
coin at the pleasure of the Government after ten years from the date
of their issue, and bearing interest at the rate of five per cent.
per annum. It was further stated in the notice that no bid would be
considered that did not offer a premium on said bonds of a fraction
more than seventeen per cent., which would secure to the purchaser an
investment yielding three per cent. per annum.
It should here be mentioned that the only Government bonds which could
be sold in the manner and for the purpose contemplated were such as
were authorized and described in a law passed in 1870, and which were
designated in the law of 1875 providing for the redemption of United
States notes as the kind of bonds which the Secretary of the Treasury
was permitted to sell to enable him “to prepare and provide for”
such redemption. The issues of bonds thus authorized were of three
descriptions: one payable at the pleasure of the Government after
ten years from their date, and bearing interest at the rate of five
per cent.; one so made payable after fifteen years from their date,
bearing four and a half per cent. interest; and one in like manner
made payable after thirty years from their date, bearing interest at
the rate of four per cent. The five per cent. bonds were specified in
the Secretary’s offer of sale because on account of their high rate of
interest they would command a greater premium, and therefore a larger
return of gold, and for the further reason that the option of the
Government regarding their payment could be earlier exercised.
The withdrawals of gold did not cease with the offer to sell bonds
for the replenishment of the reserve, and on the day before the date
limited for the opening of bids the fund had decreased to less than
$66,000,000. In the meantime, the perplexity of the situation, already
intense, was made more so by the fact that the bids for bonds under
the offer of the Secretary came in so slowly that a few days before
the 1st of February, when the bids were to be opened, there were plain
indications that the contemplated sale would fail unless prompt and
energetic measures were taken to avoid such a perilous result.
Thereupon the Secretary of the Treasury invited to a conference, in
the city of New York, a number of bankers and presidents of moneyed
institutions, which resulted in so arousing their patriotism, as
well as their solicitude for the protection of the interests they
represented, that they effectively exerted themselves, barely in time
to prevent a disastrous failure of the sale. The proceeds of this
sale, received from numerous bidders large and small, aggregated
$58,660,917.63 in gold, which so increased the reserve that on the
sixth day of March, 1894, it amounted to $107,440,802.
It was hoped that this measure of restoration and this exhibition of
the nation’s ability to protect its financial integrity would allay
apprehension and restore confidence to such an extent as to render
further bond sales unnecessary. It was soon discovered, however, that
the complications of our ill condition were so deep-seated and stubborn
that the treatment resorted to was only a palliative instead of a cure.
On the last day of May, 1894, less than three months after its
reinforcement, as mentioned, the gold reserve had been again so
depleted by withdrawals that it amounted to only $78,693,267. An almost
uninterrupted downward tendency followed, notwithstanding constant
efforts on the part of the Government to check the fall, until, on the
fourteenth day of November, 1894, the fund had fallen to $61,878,374.
In the meantime, the inclination of our timid citizens to take gold
from the reserve for hoarding “had grown by what it fed on,” while
large shipments abroad to meet foreign indebtedness or for profit still
continued and increased in amount.
In these circumstances the inexorable alternative presented itself of
again selling Government bonds for the replenishment of its redemption
gold, or assuming the tremendous risk of neglecting the safety and
permanence of every interest dependent upon the soundness of our
national finances. An obedient regard for official duty made the right
path exceedingly plain.
On the day last mentioned a public proposal was issued inviting bids
in gold for the purchase of additional five per cent. bonds to the
amount of $50,000,000. Numerous bids were received under this proposal,
one of which, for “all or none” of the bonds, tendered on behalf of
thirty-three banking institutions and financiers in the city of New
York, being considerably more advantageous to the Government than all
other bids, was accepted, and the entire amount was awarded to these
parties. This resulted in adding to the reserve the sum of $58,538,500.
The president at that time of the United States Trust Company, one
of the strongest and largest financial institutions in the country,
rendered most useful and patriotic service in making both this and the
previous offer of bonds successful; and his company was a prominent
purchaser on both occasions. He afterward testified under oath that
the accepted bid for “all or none,” in which his company was a large
participant, proved unprofitable to the bidders.
The payment of gold into the Treasury on account of this sale of
bonds was not entirely completed until after the 1st of December,
1894. Then followed a time of bitter disappointment and miserable
depression, greater than any that had before darkened the struggles of
the Executive branch of the Government to save our nation’s financial
integrity.
The addition made to the gold reserve by this completed transaction
seemed to be of no substantial benefit, if, on the contrary, it did
not actually stimulate the disquieting factors of the situation. In
December, 1894, during which month $58,538,500 in gold, realized from
this second sale of bonds, was fully paid in and added to the reserve,
the withdrawals from the fund amounted to nearly $32,000,000; and this
was followed in the next month, or during January, 1895, by a further
depletion in the sum of more than $45,000,000.
In view of the crisis which these suddenly increased withdrawals seemed
to portend, the aid of Congress was earnestly invoked in a special
presidential message to that body, dated on the 28th of January, 1895,
in which the gravity and embarrassment of the situation were set forth
in the following terms:
The real trouble which confronts us consists in a lack of
confidence, widespread and constantly increasing, in the
continuing ability or disposition of the Government to pay
its obligations in gold. This lack of confidence grows to
some extent out of the palpable and apparent embarrassment
attending the efforts of the Government under existing laws to
procure gold, and to a greater extent out of the impossibility
of either keeping it in the Treasury or canceling obligations
by its expenditure after it is obtained....
The most dangerous and irritating feature of the situation,
however, remains to be mentioned. It is found in the means
by which the Treasury is despoiled of the gold thus obtained
(by the sale of bonds) without canceling a single Government
obligation, and solely for the benefit of those who find profit
in shipping it abroad, or whose fears induce them to hoard it
at home. We have outstanding about $500,000,000 of currency
notes of the Government for which gold may be demanded, and,
curiously enough, the law requires that when presented, and, in
fact, redeemed and paid in gold, they shall be reissued. Thus
the same notes may do duty many times in drawing gold from the
Treasury; nor can the process be averted so long as private
parties, for profit or otherwise, see an advantage in repeating
the operation. More than $300,000,000 of these notes have been
redeemed in gold, and, notwithstanding such redemption, they
are still outstanding.
After giving a history of the bond issues already made to replenish the
reserve, and of their results, it was further stated:
The financial events of the past year suggest facts and
conditions which should certainly arrest attention. More than
$172,000,000 in gold have been drawn out of the Treasury
during the year for the purpose of shipment abroad or hoarding
at home.
While nearly $103,000,000 was drawn out during the first ten
months of the year, a sum aggregating more than two-thirds of
that amount, being about $69,000,000, was drawn out during the
following two months, thus indicating a marked acceleration of
the depleting process with the lapse of time.
Following a reference to existing differences of opinion in regard to
the extent to which silver should be coined or used in our currency,
and the irrelevancy of such differences to the matter in hand, the
message continued:
While I am not unfriendly to silver, and while I desire to see
it recognized to such an extent as is consistent with financial
safety and the preservation of national honor and credit, I am
not willing to see gold entirely banished from our currency
and finances. To avert such a consequence I believe thorough
and radical remedial legislation should be promptly passed.
I therefore beg the Congress to give the subject immediate
attention.
After recommending the passage of a law authorizing the issue of
long-term bonds, bearing a low rate of interest, to be used for the
maintenance of an adequate gold reserve and in exchange for outstanding
United States notes and Treasury notes for the purpose of their
cancelation, and after giving details of the proposed scheme, the
message concluded as follows:
In conclusion, I desire to frankly confess my reluctance to
issue more bonds in present circumstances and with no better
results than have lately followed that course. I cannot,
however, refrain from adding to an assurance of my anxiety to
co-operate with the present Congress in any reasonable measure
of relief, an expression of my determination to leave nothing
undone which furnishes a hope for improving the situation, or
checking a suspicion of our disinclination or disability to
meet, with the strictest honor, every national obligation.
This appeal to Congress for legislative aid was absolutely fruitless.
On the eighth day of February, 1895, those who, under the mandate of
Executive duty, were striving, thus unaided, to avert the perils of the
situation, could count in the gold reserve only the frightfully low sum
of $41,340,181; and it must be remembered that this was only two months
after the proceeds of the second sale of bonds had been added to the
fund. In point of fact, the withdrawals of gold during the short period
mentioned had exceeded by more than $18,000,000 the amount of such
proceeds; and several million dollars more had been demanded, some of
which, though actually taken out, was unexpectedly, and on account of
the transaction now to be detailed, returned to the Treasury.
This sudden fall in the reserve, and the apparent certainty of the
continuance of its rapid depletion, seemed to justify the fear that
before another bond sale by means of public notice and popular
subscription could be perfected the gold reserve might be entirely
exhausted; nor could we keep out of mind the apprehension that in
consequence of repeated dispositions of bonds, with worse instead
of better financial conditions impending, further sales by popular
subscription might fail of success, except upon terms that would give
the appearance of impaired national credit.
Notwithstanding all this, no other way seemed to be open to us than
another public offer of bonds; and it was determined to move in that
direction immediately.
In anticipation of this action it was important to obtain certain
information and suggestions touching the feeling and disposition of
those actively prominent in financial and business circles.
I think it may here be frankly confessed that it never occurred to
any of us to consult, in this emergency, farmers, doctors, lawyers,
shoe-makers, or even statesmen. We could not escape the belief that
the prospect of obtaining what we needed might be somewhat improved by
making application to those whose business and surroundings qualified
them to intelligently respond.
Therefore, on the evening of the seventh day of February, 1895, an
interview was held at the White House with Mr. J. P. Morgan of New
York; and I propose to give the details of that interview as gathered
from a recollection which I do not believe can be at fault. Secretary
Carlisle was present nearly or quite all the time, Attorney-General
Olney was there a portion of the time, and Mr. Morgan and a young man
from his office and myself all the time. At the outset Mr. Morgan was
inclined to complain of the treatment he had received from Treasury
officials in the repudiation of an arrangement which he thought he had
been encouraged to perfect in connection with the disposal of another
issue of bonds. I said to Mr. Morgan, whatever there might be in all
this, another offer of bonds for popular subscription open to all
bidders had been determined upon, and that there were two questions I
wanted to ask him which he ought to be able to answer: one was whether
the bonds to be so offered would probably be taken at a good price
on short notice; and the other was whether, in case there should be
imminent danger of the disappearance of what remained of the gold
reserve, during the time that must elapse between published notice and
the opening of bids, a sufficient amount of gold could be temporarily
obtained from financial institutions in the city of New York to bridge
over the difficulty and save the reserve until the Government could
realize upon the sale of its bonds. Mr. Morgan replied that he had no
doubt bonds could be again sold on popular subscription at some price,
but he could not say what the price would be; and to the second inquiry
his answer was that, in his opinion, such an advance of gold as might
be required could be accomplished if the gold could be kept in this
country, but that there might be reluctance to making such an advance
if it was to be immediately withdrawn for shipment abroad, leaving
our financial condition substantially unimproved. After a little
further discussion of the situation he suddenly asked me why we did
not buy $100,000,000 in gold at a fixed price and pay for it in bonds,
under Section 3700 of the Revised Statutes. This was a proposition
entirely new to me. I turned to the Statutes and read the section he
had mentioned. Secretary Carlisle confirmed me in the opinion that
this law abundantly authorized such a transaction, and agreed that it
might be expedient if favorable terms could be made. The section of the
Statutes referred to reads as follows:
_Section 3700._ The Secretary of the Treasury may purchase coin
with any of the bonds or notes of the United States authorized
by law, at such rates and upon such terms as he may deem most
advantageous to the public interest.
Mr. Morgan strongly urged that, if we proceeded under this law, the
amount of gold purchased should not be less than $100,000,000; but he
was at once informed that in no event would more bonds be then issued
than would be sufficient to provide for adding to the reserve, about
$60,000,000, the amount necessary to raise the fund to $100,000,000.
Not many months afterward I became convinced that on this point Mr.
Morgan made a wise suggestion; and I have always since regretted that
it was not adopted.