It can hardly be necessary to state that any plan which would protect
from immediate withdrawal the gold we might add to our reserve could
not fail to be of extreme value. Such of these withdrawals as were
made for hoarding gold could be prevented only by a restoration of
confidence among those of our people who had grown suspicious of
the Government’s financial ability; but the considerable drain from
the reserve for the purchase of the very bonds to be sold for its
reinforcement, and the much larger drain made by those who profited by
the shipment of gold abroad, could be, measurably at least, directly
arrested. Thus to the extent that foreign gold might be brought here
and used for the purchase of bonds, the use for that purpose of such
as was held by our own people or as was already in the reserve subject
to their withdrawal would not only be decreased, but the current of
the passage of gold would be changed and would flow toward us instead
of away from us, making the prospect of profit in gold exportation
less alluring. An influx of gold from abroad would also have a tendency
to decrease the sentimental estimate of its desirability which its
unrelieved scarcity was apt to create in timid minds. It was especially
plain that so far as withdrawals from our reserve for speculative
shipment abroad were concerned, they could be discouraged by the
efforts of those whose financial connections in other countries enabled
them to sell gold exchange on foreign money centers at a price which
would make the actual transportation of the coin itself unprofitable.
The position of Mr. Morgan and the other parties in interest whom he
represented was such in the business world that they were abundantly
able, not only to furnish the gold we needed, but to protect us in
the manner indicated against its immediate loss. Their willingness to
undertake both these services was developed during the discussion of
the plan proposed; and after careful consideration of every detail
until a late hour of the night, an agreement was made by which J. P.
Morgan & Co. of New York, for themselves and for J. S. Morgan & Co.
of London; and August Belmont & Co. of New York, for themselves and
for N. M. Rothschild & Son of London, were to sell and deliver to the
Government 3,500,000 ounces of standard gold coin of the United States,
to be paid for in bonds bearing annual interest at the rate of four per
cent. per annum, and payable at the pleasure of the Government after
thirty years from their date, such bonds to be issued and delivered
from time to time as the gold coin to be furnished was deposited by
said parties in the subtreasuries or other legal depositories of the
United States. At least one half of the coin so delivered was to be
obtained in Europe, and shipped from there in amounts not less than
300,000 ounces per month, at the expense and risk of the parties
furnishing the same; and so far as it was in their power they were
to “exert all financial influence and make all legitimate efforts to
protect the Treasury of the United States against the withdrawals of
gold pending the complete performance of the contract.”
Four per cent. bonds were selected for use in this transaction instead
of ten-year bonds bearing five per cent. interest, because their
maturity was extended to thirty years, thus offering a more permanent
and inviting investment, and for the further reason that $100,000,000
of shorter five per cent. bonds had already been issued, and it was,
therefore, deemed desirable to postpone these further bond obligations
of the Government to a later date. The price agreed upon for the gold
coin to be delivered was such that the bonds given in payment therefor
would yield to the investor an annual income of three and three fourths
per cent.
It has already been stated that the only bonds which could be utilized
in our efforts to maintain our gold reserve were those described in a
law passed as early as 1870, and made available for our uses by an act
passed in 1875. The terms of these bonds were ill suited to later ideas
of investment, and they were made payable in coin and not specifically
in gold. Nothing at any time induced the exchange of gold for these
coin bonds, except a reliance upon such a measure of good faith on the
part of the Government, and honesty on the part of the people, as would
assure their payment in gold coin and not in depreciated silver.
It was exceedingly fortunate that, at the time this agreement was under
consideration, certain political movements calculated to undermine this
reliance upon the Government’s continued financial integrity were not
in sight; but it was, nevertheless, very apparent that the difficulties
of the situation would be greatly lessened if, in safeguarding our
reserve, bonds could be used payable by their terms in gold, and
bearing a rate of interest not exceeding three per cent. Accordingly,
at the instance of Secretary Carlisle, a bill had been introduced in
the House of Representatives, some time before the Morgan-Belmont
agreement was entered upon, which authorized the issue of bonds of that
description. A few hours before the agreement was consummated this
sane and sensible legislation was brought to a vote in the House and
rejected.
When, in our interview with Mr. Morgan, the price for the gold to be
furnished was considered, he gave reasons which we could not well
answer in support of the terms finally agreed upon; but he said that
the parties offering to furnish the gold would be glad to accept at par
three per cent. bonds, payable by their terms in gold instead of in
coin, in case their issue could be authorized. He expressed not only a
willingness but a strong desire that a substitution might be made of
such bonds in lieu of those already selected, and readily agreed to
allow us time to procure the necessary legislation for that purpose.
He explained, however, that only a short time could be stipulated
for such a substitution, because in order to carry out successfully
the agreement contemplated, the bonds must be offered in advance to
investors both here and abroad, and that after numerous subscriptions
had been received from outside parties the form and condition of the
securities could not be changed; and he added that, but for this, there
would be no objection to the concession of all the time desired. It
was finally agreed that ten days should be allowed us to secure from
Congress the legislation necessary to permit the desired substitution
of bonds. A simple calculation demonstrated that by such a substitution
the Government would save on account of interest more than $16,000,000
before the maturity of the bonds. It was further stipulated on the part
of the Government that if the Secretary of the Treasury should desire
to sell any further bonds on or before October 1, 1895, they should
first be offered to the parties then represented by Mr. Morgan. This
stipulation did not become operative.
When our conference terminated it was understood that Secretary
Carlisle and Attorney-General Olney should act for the Government at
a meeting between the parties early the following day, at which the
agreement we had made was to be reduced to writing; and thereupon I
prepared a message which was submitted to the Congress at the opening
of its session on the following day, in which the details of our
agreement were set forth and the amount which would be saved to the
Government by the substitution of three per cent. gold bonds was
plainly stated; but having no memorandum of the agreement before me,
in my haste I carelessly omitted to mention the efforts agreed on by
Mr. Morgan and his associates to prevent gold shipments. The next
morning a contract embodying our agreement was drawn and signed, and a
copy at once given to the chairman of the Ways and Means Committee of
the House, so that the delay of a demand for its inspection might be
avoided. A bill was also immediately introduced again giving authority
to issue three per cent. bonds, payable by their terms in gold, to be
substituted in place of the four per cent. bonds as provided in the
contract--to the end that $16,000,000 might be saved to the Government,
and the public welfare in every way subserved.
The object of this message was twofold. It was deemed important,
considering the critical condition of our gold reserve, that the public
should be speedily informed of the steps taken for its protection; and
in addition, though previous efforts to obtain helpful legislation had
resulted in discouragement, it was hoped that when the saving by the
Government of $16,000,000 was seen to depend on the action of Congress
there might be a response that would accord with patriotic public duty.
Quite in keeping with the congressional habit prevailing at that time,
the needed legislation was refused, and this money was not saved.
The contract was thereupon carried out as originally made. In its
execution four per cent. bonds were delivered amounting to $62,315,400,
and the sum of $65,116,244.62 in gold received as their price. The
last deposit in completion of the contract was made in June, 1895, but
additional gold was obtained from the contracting parties in exchange
for United States notes and Treasury notes until in September, 1895,
when the entire amount of gold received from them under the contract
and through such exchanges had amounted to more than $81,000,000. The
terms of the agreement were so well carried out, not only in the matter
of furnishing gold, but in procuring it from abroad and protecting the
reserve from withdrawals, that during its continuance the operation
of the “endless chain” which had theretofore drained our gold was
interrupted. No gold was, during that period, taken from the Treasury
to be used in the purchase of bonds, as had previously been the case,
nor was any withdrawn for shipment abroad.
It became manifest, however, soon after this contract was fully
performed, that our financial ailments had reached a stage so nearly
chronic that their cure by any treatment within Executive reach might
well be considered a matter of anxious doubt. In the latter months of
the year 1895 a scarcity of foreign exchange and its high rate, the
termination of the safeguards of the Morgan-Belmont contract, and, as
a result, the renewal of opportunity profitably to withdraw gold for
export with a newly stimulated popular apprehension, and perhaps other
disturbing incidents, brought about a recurrence of serious depletions
of gold from the reserve.
In the annual Executive message sent to Congress on the second day
of December, 1895, the situation of our finances and currency was
set forth in detail, and another earnest plea was made for remedial
legislative action. After mentioning the immediately satisfactory
results of the contract for the purchase of gold, the message continued:
Though the contract mentioned stayed for a time the tide of
gold withdrawals, its good results could not be permanent.
Recent withdrawals have reduced the reserve from $107,571,230
on the eighth 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
shipment in the immediate future are predicted in well-informed
quarters. About $16,000,000 has been withdrawn during the month
of November.
The prediction of further withdrawals mentioned in this message was so
fully verified that eighteen days after its transmission, and on the
twentieth day of December, 1895, another Executive communication was
sent to Congress, in contemplation of its holiday recess, in which,
after referring to the details contained in the former message, it was
stated:
The contingency then feared has reached us, and the withdrawals
of gold since the communication referred to, and others
that appear inevitable, threaten such a depletion in our
Government’s gold reserve as brings us face to face with the
necessity of further action for its protection. This condition
is intensified by the prevalence in certain quarters of sudden
and unusual apprehension and timidity in business circles.
The real and sensible cure for our recurring troubles can only
be effected by a complete change in our financial scheme.
Pending that, the Executive branch of the Government will not
relax its efforts nor abandon its determination to use every
means within its reach to maintain before the world American
credit, nor will there be any hesitation in exhibiting its
confidence in the resources of our country and the constant
patriotism of our people.
In view, however, of the peculiar situation now confronting us,
I have ventured to herein express the earnest hope that the
Congress, in default of the inauguration of a better system
of finance, will not take a recess from its labors before it
has, by legislative enactment or declaration, done something,
not only to remind those apprehensive among our own people
that the resources of this Government and a scrupulous regard
for honest dealing afford a sure guarantee of unquestioned
safety and soundness, but to reassure the world that with these
factors, and the patriotism of our citizens, the ability and
determination of our nation to meet in any circumstances every
obligation it incurs do not admit of question.
Perhaps it should not have been expected that members of Congress would
permit troublesome thoughts of the Government’s financial difficulties
to disturb the pleasant anticipations of their holiday recess; at
any rate, these difficulties and the appeal of the President for at
least some manifestation of a disposition to aid in their remedy were
completely ignored.
On the sixth day of January, 1896, the gold reserve having fallen
to $61,251,710, its immediate repair became imperative. Though our
resort to the expedient of purchasing gold with bonds under contract
had been productive of very satisfactory results, it by no means
indicated our abandonment of the policy of inviting offerings of gold
by public advertisement. It was rather an exceptional departure from
that policy, made necessary by the dangerously low state of the reserve
on account of extensive and sudden depletions, and the peril attending
any delay in replenishing it. We had not lost faith in the loyalty
and patriotism of the people, nor did we doubt their willingness to
respond to an appeal from their Government in any emergency. We also
confidently believed that if the bonds issued for the purpose of
increasing our stock of gold were widely distributed among our people,
self-interest as well as patriotism would stimulate the solicitude of
the masses of our citizens for the welfare of the nation. No reason
for discouragement had been found in public offerings for bonds, so
far as obtaining a needed supply of gold and a fair price for our
bonds were concerned. The failure of their wide distribution among
the people when so disposed of seemed to be largely owing to the fact
that the bonds themselves were so antiquated in form, and bore so high
a rate of interest, that it was difficult for an ordinary person to
make the rather confusing computation of premium and other factors
necessary to a safe and intelligent bid. In a transaction of this
sort, where the smallest fraction of a cent may determine the success
of an offer, those accustomed to the niceties of financial calculations
are apt to hold the field to the exclusion of many who, unaided, dare
not trust themselves in the haze of such intricacies. If Congress had
provided for the issuance of bonds bearing a low rate of interest,
which could have been offered to the public at par, I am convinced
that the plain people of the land would more generally have become
purchasers. Another difficulty that had to some extent prevented a more
common participation by the people in prior public sales arose, it was
thought, from their lack of notice of the pendency of such sales, and
want of information as to the advantages of the investment offered, and
the procedure necessary to present their bids in proper form.
In view of the fact that the gold then in the reserve amounted to
$20,000,000 more than it contained eleven months earlier, when the
Morgan-Belmont contract was made, and because, for that reason, more
time could be allowed for its replenishment, there was no hesitation
in deciding upon a return to our original plan of offering bonds in
exchange for gold by public subscription.
Having determined upon a return to this method, it was deemed wise,
upon consideration of all the circumstances, to make some modification
of prior action in such cases. Instead of short-term five per cent.
bonds, the longer-term bonds bearing four per cent. interest were
substituted, as, on the whole, the best we could offer for popular
subscription. Since two offerings of $50,000,000 each had proved to
be of only very temporary benefit, it was determined to double the
amount and offer $100,000,000 for subscription. Nearly a month was to
be given instead of a shorter time, as theretofore, between the date
of notice of the offer and the opening of the bids; and extraordinary
efforts were to be made to give the most thorough publicity to the
offerings--to the end that we might stimulate in every possible way the
desire of the masses of our people to invest in the bonds. Especial
information and aid were to be furnished for the guidance of those
inclined to subscribe; and successful bidders were to be allowed to pay
for the bonds awarded to them in instalments. The lowest denomination
of the bonds was to be fifty dollars, and the larger ones were to be in
multiples of that sum. In point of fact, it was resolved that nothing
should be left undone which would in any way promote the success of
this additional and increased offer of bond subscription to the public.
Accordingly, on the sixth day of January, 1896, a circular bearing
that date was issued, giving notice that proposals would be received
until the fifth day of February following for gold coin purchases of
$100,000,000 of the four per cent. bonds of the United States, upon
the terms above mentioned. These circulars were extensively published
in the newspapers throughout the country. Copies, together with a
letter of instruction to bidders, containing, among other things, a
computation showing the income the bonds would yield to the investor
upon their purchase at prices therein specified, and accompanied by
blanks for subscription, were sent to the postmasters in every State
and Territory with directions that they should be conspicuously
displayed in their offices. The Comptroller of the Currency prepared
and sent to all national banks a circular letter, urging them to call
the attention of their patrons to the desirability of obtaining the
bonds as an investment, and to aid in stimulating subscriptions; and
with this was forwarded a complete set of papers similar to those sent
to the postmasters. These papers were also sent to other banks and
financial institutions and to bankers in all parts of the country,
and, in addition, notice was given that they could be obtained upon
application to the Treasury Department or any of the subtreasuries
of the United States. Soon afterward, in view of the large amount of
the bonds offered, and as a precaution against an undue strain upon
the general money market, as well as to permit the greatest possible
opportunity for subscription, the terms of the original offer of the
Secretary of the Treasury were modified by reducing in amount the
instalments of the purchase price and extending the time for their
payment.
On an examination of the bids at the expiration of the time limited
for their presentation, it was found that 4635 bids had been received,
after rejecting six which were palpably not genuine or not made in good
faith. The bidders were scattered through forty-seven of our States and
Territories, and the aggregate amount represented by their bids was
$526,970,000. The number of accepted bids upon which bonds were awarded
was only 828, and of these ten were forfeited after acceptance, on
account of non-payment of the first instalment of the purchase price.
Several of the bids accepted were for a single fifty-dollar bond, and
they varied in amount from that to one bid made by J. P. Morgan & Co.
and several associates for the entire issue of $100,000,000, for which
they offered 110.6877 on the dollar. To all the other 827 accepted
bidders who offered even the smallest fraction of a farthing more than
this the full number of bonds for which they bid were awarded.
The aggregate of the bonds awarded to these bidders, excluding the
Morgan bid, amounted to $62,321,150. The remainder of the entire
offering, including more than $4,700,000 of the awards which became
forfeited for non-payment as above mentioned, were awarded to Mr.
Morgan and his associates, their bid being the highest next to those on
which bonds had been awarded in full, as already stated.
The aggregate of the prices received for these bonds represented, by
reason of the premiums paid, an income to the investor of a trifle less
than three and four tenths per cent.
As a result of this large sale of bonds, the gold reserve, which, on
the last day of January, 1896, amounted to less than $50,000,000, was
so increased that at the end of February, in spite of withdrawals in
the meantime, it stood at nearly $124,000,000.
It will be observed that, notwithstanding all the efforts made to
distribute this issue of bonds among the people, but 827 bids out of
4641 were entitled to awards as being above the Morgan bid; and that
more than one third of all the bonds sold were awarded on the single
bid of Mr. Morgan and his associates.
The price received on this public sale was apparently somewhat better
for the Government than that secured by the Morgan-Belmont contract;
but their agreement required of them such labor, risk, and expense
as perhaps entitled them to a favorable bargain. In any event, the
advantages the Government derived from this contract were certainly
very valuable and should not be overlooked. On every sale of bonds by
public offering, not excluding that just mentioned, large amounts of
gold were withdrawn from the Treasury and used in paying for the bonds
offered. In the execution of the contract of February, 1895, no gold
was withdrawn for the purchase of the bonds, and the reserve received
the full benefit of the transaction. Each sale by public advertisement
made prior to the time of the contract had been so quickly followed
by extensive and wasting withdrawals of gold from the reserve, that
scarcely a breathing-time was allowed before we were again overtaken
by the necessity for its reinforcement. Even after the notice given
for the last sale on the eighth day of January, 1896, and between that
date and the 1st of June following, these withdrawals amounted to more
than $73,000,000, while during the six months or more of the existence
of the Morgan-Belmont contract the withdrawals of gold for export
were entirely prevented and a season of financial quiet and peace was
secured.
Whatever may be the comparative merits of the two plans for maintaining
our gold reserve, both of them when utilized were abundantly and
clearly justified.
Whether from fatigue of malign conditions or other causes, ever since
the last large sale of bonds was made the gold reserve has been so free
from depletion that its condition has caused no alarm.
Two hundred and sixty-two millions of dollars in bonds were issued on
its account during the critical time covered by this narrative; but the
credit and fair fame of our nation were saved.
I have attempted to give a detailed history of the crime charged
against an administration which “issued bonds of the Government in
time of peace.” Without shame and without repentance, I confess my
share of the guilt; and I refuse to shield my accomplices in this crime
who, with me, held high places in that administration. And though Mr.
Morgan and Mr. Belmont and scores of other bankers and financiers who
were accessories in these transactions may be steeped in destructive
propensities, and may be constantly busy in sinful schemes, I shall
always recall with satisfaction and self-congratulation my association
with them at a time when our country sorely needed their aid.