The avenging consequences of the Silver Purchase Act moved so rapidly
that when John Griffin Carlisle took office as Secretary of the Treasury
in 1893, the gold reserve had fallen to $100,982,410--only $982,410
above the limit indicated by the Act of 1882--and the public credit was
shaken by the fact that it was an open question whether the government
obligation to pay a dollar was worth so much or only one half so much.
The latter interpretation, indeed, seemed impending. The new Secretary's
first step was to adopt the makeshift expedient of his predecessors. He
appealed to the banks for gold and backed up by patriotic exhortation
from the press, he did obtain almost twenty-five millions in gold in
exchange for notes. But as even more notes drawing out the gold
were presented for redemption, the Secretary's efforts were no more
successful than carrying water in a sieve.
Of the notes presented for redemption during March and April, nearly
one-half were treasury notes of 1890, which by law the Secretary might
redeem "in gold or silver coin at his discretion." The public was now
alarmed by a rumor that Secretary Carlisle, who while in Congress had
voted for free silver, would resort to silver payments on this class of
notes, and regarded his statements as being noncommittal on the point.
Popular alarm was, to some extent, dispelled by a statement from
President Cleveland, on the 23rd of April, declaring flatly and
unmistakably that redemption in gold would be maintained. But the
financial situation throughout the country was such that nothing could
stave off the impending panic. Failures were increasing in number, some
large firms broke under the strain, and the final stroke came on the 5th
of May when the National Cordage Company went into bankruptcy. As often
happens in the history of panics, the event was trivial in comparison
with the consequences. This company was of a type that is the reproach
of American jurisprudence--the marauding corporation. In the very month
in which it failed, it declared a large cash dividend. Its stock, which
had sold at 147 in January, fell in May to below ten dollars a share.
Though the Philadelphia and Reading Railway Company, which failed
in February, had a capital of $40,000,000 and a debt of more than
$125,000,000, the market did not break completely under that strain. The
National Cordage had a capital of $20,000,000 and liabilities of only
$10,000,000, but its collapse brought down with it the whole structure
of credit. A general movement of liquidation set in, which throughout
the West was so violent as to threaten general bankruptcy. Nearly all
of the national bank failures were in the West and South, and still more
extensive was the wreck of state banks and private banks. It had been
the practice of country banks, while firmly maintaining local rates, to
keep the bulk of their resources on deposit with city banks at two
per cent. This practice now proved to be a fatal entanglement to many
institutions. There were instances in which country banks were forced
to suspend, though cash resources were actually on the way to them from
depository centers.*
* Out of 158 national bank failures during the year, 153 were in
the West and South. In addition there went down 172 state banks, 177
private banks, 47 savings banks, 13 loan and trust companies, and 6
mortgage companies.
Even worse than the effect of these numerous failures on the business
situation was the derangement which occurred in the currency supply. The
circulating medium was almost wholly composed of bank notes, treasury
notes, and treasury certificates issued against gold and silver in the
Treasury, coin being little in use except as fractional currency. Bank
notes were essentially treasury certificates issued upon deposits of
government bonds. In effect, the circulating medium was composed of
government securities reduced to handy bits. Usually, a bank panic tends
to bring note issues into rapid circulation for what they will fetch,
but in this new situation, people preferred to impound the notes, which
they knew to be good whatever happened so long as the Government
held out. Private hoarding became so general that currency tended to
disappear. Between September 30, 1892 and October 31, 1893, the amount
of deposits in the national banks shrank over $496,000,000. Trade was
reduced to making use of the methods of primitive barter, though the
emergency was met to some extent by the use of checks and clearinghouse
certificates. In many New England manufacturing towns, for example,
checks for use in trade were drawn in denominations from one dollar
up to twenty. In some cases, corporations paid off their employees in
checks drawn on their own treasurers which served as local currency. In
some Southern cities, clearing-house certificates in small denominations
were issued for general circulation--in Birmingham, Alabama, for sums as
small as twenty-five cents. It is worth noting that a premium was
paid as readily for notes as for gold; indeed, the New York "Financial
Chronicle" reported that the premium on currency was from two to three
per cent, while the premium on gold was only one and one half per cent.
Before the panic had ended, the extraordinary spectacle was presented of
gold coins serving as a medium of trade because treasury notes and bank
notes were still hoarded. These peculiarities of the situation had a
deep effect upon the popular attitude towards the measures recommended
by the Administration.
While this devastating panic was raging over all the country, President
Cleveland was beset by troubles that were both public and personal. He
was under heavy pressure from the office seekers. They came singly or in
groups and under the escort of Congressmen, some of whom performed such
service several times a day. The situation became so intolerable that
on the 8th of May President Cleveland issued an executive order setting
forth that "a due regard for public duty, which must be neglected if
present conditions continue, and an observance of the limitations placed
upon human endurance, oblige me to decline, from and after this date,
all personal interviews with those seeking office."
According to the Washington papers, this sensible decision was received
with a tremendous outburst of indignation. The President was denounced
for shutting his doors upon the people who had elected him, and he was
especially severely criticized for the closing sentence of his order
stating that "applicants for office will only prejudice their prospects
by repeated importunity and by remaining at Washington to await
results." This order was branded as an arbitrary exercise of power
compelling free American citizens to choose exile or punishment, and
was featured in the newspapers all over the country. The hubbub became
sufficient to extract from Cleveland's private secretary an explanatory
statement pointing out that in the President's day a regular allotment
of time was made for congressional and business callers other than the
office seekers, for whom a personal interview was of no value since the
details of their cases could not be remembered. "What was said in behalf
of one man was driven out of mind by the remarks of the next man in
line," whereas testimonials sent through the mails went on file and
received due consideration. "So many hours a day having been given up
to the reception of visitors, it has been necessary, in order to keep up
with the current work, for the President to keep at his desk from early
in the morning into the small hours of the next morning. Now that may
do for a week or for a month, but there is a limit to human physical
endurance, and it has about been reached."
Such were the distracting conditions under which President Cleveland had
to deal with the tremendous difficulties of national import which beset
him. There were allusions in his inaugural address which showed how
keenly he felt the weight of his many responsibilities, and there is a
touch of pathos in his remark that he took "much comfort in remembering
that my countrymen are just and generous, and in the assurance that they
will not condemn those who by sincere devotion to their service deserve
their forbearance and approval." This hope of Cleveland's was eventually
justified, but not until after his public career had ended; meanwhile
he had to undergo a storm of censure so blasting that it was more like
a volcanic rain of fire and lava than any ordinary tempest, however
violent.
On the 30th of June, President Cleveland called an extra session of
Congress for the 7th of August "to the end that the people may be
relieved through legislation from present and impending danger and
distress." In recent years, the fact has come to light that his health
was at that time in a condition so precarious that it would have caused
wild excitement had the truth become known, for only his life stood in
the way of a free silver President. On the same day on which he issued
his call for the extra session, President Cleveland left for New York
ostensibly for a yachting trip, but while the yacht was steaming slowly
up the East River, he was in the hands of surgeons who removed the
entire left upper jaw. On the 5th of July they performed another
operation in the same region for the removal of any tissues which
might possibly have been infected. These operations were so completely
successful that the President was fitted with an artificial jaw of
vulcanized rubber which enabled him to speak without any impairment of
the strength and clearness of his voice.* Immediately after this severe
trial, which he bore with calm fortitude, Cleveland had to battle with
the raging silver faction, strong in its legislative position through
its control of the Senate.
* For details, see New York "Times," Sept. 21, 1917.
When Congress met, the only legislation which the President had to
propose was the repeal of the Silver Purchase Act, although he remarked
that "tariff reform has lost nothing of its immediate and permanent
importance and must in the near future engage the attention
of Congress." It was a natural inference, therefore, that the
Administration had no financial policy beyond putting a stop to treasury
purchases of silver, and there was a vehement outcry against an action
which seemed to strike against the only visible source of additional
currency. President Cleveland was even denounced as a tool of Wall
Street, and the panic was declared to be the result of a plot of British
and American bankers against silver.
Nevertheless, on the 28th of August, the House passed a repeal bill by a
vote of 240 to 110. There was a long and violent struggle in the
Senate, where such representative anomalies existed that Nevada with
a population of 45,761 had the same voting power as New York with
5,997,853. Hence, at first, it looked as if the passage of a repeal bill
might be impossible. Finally, the habit of compromise prevailed and a
majority agreement was reached postponing the date of repeal for twelve
or eighteen months during which the treasury stock of silver bullion
was to be turned into coin. Cleveland made it known that he would not
consent to such an arrangement, and the issue was thereafter narrowed
to that of unconditional repeal of the Silver Purchase Act. The Senators
from the silver-mining States carried on an obstinate filibuster and
refused to allow the question to come to a vote, until their arrogance
was gradually toned down by the discovery that the liberty to dump
silver on the Treasury had become a precarious mining asset. The law
provided for the purchase of 4,500,000 ounces a month, "or, so much
thereof as may be offered at the market price." Secretary Carlisle found
that offers were frequently higher in price than New York and London
quotations, and by rejecting them he made a considerable reduction in
the amount purchased. Moreover, the silver ranks began to divide on the
question of policy. The Democratic silver Senators wished to enlarge the
circulating medium by increasing the amount of coinage, and they did not
feel the same interest in the mere stacking of bullion in the Treasury
that possessed the mining camp Senators on the Republican side.
When these two elements separated on the question of policy, the
representatives of the mining interests recognized the hopelessness of
preventing a vote upon the proposed repeal of the silver purchase act.
On the 30th of October, the Senate passed the repeal with no essential
difference from the House bill, and the bill became law on November 1,
1893.
But although the repeal bill stopped the silver drain upon the Treasury,
it did not relieve the empty condition to which the Treasury had
been reduced. It was manifest that, if the gold standard was to be
maintained, the Treasury stock of gold would have to be replenished. The
Specie Resumption Act of 1875 authorized the sale of bonds "to prepare
and provide for" redemption of notes in coin, but the only classes of
bonds which it authorized were those at four per cent payable after
thirty years, four and a half per cent payable after fifteen years, and
five per cent payable after ten years from date. For many years, the
Government had been able to borrow at lower rates but had in vain
besought Congress to grant the necessary authority. The Government now
appealed once more to Congress for authority to issue bonds at a lower
rate of interest. Carlisle, the Secretary of the Treasury, addressed
a letter to the Senate committee of finance, setting forth the
great saving that would be thus effected. Then ensued what must be
acknowledged to be a breakdown in constitutional government. Immediately
after a committee meeting on January 16, 1894, the Chairman, Senator
Voorhees, issued a public statement in which he said that "it would
be trifling with a very grave affair to pretend that new legislation
concerning the issue of bonds can be accomplished at this time, and
in the midst of present elements and parties in public life, with
elaborate, extensive, and practically indefinite debate." Therefore,
he held that "it will be wiser, safer and better for the financial
and business interests of the country to rely upon existing law." This
plainly amounted to a public confession that Congress was so organized
as to be incapable of providing for the public welfare.
Carlisle decided to sell the ten-year class of bonds, compensating for
their high interest rate by exacting such a premium as would reduce
to three per cent the actual yield to holders. On January 17, 1894,
he offered bonds to the amount of fifty millions, but bids came in so
slowly that he found it necessary to visit New York to make a personal
appeal to a number of leading bankers to exert themselves to prevent the
failure of the sale. As a result of these efforts, the entire issue
was sold at a premium of $8,660,917, and the treasury stock of gold was
brought up to $107,440,802.
Then followed what is probably the most curious chapter in the financial
history of modern times. Only gold was accepted by the Treasury in
payment of bonds; but gold could be obtained by offering treasury notes
for redemption. The Act of 1878 expressly provided that, when redeemed,
these notes "shall not be retired, canceled, or destroyed, but they
shall be reissued and paid out again and kept in circulation." The
Government, as President Cleveland pointed out, was "forced to redeem
without redemption and pay without acquittance." These conditions set up
against the Treasury an endless chain by which note redemptions drained
out the gold as fast as bond sales poured it in. In a message to
Congress on January 28, 1895, President Cleveland pointed out that the
Treasury had redeemed more than $300,000,000 of its notes in gold,
and yet these notes were all still outstanding. Appeals to Congress to
remedy the situation proved absolutely fruitless, and the only choice
left to the President was to continue pumping operations or abandon the
gold standard, as the silver faction in Congress desired. By February
8, 1895, the stock of gold in the Treasury was down to $41,340,181. The
Administration met this sharp emergency by a contract with a New York
banking syndicate which agreed to deliver 3,500,000 ounces of standard
gold coin, at least one half to be obtained in Europe. The syndicate
was, moreover, 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."
The replenishing of the Treasury by this contract was, however, only
a temporary relief. By January 6, 1896, the gold reserve was down to
$61,251,710. The Treasury now offered $100,000,000 of the four per
cent bonds for sale and put forth special efforts to make subscription
popular. Blanks for bids were displayed in all post-offices, a circular
letter was sent to all national banks, the movement was featured in the
newspapers, and the result was that 4635 bids were received coming from
forty-seven States and Territories, and amounting to $526,970,000.
This great oversubscription powerfully upheld the public credit
and, thereafter, the position of the Treasury remained secure; but
altogether, $262,000,000 in bonds had been sold to maintain its
solvency.
Consideration of the management of American foreign relations during
this period does not enter into the scope of this book, but the fact
should be noted that the anxieties of public finance were aggravated by
the menace of war.* In the boundary dispute between British Guiana
and Venezuela, President Cleveland proposed arbitration, but this was
refused by the British Government. President Cleveland, whose foreign
policy was always vigorous and decisive, then sent a message to Congress
on December 17, 1895, describing the British position as an infringement
of the Monroe Doctrine and recommending that a commission should be
appointed by the United States to conduct an independent inquiry to
determine the boundary line in dispute. He significantly remarked that
"in making these recommendations I am fully alive to the responsibility
incurred and keenly realize all the consequences that may follow." The
possibility of conflict, thus hinted, was averted when Great Britain
agreed to arbitration, but meanwhile, American securities in great
numbers were thrown upon the market through sales of European account
and added to the financial strain.
* See "The Path of Empire," by Carl Russell Fish (in "The
Chronicles of America").
The invincible determination which President Cleveland showed in this
memorable struggle to maintain the gold standard will always remain his
securest title to renown, but the admiration due to his constancy of
soul cannot be extended to his handling of the financial problem. It
appears, from his own account, that he was not well advised as to the
extent and nature of his financial resources. He did not know until
February 7, 1895, when Mr. J. P. Morgan called his attention to the
fact, that among the general powers of the Secretary of the Treasury is
the provision that he "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." The
President was urged to proceed under this law to buy $100,000,000 in
gold at a fixed price, paying for it in bonds. This advice Cleveland did
not accept at the time, but in later years he said that it was "a wise
suggestion," and that he had "always regretted that it was not adopted."
But apart from any particular error in the management of the Treasury,
the general policy of the Administration was much below the requirements
of the situation. The panic came to an end in the fall of 1893, much as
a great conflagration expires through having reached all the material on
which it can feed, but leaving a scene of desolation behind it. Thirteen
commercial houses out of every thousand doing business had failed.
Within two years, nearly one fourth of the total railway capitalization
of the country had gone into bankruptcy, involving an exposure of
falsified accounts sufficient to shatter public confidence in the
methods of corporations. Industrial stagnation and unemployment were
prevalent throughout the land. Meanwhile, the congressional situation
was plainly such that only a great uprising of public opinion could
break the hold of the silver faction. The standing committee system,
which controls the gateways of legislation, is made up on a system of
party apportionment whose effect is to give an insurgent faction of the
majority the balance of power, and this opportunity for mischief was
unsparingly used by the silver faction.
Such a situation could not be successfully encountered save by a policy
aimed distinctly at accomplishing a redress of popular grievances. But
such a policy, President Cleveland failed to conceive. In his inaugural
address, he indicated in a general way the policy pursued throughout
his term when he said, "I shall to the best of my ability and within
my sphere of duty preserve the Constitution by loyally protecting every
grant of Federal power it contains, by defending all its restraints
when attacked by impatience and restlessness, and by enforcing its
limitations and reservations in favor of the states and the people."
This statement sets forth a low view of governmental function and
practically limits its sphere to the office of the policeman, whose
chief concern is to suppress disorder. Statesmanship should go deeper
and should labor in a constructive way to remove causes of disorder.
An examination of President Cleveland's state papers show that his
first concern was always to relieve the Government from its financial
embarrassments; whereas the first concern of the people was naturally
and properly to find relief from their own embarrassments. In the
last analysis, the people were not made for the convenience of the
Government, but the Government was made for the convenience of the
people, and this truth was not sufficiently recognized in the policy
of Cleveland's administration. His guiding principle was stated, in the
annual message, December 3, 1894, as follows: "The absolute divorcement
of the Government from the business of banking is the ideal relationship
of the Government to the circulation of the currency of the country."
That ideal, however, is unattainable in any civilized country. The only
great state in which it has ever been actually adopted is China, and the
results were not such as to commend the system. The policy which yields
the greatest practical benefits is that which makes it the duty of the
Government to supervise and regulate the business of banking and to
attend to currency supply; and the currency troubles of the American
people were not removed until eventually their Government accepted and
acted upon this view.
Not until his message of December 3, 1894, did President Cleveland make
any recommendation going to the root of the trouble, which was, after
all, the need of adequate provision for the currency supply. In that
message, he sketched a plan devised by Secretary Carlisle, allowing
national banks to issue notes up to seventy-five per cent of their
actual capital and providing also, under certain conditions, for the
issue of circulating notes by state banks without taxation. This plan,
he said, "furnishes a basis for a very great improvement in our present
banking and currency system." But in his subsequent messages, he kept
urging that "the day of sensible and sound financial methods will not
dawn upon us until our Government abandons the banking business." To
effect this aim, he urged that all treasury notes should be "withdrawn
from circulation and canceled," and he declared that he was "of opinion
that we have placed too much stress upon the danger of contracting
the currency." Such proposals addressed to a people agonized by actual
scarcity of currency were utterly impracticable, nor from any point of
view can they be pronounced to have been sound in the circumstances then
existing. Until the banking system was reformed, there was real danger
of contracting the currency by a withdrawal of treasury notes. President
Cleveland was making a mistake to which reformers are prone; he was
taking the second step before he had taken the first. The realization
on the part of others that his efforts were misdirected not only made
it impossible for him to obtain any financial legislation but actually
fortified the position of the free silver advocates by allowing them the
advantage of being the only political party with any positive plans
for the redress of popular grievances. Experts became convinced that
statesmen at Washington were as incompetent to deal with the banking
problems as they had been in dealing with reconstruction problems and
that, in like manner, the regulation of banking had better be abandoned
to the States. A leading organ of the business world pointed out that
some of the state systems of note issue had been better than the system
of issuing notes through national banks which had been substituted in
1862; and it urged that the gains would exceed all disadvantages if
state banks were again allowed to act as sources of currency supply by
a repeal of the government tax of ten per cent on their circulation.
But nothing came of this suggestion, which was, indeed, a counsel
of despair. It took many years of struggle and more experiences of
financial panic and industrial distress to produce a genuine reform in
the system of currency supply.
President Cleveland's messages suggest that he made up his mind to do
what he conceived to be his own duty regardless of consequences, whereas
an alert consideration of possible consequences is an integral part of
the duties of statesmanship. He persevered in his pension vetoes without
making any movement towards a change of system, and the only permanent
effect of his crusade was an alteration of procedure on the part of
Congress in order to evade the veto power. Individual pension bills are
still introduced by the thousand at every session of Congress, but since
President Cleveland's time all those approved have been included in one
omnibus bill, known as a "pork barrel bill," which thus collects enough
votes from all quarters to ensure passage.
President Cleveland found another topic for energetic remonstrance in
a system of privilege that had been built up at the expense of the
post-office department. Printed matter in the form of books was charged
eight cents a pound, but in periodical form only one cent a pound. This
discrimination against books has had marked effect upon the quality of
American literature, lowering its tone and encouraging the publication
of many cheap magazines. President Cleveland gave impressive statistics
showing the loss to the Government in transporting periodical
publications, "including trashy and even harmful literature." Letter
mails weighing 65,337,343 pounds yielded a revenue of $60,624,464.
Periodical publications weighing 348,988,648 pounds yielded a revenue of
$2,996,403. Cleveland's agitation of the subject under conditions then
existing could not, however, have any practical effect save to affront
an influential interest abundantly able to increase the President's
difficulties by abuse and misrepresentation.