larger governmental monthly purchases of silver than had been required
under previous laws, and providing that in payment for such silver
Treasury notes of the United States should be issued payable on demand
in gold or silver coin, at the discretion of the Secretary of the
Treasury. It was, however, declared in the act to be" the established
policy of the United States to maintain the two metals on a parity with
each other upon the present legal ratio or such ratio as may be
provided by law." In view of this declaration it was not deemed
permissible for the Secretary of the Treasury to exercise the
discretion in terms conferred on him by refusing to pay gold on these
notes when demanded, because by such discrimination in favor of the
gold dollar the so-called parity of the two metals would be destroyed
and grave and dangerous consequences would be precipitated by affirming
or accentuating the constantly widening disparity between their actual
values under the existing ratio.
It thus resulted that the Treasury notes issued in payment of silver
purchases under the law of 1890 were necessarily treated as gold
obligations at the option of the holder. These notes on the 1st day of
November, 1893, when the law compelling the monthly purchase of silver
was repealed, amounted to more than $155,000,000. The notes of this
description now outstanding added to the United States notes still
undiminished by redemption or cancellation constitute a volume of gold
obligations amounting to nearly $500,000,000.
These obligations are the instruments which ever since we had a gold
reserve have been used to deplete it.
This reserve, as has been stated, had fallen in April, 1893, to
$97,111,330. It has from that time to the present, with very few and
unimportant upward movements, steadily decreased, except as it has been
temporarily replenished by the sale of bonds.
Among the causes for this constant and uniform shrinkage in this fund
may be mentioned the great falling off of exports under the operation
of the tariff law until recently in force, which crippled our exchange
of commodities with foreign nations and necessitated to some extent the
payment of our balances in gold; the unnatural infusion of silver into
our currency and the increasing agitation for its free and unlimited
coinage, which have created apprehension as to our disposition or
ability to continue gold payments; the consequent hoarding of gold at
home and the stoppage of investments of foreign capital, as well as the
return of our securities already sold abroad; and the high rate of
foreign exchange, which induced the shipment of our gold to be drawn
against as a matter of speculation.
In consequence of these conditions the gold reserve on the 1st day of
February, 1894, was reduced to $65,438,377, having lost more than
$31,000,000 during the preceding nine months, or since April, 1893. Its
replenishment being necessary and no other manner of accomplishing it
being possible, resort was had to the issue and sale of bonds provided
for by the resumption act of 1875. Fifty millions of these bonds were
sold, yielding $58,633,295.71, which was added to the reserve fund of
gold then on hand. As a result of this operation this reserve, which
had suffered constant and large withdrawals in the meantime, stood on
the 6th day of March, 1894, at the sum of $107,446,802. Its depletion
was, however, immediately thereafter so accelerated that on the 30th
day of June, 1894, it had fallen to $64,873,025, thus losing by
withdrawals more than $42,000,000 in five months and dropping slightly
below its situation when the sale of $50,000,000 in bonds was effected
for its replenishment.
This depressed condition grew worse, and on the 24th day of November,
1894, our gold reserve being reduced to $57,669,701, it became
necessary to again strengthen it.
This was done by another sale of bonds amounting to $50,000,000, from
which there was realized $58,538,500, with which the fund was increased
to $111,142,021 on the 4th day of December, 1894.
Again disappointment awaited the anxious hope for relief. There was not
even a lull in the exasperating withdrawals of gold. On the contrary,
they grew larger and more persistent than ever. Between the 4th day of
December, 1894, and early in February, 1895, a period of scarcely more
than two months after the second reenforcement of our gold reserve by
the sale of bonds, it had lost by such withdrawals more than
$69,000,000 and had fallen to $41,340,181. Nearly $43,000,000 had been
withdrawn within the month immediately preceding this situation.
In anticipation of impending trouble I had on the 28th day of January,
1895, addressed a communication to the Congress fully setting forth our
difficulties and dangerous position and earnestly recommending that
authority be given the Secretary of the Treasury to issue bonds bearing
a low rate of interest, payable by their terms in gold, for the purpose
of maintaining a sufficient gold reserve and also for the redemption
and cancellation of outstanding United States notes and the Treasury
notes issued for the purchase of silver under the law of 1890. This
recommendation did not, however, meet with legislative approval.
In February, 1895, therefore, the situation was exceedingly critical.
With a reserve perilously low and a refusal of Congressional aid,
everything indicated that the end of gold payments by the Government
was imminent. The results of prior bond issues had been exceedingly
unsatisfactory, and the large withdrawals of gold immediately
succeeding their public sale in open market gave rise to a reasonable
suspicion that a large part of the gold paid into the Treasury upon
such sales was promptly drawn out again by the presentation of United
States notes or Treasury notes, and found its way to the hands of those
who had only temporarily parted with it in the purchase of bonds.
In this emergency, and in view of its surrounding perplexities, it
became entirely apparent to those upon whom the struggle for safety was
devolved not only that our gold reserve must, for the third time in
less than thirteen months, be restored by another issue and sale of
bonds bearing a high rate of interest and badly suited to the purpose,
but that a plan must be adopted for their disposition promising better
results than those realized on previous sales. An agreement was
therefore made with a number of financiers and bankers whereby it was
stipulated that bonds described in the resumption act of 1875, payable
in coin thirty years after their date, bearing interest at the rate of
4 pet cent per annum, and amounting to about $62,000,000, should be
exchanged for gold, receivable by weight, amounting to a little more
than $65,000,000.
This gold was to be delivered in such installments as would complete
its delivery within about six months from the date of the contract, and
at least one-half of the amount was to be furnished from abroad. It was
also agreed by those supplying this gold that during the continuance of
the contract they would by every means in their power protect the
Government against gold withdrawals. The contract also provided that if
Congress would authorize their issue bonds payable by their terms in
gold and bearing interest at the rate of 3 per cent per annum might
within ten days be substituted at par for the 4 per cent bonds
described in the agreement.
On the day this contract was made its terms were communicated to
Congress by a special Executive message, in which it was stated that
more than $16,000,000 would be saved to the Government if gold bonds
bearing 3 per cent interest were authorized to be substituted for those
mentioned in the contract.
The Congress having declined to grant the necessary authority to secure
this saving, the contract, unmodified, was carried out, resulting in a
gold reserve amounting to $107,571,230 on the 8th day of July, 1895.
The performance of this contract not only restored the reserve, but
checked for a time the withdrawals of gold and brought on a period of
restored confidence and such peace and quiet in business circles as
were of the greatest possible value to every interest that affects our
people. I have never had the slightest misgiving concerning the wisdom
or propriety of this arrangement, and am quite willing to answer for my
full share of responsibility for its promotion. I believe it averted a
disaster the imminence of which was, fortunately, not at the time
generally understood by our people.
Though the contract mentioned stayed for a time the tide of gold
withdrawal, its good results could not be permanent. Recent withdrawals
have reduced the reserve from $107,571,230 on the 8th day of July,
1895, to $79,333,966. How long it will remain large enough to render
its increase unnecessary is only 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 foregoing statement of events and conditions develops the fact that
after increasing our interest-bearing bonded indebtedness more than
$162,000,000 to save our gold reserve we are nearly where we started,
having now in such reserve $79,333,966, as against $65,438,377 in
February, 1894, when the first bonds were issued.
Though the amount of gold drawn from the Treasury appears to be very
large as gathered from the facts and figures herein presented, it
actually was much larger, considerable sums having been acquired by the
Treasury within the several periods stated without the issue of bonds.
On the 28th of January, 1895, it was reported by the Secretary of the
Treasury that more than $172,000,000 of gold had been withdrawn for
hoarding or shipment during the year preceding. He now reports that
from January 1, 1879, to July 14, 1890, a period of more than eleven
years, only a little over $28,000,000 was withdrawn, and that between
July 14, 1890, the date of the passage of the law for an increased
purchase of silver, and the 1st day of December, 1895, or within less
than five and a half years, there was withdrawn nearly $375,000,000,
making a total of more than $403,000,000 drawn from the Treasury in
gold since January 1, 1879, the date fixed in 1875 for the retirement
of the United States notes.
Nearly $327,000,000 of the gold thus withdrawn has been paid out on
these United States notes, and yet every one of the $346,000,000 is
still uncanceled and ready to do service in future gold depletions.
More than $76,000,000 in gold has since their creation in 1890 been
paid out from the Treasury upon the notes given on the purchase of
silver by the Government, and yet the whole, amounting to $155,000,000,
except a little more than $16,000,000 which has been retired by
exchanges for silver at the request of the holders, remains outstanding
and prepared to join their older and more experienced allies in future
raids upon the Treasury's gold reserve.
In other words, the Government has paid in gold more than nine-tenths
of its United States notes and still owes them all. It has paid in gold
about one-half of its notes given for silver purchases without
extinguishing by such payment one dollar of these notes.
When, added to all this, we are reminded that to carry on this astound,
lug financial scheme the Government has incurred a bonded indebtedness
of $95,500,000 in establishing a gold reserve and of $162,315,400 in
efforts to maintain it; that the annual interest charge on such bonded
indebtedness is more than $11,000,000; that a continuance of our
present course may result in further bond issues, and that we have
suffered or are threatened with all this for the sake of supplying gold
for foreign shipment or facilitating its hoarding at home, a situation
is exhibited which certainly ought to arrest attention and provoke
immediate legislative relief.
I am convinced the only thorough and practicable remedy for our
troubles is found in the retirement and cancellation of our United
States notes, commonly called greenbacks, and the outstanding Treasury
notes issued by the Government in payment of silver purchases under the
act of 1890.
I believe this could be quite readily accomplished by the exchange of
these notes for United States bonds, of small as well as large
denominations, bearing a low rate of interest. They should be long-term
bonds, thus increasing their desirability as investments, and because
their payment could be well postponed to a period far removed from
present financial burdens and perplexities, when with increased
prosperity and resources they would be more easily met.
To further insure the cancellation of these notes and also provide a
way by which gold may be added to our currency in lieu of them, a
feature in the plan should be an authority given to the Secretary of
the Treasury to dispose of the bonds abroad for gold if necessary to
complete the contemplated redemption and cancellation, permitting him
to use the proceeds of such bonds to take up and cancel any of the
notes that may be in the Treasury or that may be received by the
Government on any account.
The increase of our bonded debt involved in this plan would be amply
compensated by renewed activity and enterprise in all business circles,
the restored confidence at home, the reinstated faith in our monetary
strength abroad, and the stimulation of every interest and industry
that would follow the cancellation of the gold-demand obligations now
afflicting us. In any event, the bonds proposed would stand for the
extinguishment of a troublesome indebtedness, while in the path we now
follow there lurks the menace of unending bonds, with our indebtedness
still undischarged and aggravated in every feature. The obligations
necessary to fund this indebtedness would not equal in amount those
from which we have been relieved since 1884 by anticipation and payment
beyond the requirements of the sinking fund out of our surplus revenues.
The currency withdrawn by the retirement of the United States notes and
Treasury notes, amounting to probably less than $486,000,000, might be
supplied by such gold as would be used on their retirement or by an
increase in the circulation of our national banks. Though the aggregate
capital of those now in existence amounts to more than $664,000,000,
their outstanding circulation based on bond security amounts to only
about $190,000,000. They are authorized to issue notes amounting to 90
per cent of the bonds deposited to secure their circulation, but in no
event beyond the amount of their capital stock, and they are obliged to
pay 1 per cent tax on the circulation they issue.
I think they should be allowed to issue circulation equal to the par
value of the bonds they deposit to secure it, and that the tax on their
circulation should be reduced to one-fourth of 1 per cent, which would
undoubtedly meet all the expense the Government incurs on their
account. In addition they should be allowed to substitute or deposit in
lieu of the bonds now required as security for their circulation those
which would be issued for the purpose of retiring the United States
notes and Treasury notes.
The banks already existing, if they desired to avail themselves of the
provisions of law thus modified, could issue circulation, in addition
to that already outstanding, amounting to $478,000,000, which would
nearly or quite equal the currency proposed to be canceled. At any
rate, I should confidently expect to see the existing national banks or
others to be organized avail themselves of the proposed encouragements
to issue circulation and promptly fill any vacuum and supply every
currency need.
It has always seemed to me that the provisions of law regarding the
capital of national banks, which operate as a limitation to their
location, fail to make proper compensation for the suppression of State
banks, which came near to the people in all sections of the country and
readily furnished them with banking accommodations and facilities. Any
inconvenience or embarrassment arising from these restrictions on the
location of national banks might well be remedied by better adapting
the present system to the creation of banks in smaller communities or
by permitting banks of large capital to establish branches in such
localities as would serve the people, so regulated and restrained as to
secure their safe and conservative control and management.
But there might not be the necessity for such an addition to the
currency by new issues of bank circulation as at first glance is
indicated. If we should be relieved from maintaining a gold reserve
under conditions that constitute it the barometer of our solvency, and
if our Treasury should no longer be the foolish purveyor of gold for
nations abroad or for speculation and hoarding by our citizens at home,
I should expect to see gold resume its natural and normal functions in
the business affairs of the country and cease to be an object
attracting the timid watch of our people and exciting their sensitive
imaginations.
I do not overlook the fact that the cancellation of the Treasury notes
issued under the silver-purchasing act of 1890 would leave the Treasury
in the actual ownership of sufficient silver, including seigniorage, to
coin nearly $178,000,000 in standard dollars. It is worthy of
consideration whether this might not from time to time be converted
into dollars or fractional coin and slowly put into circulation, as in
the judgment of the Secretary of the Treasury the necessities of the
country should require.
Whatever is attempted should be entered upon fully appreciating the
fact that by careless, easy descent we have reached a dangerous depth,
and that our ascent will not be accomplished without laborious toil and
struggle. We shall be wise if we realize that we are financially ill
and that our restoration to health may require heroic treatment and
unpleasant remedies.
In the present stage of our difficulty it is not easy to understand how
the amount of our revenue receipts directly affects it. The important
question is not the quantity of money received in revenue payments, but
the kind of money we maintain and our ability to continue in sound
financial condition. We are considering the Government's holdings of
gold as related to the soundness of our money and as affecting our
national credit and monetary strength.
If our gold reserve had never been impaired; if no bonds had ever been
issued to replenish it; if there had been no fear and timidity
concerning our ability to continue gold payments; if any part of our
revenues were now paid in gold, and if we could look to our gold
receipts as a means of maintaining a safe reserve, the amount of our
revenues would be an influential factor in the problem. But,
unfortunately, all the circumstances that might lend weight to this
consideration are entirely lacking.
In our present predicament no gold is received by the Government in
payment of revenue charges, nor would there be if the revenues were
increased. The receipts of the Treasury, when not in silver
certificates, consist of United States notes and Treasury notes issued
for silver purchases. These forms of money are only useful to the
Government in paying its current ordinary expenses, and its quantity in
Government possession does not in the least contribute toward giving us
that kind of safe financial standing or condition which is built on
gold alone.
If it is said that these notes if held by the Government can be used to
obtain gold for our reserve, the answer is easy. The people draw gold
from the Treasury on demand upon United States notes and Treasury
notes, but the proposition that the Treasury can on demand draw gold
from the people upon them would be regarded in these days with wonder
and amusement; and even if this could be done there is nothing to
prevent those thus parting with their gold from regaining it the next
day or the next hour by the presentation of the notes they received in
exchange for it.
The Secretary of the Treasury might use such notes taken from a surplus
revenue to buy gold in the market. Of course he could not do this
without paying a premium. Private holders of gold, unlike the
Government, having no parity to maintain, would not be restrained from
making the best bargain possible when they furnished gold to the
Treasury; but the moment the Secretary of the Treasury bought gold on
any terms above par he would establish a general and universal premium
upon it, thus breaking down the parity between gold and silver, which
the Government is pledged to maintain, and opening the way to new and
serious complications. In the meantime the premium would not remain
stationary, and the absurd spectacle might be presented of a dealer
selling gold to the Government and with United States notes or Treasury
notes in his hand immediately clamoring for its return and a resale at
a higher premium.
It may be claimed that a large revenue and redundant receipts might
favorably affect the situation under discussion by affording an
opportunity of retaining these notes in the Treasury when received, and
thus preventing their presentation for gold. Such retention to be
useful ought to be at least measurably permanent; and this is precisely
what is prohibited, so far as United States notes are concerned, by the
law of 1878, forbidding their further retirement. That statute in so
many words provides that these notes when received into the Treasury
and belonging to the United States shall be "paid out again and kept in
circulation."
It will, moreover, be readily seen that the Government could not refuse
to pay out United States notes and Treasury notes in current
transactions when demanded, and insist on paying out silver alone, and
still maintain the parity between that metal and the currency
representing gold. Besides, the accumulation in the Treasury of
currency of any kind exacted from the people through taxation is justly
regarded as an evil, and it can not proceed far without vigorous
protest against an unjustifiable retention of money from the business
of the country and a denunciation of a scheme of taxation which proves
itself to be unjust when it takes from the earnings and income of the
citizen money so much in excess of the needs of Government support that
large sums can be gathered and kept in the Treasury. Such a condition
has heretofore in times of surplus revenue led the Government to
restore currency to the people by the purchase of its unmatured bonds
at a large premium and by a large increase of its deposits in national
banks, and we easily remember that the abuse of Treasury accumulation
has furnished a most persuasive argument in favor of legislation
radically reducing our tariff taxation.
Perhaps it is supposed that sufficient revenue receipts would in a
sentimental way improve the situation by inspiring confidence in our
solvency and allaying the fear of pecuniary exhaustion. And yet through
all our struggles to maintain our gold reserve there never has been any
apprehension as to our ready ability to pay our way with such money as
we had, and the question whether or not our current receipts met our
current expenses has not entered into the estimate of our solvency. Of
course the general state of our funds, exclusive of gold, was entirely
immaterial to the foreign creditor and investor. His debt could only be
paid in gold, and his only concern was our ability to keep on hand that
kind of money.