PRESERVING THE PUBLIC CREDIT

Days of reckoning overtake nations as well as individuals. The retribution for responsibilities avoided, evils tolerated, principles compromised, in the foolish "trust that somehow good will be the final goal of ill," comes sooner or later. For a dozen years or so after the recovery from the panic of 1873 the country had been prosperous. Capital had been abundant, investments had multiplied, foreign commerce had increased steadily, and the surplus in the Treasury had averaged more than $100,000,000 annually. But during this period the government had failed to inspire confidence in the people by a disinterested and scientific system of taxation, a courageous regulation of big business, or a sound and consistent currency policy. Considerations of immediate partisan advantage had outweighed the clear claims of the public weal. Politics had usurped the place of statesmanship. At the end of the prosperous decade of the eighties there was more uneasiness, more discontent, more apprehension in the country than there had been in many a period of hard times. The causes of this discontent were complex. They are not easy to analyze, and are obscured rather than clarified by the exaggerated tirade of the Populist platform. A few figures, however, will help in the appreciation of the distressing situation of the government and the country when Grover Cleveland was inaugurated for his second term.

The plight of the Western farmer we have already noted. But the Eastern banker, the manufacturer, the railroad magnate, and even the government itself were facing a situation equally appalling. The usual story of a long period of prosperity followed by the sharp revulsion of panic was about to repeat itself. Fluid capital had been too freely converted into fixed forms. The prospects of great profits had tempted to over-investment, and business success had fostered extravagant spending. Margins of reserve had been wiped out. The government itself had set the example for the country. During the four years of Harrison's administration, while the national income had remained about stationary, the expenditures had mounted steadily

to the level of the receipts. Our rich government was actually "strapped" at the beginning of 1893, living from hand to mouth and postponing its current obligations, like a reckless society spender. The bumper crops of 1891 had momentarily sent our exports up from $872,000,000 to $1,061,000,000 in 1892 and given a fictitious fillip of prosperity to the overcapitalized railroads; but the exports declined to $831,000,000 the next year, and stood, for the first time in fifteen years, below our imports, leaving an adverse balance of $35,000,000 to be met in gold.

This slump in trade was temporary, to be sure, and was not the most ominous factor in the situation. The condition of our Treasury caused an apprehension at home and abroad which played havoc with business confidence the apprehension, namely, that the government would not meet its obligations in gold. The student will recall that Secretary Sherman in 1879 had accumulated a fund of $140,000,000 in gold for the redemption of the United States notes (greenbacks). From that time on, it had been the policy of the government to maintain a gold reserve of at least $100,000,000. By the Sherman Silver Purchase Act of 1890 we had added to the $346,000,000 of outstanding greenbacks a further paper issue of Treasury notes in payment for 54,000,000 ounces of silver annually. As these notes were redeemable in "coin," it seemed to be within the discretion of the Treasury to pay them in gold or silver; but the government's declaration of its intention to maintain the two metals at a "parity" made it impossible for the Treasury to refuse to pay gold if it were demanded. By the summer of 1893 there were $147,000,000 of these Treasury notes outstanding, which, with the $346,000,000 of greenbacks, made a total of $493,000,000, backed only by a gold reserve approximately one fifth as large.

Indications of waning confidence were not lacking before 1893. The tendency to hoard gold had begun. Previous to the passage of the Sherman act more than five sixths of the customs duties had been paid in gold, but from 1891 on they were paid more and more in paper. By the beginning of 1892 the gold receipts from this source had shrunk to 20 per cent, and by the

end of the year to an insignificant 4 per cent. This ominous shrinkage in gold receipts was coincident with the increase in national expenditures which was draining the surplus in the Treasury. The uncertainty in business circles as to the ability or the intention of the government to maintain a gold standard was shown by the insertion of gold clauses in contracts, as in the days of the greenback inflation after the Civil War. Moreover, a train of events abroad added to the embarrassment. The great financial house of Baring Brothers in London tottered on the verge of bankruptcy in 1890, owing to a collapse of Argentine credit, and the shock was felt throughout the British Empire. In 1892 Austria-Hungary adopted a gold basis, while France and Russia drew together in a financial pact which assured millions of French capital for the development of Russian railroads and industrial plants. All these events stimulated a European demand for gold. Foreign holders of American stocks and bonds began to liquidate their holdings here, and our commercial creditors abroad asked for the settlement of trade balances in gold instead of American securities. Our gold shipments to Europe in 1892 increased 74 per cent over those of 1890. The great Eastern bankers met the situation by calling loans and curtailing credits.

Only a trifling amount of greenbacks had been presented to the Treasury for redemption in the dozen years since the resumption of specie payment, and these had been immediately reissued (by the law of 1878). Their presence in our circulating medium, therefore, had not caused the slightest uneasiness as to the adequacy of the gold reserve. But when the Treasury notes began to add a burden of some $50,000,000 annually to the amount of paper redeemable in gold, there was a decided change. During the three years of the operation of the Sherman act more than $132,000,000 of gold was drawn from the Treasury, while nearly $150,000,000 of depreciating silver was being stored in its vaults. If this "run" upon the Treasury should

1 It had been the contention of the silverites that the government's purchase of virtually the total product of the American mines would raise the price of the metal and keep it on a parity with gold at a ratio of 16 to 1. But their prediction

continue, it could have but one result-the reduction of the supply of gold to a point where it would be impossible for our government to meet its obligations in the currency which was recognized as standard by the civilized nations of the earth.1 Already the shadow of such a calamity had loomed. The gold reserve threatened to fall below $100,000,000 toward the end of Harrison's term, and Secretary Foster had the plates all prepared for engraving bonds to replenish the supply, when a group of New York bankers came to the rescue of the administration. Harrison was able to leave just $100,982,410 in the gold reserve when he retired from office.

The next month (April 21, 1893) the reserve fell for the first time below the $100,000,000 mark, and in the first week of May the sudden bankruptcy of the National Cordage Company, whose stock had sold at 147 in January, precipitated one of the worst panics in our history. During May and June nineteen national banks and a large number of trust companies and state banks, especially in the West and South, suspended, while failures of industrial and commercial houses multiplied. Anxiety was increased by the rumor that the Secretary of the Treasury, J. G. Carlisle, a theoretical bimetallist, would cease to redeem notes in gold—a rumor which President Cleveland quieted by a public statement to the contrary. On June 26 came the final blow to bimetallism, when the great Indian empire closed its mints to the coinage of silver and threw vast quantities of the depreciated metal upon a glutted world market. Four days later Cleveland sent out the call for a special session of Congress to convene on August 7,2 for the purpose of repealing the Sherman Silver Purchase Act.

had not been fulfilled. The price of silver had steadily declined. The value of the silver "dollar" in the five years from 1889 to 1893 was 72, 83, 76, 67, and 60 cents respectively.

1A conference of twenty-two nations met at Brussels in November, 1892, on the initiative of the United States to fix the value of silver by international agreement. But the conference was satisfied to retain the gold standard.

2It was only after Cleveland's death that the reason for the postponement of the meeting of the session until nearly six weeks after the call was known. It was owing to the necessity of the President's undergoing an immediate operation for

In view of the conditions which we have outlined, it is certain that Cleveland was in the right when he declared in his message of August 8 to the special session his belief that the unfortunate plight of the country was "principally chargeable to congressional legislation touching the purchase and coinage of silver." He reviewed the situation, which was "leading directly to the entire substitution of silver for gold in the government's Treasury." "This matter rises above the plane of party politics," he said; "it vitally concerns every business and calling and enters every household of the land." He earnestly recommended the prompt repeal of the Sherman act.

It was not difficult to get the repeal through the House (August 28) by a vote of 239 to 108, with the support of more than four fifths of the Republican members. The opposition came from the President's own party, and especially from a young congressman from Nebraska who was then serving his second term in the House. Long after the older silverites had abandoned the fight, William J. Bryan kept it up by every device of parliamentary practice.1 His three-hour speech of August 16 was a masterpiece of oratory, replete with eloquence, confidence—and specious logic. The long struggle in the Senate

the removal of a cancerous growth from the roof of his mouth. The operation was performed in the strictest secrecy on board Commodore Benedict's yacht in Long Island Sound, in order to prevent the increase of panic which the knowledge of the President's condition would have caused. Vice President Stevenson was a "friend of silver," and in the event of his succession to the presidency the country might have gone on a silver basis.

1" Poor old Dick Bland," says the journalist A. W. Dunn, "could no longer fight when he knew that certain defeat stared him in the face. The silver banner fell from his almost nerveless hands. But it was quickly raised aloft by Bryan, who bore it forward with all the animation of one whose visions are realities. Perhaps that is why Bryan instead of Bland was the nominee in 1896" (A. W. Dunn, "From Harrison to Harding," Vol. II, p. 122).

2 For example, he argued that the objection to the Treasury notes, on the ground that they were used to draw gold out of the Treasury, was "hardly important enough for consideration" in view of the $346,000,000 of greenbacks in circulation. "If all the Treasury notes were destroyed," he said, "the greenbacks are sufficient to draw out the $100,000,000 reserve three times over, and then they may be issued and used again. To complain of the Treasury notes while the greenbacks remained is like finding fault because the gate is wide open