The Online Library of Liberty

A project of Liberty Fund, Inc.

• Preface to the Fourth Edition
• Preface to the First Edition
• Part I: The United States, 1792-1873
• Part I, Chapter I: The Arguments of Bimetallists and Monometallists
• Part I, Chapter II: The Silver Period, 1792-1834
• Part I, Chapter III: Cause of the Change In the Relative Values of Gold and Silver, 1780-1820
• Part I, Chapter IV: Change of the Legal Ratio By the Act of 1834
• Part I, Chapter V: The Gold Discoveries and the Act of 1853
• Part I, Chapter VI: The Gold Standard, 1853-1873
• Part I, Chapter VII: The Demonetization of Silver
• Part II: The Late Fall In the Value of Silver
• Part Ii, Chapter VIII: The Production of Gold Since 1850
• Part Ii, Chapter IX: India and the East
• Part Ii, Chapter X: Germany Displaces Silver With Gold
• Part Ii, Chapter XI: France and the Latin Union
• Part Ii, Chapter XII: Cause of the Late Fall In the Value of Silver
• Part Ii, Chapter XIII: The Continued Fall In the Value of Silver Since 1885
• Part III: The United States Since 1873
• Part Iii, Chapter XIV: Silver Legislation In 1878
• Part Iii, Chapter XV: Operation of the Act of 1878
• Part Iii, Chapter XVI: Act of 1890
• Part Iii, Chapter XVII: Cessation of Silver Purchases, 1893
• Appendix II: Relative Values of Gold and Silver
• Appendix Iv, Coinage Laws
• Appendix VII: Consumption of the Precious Metals In the Arts.

Part III

THE UNITED STATES SINCE 1873

Part III, Chapter XIV

Silver Legislation in 1878

§ 1. We now take up the story of the double standard in the United States where we left it after the passage of the act of 1873, by which the coinage of the silver dollar was discontinued.

As after the legislation of 1853, so for a time after the legislation of 1873, there was complete acquiescence in the result. Our country was still laboring under the burdens of a depreciated paper, and gold was not in circulation except for the payment of customs; so that neither the silver dollar, which was worth more than a gold dollar, nor the gold pieces could have been in circulation concurrently with the depreciated United States notes. The acquiescence in the dropping of the silver dollar from our list of coins has been sometimes attributed to the fact that we had only a paper medium, and that no attention was ever paid to the relations of gold and silver coins, which were never seen in use. This, however, was not the reason. It was, simply, that the silver dollar was worth more than the gold dollar. There was no urgency whatever manifested to pay, or for the privilege of paying in the future, with the dearest of two legal coins. It was not until the fall of silver in 1875 and 1876 that the first suggestions were made for a recoinage of silver dollars. What is more, paper money still occupied the field in these years, and gold and silver were not yet in circulation. So that it was not because gold and silver were circulating in 1876 that attention was called to the position of our coins established in 1873 any more than that the acquiescence in the act of 1873 had been before due to the presence of paper money, and to the absence of a metallic circulation.

§ 2. In our preceding chapters of Part II an attempt was made to point out the events which, since 1850, had affected the value of silver and gold, and to account for the diminished value of silver, which began to fall in 1872, culminated in 1876, and has continued with fluctuations to the present time. We saw that the new gold had taken away from silver a place for its employment in several states of western Europe; that silver, crowded out by its superior as a medium of exchange, was being abandoned by the chief commercial nations; and that the Latin Union, accustomed as they had been to silver, and holding as they did large amounts of silver, preferred not to give up gold, but had stopped the free coinage of silver in 1874, and wholly ceased to coin it in 1878. What the tendency of the value of silver was, and what the situation was when the United States plunged into the arena, may be seen by Chart XVII. The United States took up the cause of silver in 1878, and the chart will show whether the value of silver was affected by this action. In fact, the line continued to drop after 1878 as it had been dropping before. When not a state in Europe dared open its Mint to silver, at this very time1 the United States stupidly came forward and made the attempt to support the value of silver quite by itself. It is recorded that a very muscular and willing workman, engaged with several others in raising a huge stone to its place by means of ropes and pulleys, observed that the others had suddenly let go their hold on the ropes, and that the heavy mass was beginning to fall, confident of his strength, he by himself laid hold of the rope and tried to sustain the weight by his unaided power. The momentum of the falling stone was more than he could overcome; he was thrown upward, flung to the ground, and injured for life. The action of the United States was of a similar character. It undertook to do what all the rest of the world without us had not been able to do—namely, to keep up the value of silver in the face of the increased supply of gold. We may break the fall of silver, but we shall imperil ourselves. We shall lose by buying millions of a commodity which we must sell at a great sacrifice, the greater as we sell the more. So bold and daring an attempt, so utterly unwarranted by any financial wisdom, seems almost inexplicable to the student of economic history. So extraordinary a piece of legislation, therefore, demands as fair and cool an analysis of the reasons which caused its passage as we are able to give.

§ 3. In the summer2 of 1876 a crop of silver bills came up in the House. July I18, 1876, Mr. W. D. Kelley introduced3 a bill to coin the standard silver dollar and to restore its legal-tender character, which was the original of the measure finally passed. A similar bill was introduced4 by Mr. Bland, July 25, 1876, and vigorously discussed by Mr. Hewitt on August 5th. At the next session of Congress, Mr. Bland reported5 from the Committee on Mines and Mining, December 12, 1876, his original bill ("H. R. No. 3,635"), of which the chief sections are as follows:

This bill, it will be observed, aimed rather at the unlimited issue of coin-notes, based on a fixed silver standard. But he also proposed at the same time the following substitute, which was declared to be the same as that introduced by Mr. Kelley (now numbered "H. R. No. 4,189"):

The next day, December 13, 1876, the substitute6 was adopted and passed by a vote of 167 to 53. The previous question being ordered, all amendments were prevented, and the debate was limited to two hours.7 It will be seen, therefore, that there was no intention whatever in the House to permit the measure to be debated. The bill, however, received no attention from the Senate during this session, and further consideration of it was, therefore, postponed to another session of Congress.

The following autumn the Kelley bill, slightly altered, was again introduced in the House (as "H. R. No. 1,093") by Mr. Bland, and, under a suspension of the rules, was passed8 without debate, November 5, 1877, by a vote of 163 to 34. The, bill which then passed the House and was sent to the Senate read as follows:

The bill reached the Senate December 6, 1877, was made the special order for December 11th, and thereafter received prolonged and full debate. In the Senate the bill was in charge of Mr. Allison, of the Committee on Finance, who reported the bill with important amendments, the chief of which was that one taking away from the House bill the provision granting free coinage. The last clause of the first section of the House bill (beginning "and any owner of silver bullion") was struck out, and the following words were finally inserted by a vote9 of 49 to 22:

Another important amendment, containing the provision in regard to silver certificates, originated with Mr. Booth (California). In its after-effects this provision proved more effective in carrying out the purposes of the advocates of silver than it was expected, probably, at the time when the bill was passed:

The Senate also inserted a provision for an international monetary conference10 of delegates from European countries to agree upon a common ratio between gold and silver. The provision for silver certificates was adopted, 49 to 15, and the whole bill, as thus amended, passed the Senate, February 15, 1878, by a vote11 of 48 to 21.

The bill, as amended by the Senate, because of the loss of free coinage, proved very unsatisfactory to the silver party in the House, when it was returned to them for concurrence in the amendments of the Senate. There were many brief protests, but the belief was expressed by the advocates of the bill that it would be well to take what they could get from the Senate without delay, and then in the future try to gain ground by adding more extreme provisions in other bills. The measure was discussed12 for an hour, and under the previous question was passed as it came from the Senate. The motion to concur in the amendments of the Senate was carried by a vote13 of 203 to 72. The test vote at this time was on the motion to lay the bill on the table, which was lost by a vote14 of 71 to 205.

The bill, having passed both Houses, was sent to President Hayes, who returned it, unsigned, February 28, 1878, accompanied by a veto message15 expressing his objections to the bill. In the House, on the same day, the bill was promptly passed by a vote of 196 to 73, being more than the requisite two thirds. On the same day the Senate likewise passed the bill over the veto of the President by a vote of 46 to 19, and it became a law.

§ 4. In order to understand the existence of the party which in 1878 passed the silver bill,16 it is necessary to keep in view the sequence of financial and political events of the preceding ten years.

The close of the Civil War brought with it the necessity of determining upon some treatment of our depreciated paper and the payment and refunding of our huge national debt. The speculative period following the war, moreover, had been scarcely equaled in our financial history; and when it was followed by the inevitable collapse of credit and prices in 1873, very large numbers of our people were caught in that uncomfortable position in which they were obliged to slowly and painfully pay back that which they had borrowed in a sanguine and speculative mood. The Western States had been largely interested in real estate speculations, and the prosperous years after the war gave there no warning of a coming downfall. The disease had acquired such a hold throughout the country as to demand a long time within which the latent fever should burn itself out and leave the body healthy, even if weak and emaciated. Weighed down by debt, and led by skillful politicians, or impelled by selfish interest, the people of the West demanded that the Government should come to the aid of debtors and, by plentiful issues of United States notes, create an inflation which should enable them to get off the shoals of debt on the high tide of rising prices. This claim of the inflationists was met by the wisdom and intelligence of the community, and a fierce and hot contest was waged, which resulted in the defeat of the former, and the veto of their bill by President Grant in 1874. This victory was followed up by the Resumption Act in 1875. Then, when, after our bonds had been mostly refunded under the act of 1870, it became also settled that the principal and interest of the Government obligations should be paid in coin, the threat of inflation from United States notes seemed to have been averted. But, although the inflationists were defeated, the conditions yet existed which produced the original inflation party. There were the demagogues, and there were the debtors. From 1876 to 1878, during which the silver discussions continued, therefore, we shall find it necessary to take into account the existence of the old inflation party if we hope to get a rational explanation of the purpose of the legislation adopted in 1878.

There was another, but related, influence also which had no little force. The older portions of the United States have naturally been the richest in accumulations of capital; the newer portions have naturally been the borrowers. Vast sums, consequently, were invested by the States of the East in railways, buildings, and all the interests of a fertile country like the West, in loans to counties and townships, while insurance companies and individuals loaned money secured by mortgages on Western farms. When the crisis of 1873 came, and debtors, having spent all the borrowed capital, were confronted with the dreary necessity of paying back all they had received, there arose a feeling (utterly irrational, but nevertheless quite human) that the creditor was cruel if he demanded his own again. On this account there was, without doubt, a very serious friction in the relations between the loaning and the borrowing States. This passed away in later years, to some extent, as the prosperity of the West allowed them to pay their indebtedness; but, at the time of which we are writing, the ancient antagonism between the debtor and creditor class was distinctly marked out, not merely between different classes, but between different sections of the country. This state of affairs was eagerly seized upon by ambitious politicians, and, in their desire to represent their constituencies, they outbid each other for favor by exaggerated appeals to this class and to sectional feeling—a feeling, too, not founded on very high standards of honesty. One who has the patience to follow through the voluminous and exhausting debates of Congress during the silver discussions of 1878 must see that this factor of which I am speaking had a very important place. We may be ashamed of it, but it was true. And without an understanding of this factor it is quite impossible to comprehend the tone of the majority of arguments urged in favor of the silver bill. Among other things, for example, it was said that we should soon hear "the maddened roar of labor sounding like a trumpet-blast of prophecy."

§ 5. It is scarcely too much to say that the demand for the coinage of silver dollars began where the cry for unlimited paper money left off. The movement which resulted in the act of 1878 was but another manifestation of the same desires which led to the hot and fierce debates between the inflationists and contractionists. The evidence of this, it seems to me, is undeniable to any one who will examine the reasons urged in favor of the Eland bill in the debates of Congress. At the same time that this measure was before the country a bill was passed in the House to repeal the Resumption Act. Not, of course, that every member who voted for the silver dollar was opposed to resumption; but it was unmistakable evidence of the opinions of the majority. The debtor class were catered to, and the prejudices of class feeling invoked in favor of the Bland bill as they had been in earlier years in favor of worthless paper.

The silver advocates were largely the advocates of expansion. Said Mr. Ewing17 in the House: "Mr. Speaker, nine tenths of the people of the United States demand the unlimited coinage of the old silver dollar with which to pay their debts and conduct their business.... The country is in an agony of business distress, and looks for some relief by a gradual increase of the currency. The House bill authorized not only unlimited coinage, but coinage of silver bullion owned by citizens for immediate use in business." "If these questions are not settled," urged another member,18 "and settled at once or before this present Congress adjourns, I say to those gentlemen that from the districts of the West and South will come a class of men who will demand, not only that silver shall be remonetized, and that the Resumption Act shall be repealed, but that the national banking law shall be repealed, and the Government of the United States shall issue all the money to be in circulation in this country." An answering echo came from the Senate:19 "In many sections of the country it is now questionable whether, under the most favorable conditions we can hope for in the future, there can be any escape from the embarrassments that surround the debtor class except through bankruptcy.... In view, then, of the condition of affairs, it seems to me that any measure that tends in any degree to uphold the value of property, or to prevent its further depreciation, ought to meet the support and concurrence of all." When the bill came back from the Senate a Southern member20 disclosed his position very clearly: "Let us force a square issue and make every one array himself either on the side of God or Mammon—the people or the gold ring.... The people are in no humor to be trifled with, and a veto would prove a blessing if it would have the effect I believe it would—namely, to arouse a storm which would compel a complete remonetization of silver and the repeal of the Resumption Act." Another avowal21 was quite as frank: "I heartily sympathise with the objects of this bill in remonetizing the silver dollar and thus increasing the volume of our circulating medium." But, perhaps, the coarsest expression of this sentiment was reserved for the lips of Mr. Bland,22 who declared: "I give notice here and now that this war shall never cease, so long as I have a voice in this Congress, until the rights of the people are fully restored and the silver dollar shall take its place alongside the gold dollar. Meanwhile let us take what we have and supplement it immediately on appropriation bills, and, if we can not do that, I am in favor of issuing paper money enough to stuff down the bondholders until they are sick [Applause]."

Much more evidence could be cited, if more were necessary, to show that, in the minds of a very large number of men who urged the passage of the Bland bill, there was a hope that they might expand the currency by its provisions; and even that silver dollars would be extensively added to the circulation and create the same effects. In fact, Mr. Bland's original bill aimed rather at an issue of a new kind of legal-tender paper, limited only by the quantity of silver bullion capable of deposit, than at the legitimate union of gold and silver at a ratio which, in the beginning at least, should assure their concurrent circulation.

In fact, one is struck, on every page of the debates, with the radically different temper in which the subject of the coinage was treated in 1878 from that shown in 1853, or even in 1792. There is not a shadow of a doubt that, had silver not fallen in value in 1876, so that a dollar of silver had not become worth much less than a gold or paper dollar—and so afforded a new device for meeting existing debts, which at the same time was technically coin—we should never have heard much of the silver agitation.23 It was born of a desire for a cheap unit in which to liquidate indebtedness. And the demand for the free coinage of a dollar containing only ninety cents of intrinsic value received the support of all who had before marched in the ranks of the inflationists. Silver had got into politics, and was henceforth discussed politically, not scientifically.

But others, forming a smaller class, supported this measure in the belief that, even if silver had fallen in value, it was just and right to issue a coin which was of the same weight and fineness as that demonetized in 1873, and to allow debtors to pay in this money. These were persons who probably did not subscribe to the tenets of the paper-money inflationists, and honestly could not see that the arguments against cheap paper had any force in regard to an issue of coin, even if it had fallen in value. The wrong in a ninety-cent silver dollar was not apparent to men who could declare that they were in favor of "hard money." The fact that greenbacks were worth more than the silver in a dollar, and were steadier in value than it, did not affect them. If payment were offered in coin, that, they thought, was enough. This fact that, although a cheap and depreciated dollar was offered to the country, it had been very lately24 (1873) an unlimited legal tender, and that, as the bill was finally passed, the dollars could not be issued in unlimited quantities, made it very difficult for men who did not thoroughly understand the functions performed by a proper medium of exchange to see their error, or to be convinced of it.25 They believed that, if it had been right to pay in gold when it fell in value toward the year 1853, it was right in 1878 to pay in silver when, in turn, it fell in value. In all this class, however, it will be seen that they were influenced by the question of the ability to pay debts and existing contracts; and that they overlooked entirely the original justice of a legal-tender law—namely, that it should secure to the lender at the end of his contract only the same purchasing power26 which he parted with when the contract was made. Of course, this section of the silver party were quite willing to see only a single standard of silver in the country. They were, therefore, not advocates of a double standard, but of a single standard27 established in the cheapest metal, as may be seen by this utterance: "Our money system was not based on the idea that we should have both metals always and concurrently in circulation, but upon the idea that there might occur occasional variations in their value, and that it would always be to our advantage in every respect to make avail of the cheaper of the two."28

This wing of the silver party, however, urged the unlimited coinage of silver dollars of 412½ grains, but were not in favor of a silver dollar containing more grains, which would bring its value more nearly to that of gold or paper. The free coinage of the silver dollar would have given to each man who brought silver bullion to the Mint the benefit of the whole difference between the intrinsic value of 412½ grains of silver and the nominal legal-tender power given it by its face value; and this difference was to be used by any debtor to deliver himself from his obligations to just that amount without returning to his creditor any purchasing power therefor. This was repudiation of debts on a scale to the dollar marked by the descent in the intrinsic value of silver below its face value. Of course, there was no question as to the power of Congress to create a dollar of silver worth only ninety cents in gold; but, inasmuch as Congress was the law-making branch, it was their duty to consider not merely what they could29 do, but what they ought to do, in view of all the demands of strict justice and honor.

Another influential section which was actively supporting the bill was made up chiefly of Senators (and their followers in the House) whose constituents were interested in silver mines. These men urged the silver bill exactly after the manner in which legislation was urged in protection of other special industries.30 It was urged that the Government should aid the owners of mines in keeping up the value of silver. "I think, too, that, as silver is a product of our own country... it is proper that we should do whatever is well calculated to encourage its production and increase the demand for it," said Senator Hill, of Georgia. A member31 of the House from Kentucky declared: "Our Western States and Territories are rich in silver ore. Let us remonetize silver and thereby increase the production of this metal." While a Western Congressman32 urged: "I am also in favor of restoring silver because silver is a product of this country, and it would give it increased value to make it a legal tender.... Are we to allow the designing legislation of 1873 to further depreciate the value of one of our most valuable products?... Our mining interests have been very much embarrassed for the last few years because of this legislation."

In close alliance with this body came another class, who argued that silver had not fallen in value, but that gold had risen33 in value, and that a dollar of 412½ grains was a just means of payment for all indebtedness. This section of the silver party displayed very much more ability than the ordinary advocate, and on questions of statistics showing a fall of prices since 1873 they were easily able to surround their position with plausible facts and arguments. Senator Matthews34 took the following position:

The most zealous advocate, however, of the theory that gold had risen in value was Senator Jones, of Nevada, who quoted tables35 of prices from 1872 to 1876 to show that general prices had fallen from 19 to 25 per cent. Then, as he found that silver had fallen only 10 per cent relatively to gold, he argued that silver had even appreciated36 in value, instead of having fallen in value, relatively to all other commodities. This was an untenable ground, as we saw, by the comparison of prices collected from the London "Economist," in our last chapter,37 that prices were as high in 1877 as they had been in 1867. But we do know, and every one admits, that since 1873 there had been a very marked fall in prices until 1880. The conclusion, however, that this was due to the contraction of metallic currency caused by the demonetization of silver, is a complete non sequitur. It overlooks one of the most important factors in regulating prices; for it ignores the collapse of credit and the fall of prices which inevitably follows in the wake of any financial crisis, and which continues until liquidation of debts arising from the speculative basis of preceding years has been somewhat completed. A fall of prices due to an enfeebled state of credit, one very important part of purchasing power, can take place without any change whatever in the quantity of the metallic medium in a country. It is, therefore, perfectly true that after the panic of 1873 prices slowly fell as liquidation went on, and that a gold dollar could buy more in 1879 than in 1872; but it was not necessarily due to any cause which affected that one factor in the exchange, gold, but to changes in the other factors. Moreover, changes which reduced the cost of production of all kinds of goods came thick and fast, and lessened the price of goods exchanged against gold without changing the absolute position of gold. That this altered the situation unfavorably to debtors is admitted; but it is an alteration of a kind which regularly happens after every unfortunate business revulsion, such as occurred in 1857 and 1866, and is no ground for talking about a cause which is supposed to be operating on gold (when it is operating on the things for which gold is exchanged).

A very large number of our legislators were, no doubt, honestly impressed with the belief that the mere gift of legal-tender power to a silver dollar worth only ninety cents, and its remonetization, would so increase its value that it would very soon become equal to the gold dollar. This was a constant and favorite argument.38 Said Senator Allison: "Legislation gives value to the precious metals, and the commercial value simply records the condition of legislation with reference to the precious metals." It was even urged by Senator Thurman39 that the remonetization of silver by the United States alone would stop the tendency to give up silver in other States, and would raise the value of 412½ grains of silver to the level of the gold dollar. Subsequent events did not justify this sanguine hope, as may be seen by reference to Chart XIV, showing the fluctuations and fall of silver since 1878. It was believed by many that the action of Germany alone had caused the fall of silver; and, ignorant of the fundamental forces which had shown themselves in the single case of Germany, and would have broken out elsewhere if Germany had not acted, they held that the coinage of silver by the United States would exactly fill the breach made by the withdrawal of Germany. An inspection of Chart XIII will show how fundamental a change was going on in the value of silver since 1870 as compared with the whole course of its history since 1657. It was hardly likely that a single event, such as the action of the United States, could stop so marked a fall.

Some astounding ignorance of monetary principles was, of course, exhibited. "It is said that if we authorize the coining of silver of 412½ grains to the dollar the effect will be to drive gold from the country. I deny40 this utterly." The operation of Gresham's law was not even admitted, because, forsooth, silver was not an "inferior" currency.41 A common fallacy, too, was that, if A owned silver bullion and had it coined at the Mint, where free coinage was allowed, a debtor B who owed a creditor C could thereby come into possession42 of A's dollars by a miracle, and have as many dollars as he wanted. A wholesome reply to this was given43 by Senator Bayard:

There were, however, men who used this discussion simply as a means to an end, in catching the vulgar ear by buncombe, and went to such an extent as to merit quotation as giving specimens of the humor in the situation. Said one:44 "Why, Senators, we had acquired Louisiana and Florida, we had carried on a war with Great Britain from 1812 to 1815, when we had hardly any gold coin, on the credit of the silver dollar." Nothing, perhaps, can be better than the following45 eulogium of a Southern Senator on silver: "It enjoys this natural supremacy among the largest number of people because the laboring people prefer it. They use it freely and confidingly. It is their familiar friend, their boon companion, while gold is a guest to be treated with severest consideration; to be hid in a place of security; not to be expended in the markets and fairs. It is a treasure. and not a tool of trade, with the laboring people. A twenty-dollar gold piece is the nucleus of a fortune, to remain hid until some freak of fortune shall add other prisoners to its cell. But twenty dollars in silver dimes is the joy of the household, 'the substance of things hoped for, the evidence of things not seen.'... Silver is to the great arteries of commerce what the mountain-springs are to the rivers. It is the stimulant of industry and production in the thousands of little fields of enterprise which in the aggregate make up the wealth of the nation." If anything could equal this, it was the utterance46 of a well-known Northern Senator, Mr. Blaine:

The aristocratic character of the yellow metal is thus47 well defined: "Gold is the money of monarchs; kings covet it; the exchanges of nations are effected by it. Its tendency is to accumulate in vast masses in the commercial centers, and to move from kingdom to kingdom in such volumes as to unsettle values and disturb the finances of the world." The following48 unctuous fondness for silver was put forth by Senator Howe, afterward a delegate to the Monetary Conference of 1878: "But we are told the cheaper metal will drive out the dearer, and gold will be banished from our circulation. Silver will not drive out anything. Silver is not aggressive; it is so much like the apostle's description of wisdom that it is 'first pure, then peaceable, gentle.'... Put a silver and a gold dollar into the same purse and they will lie quietly together."

In fine contrast with this spirit was the manly and honest attitude taken by Senator Lamar49 when his State Legislature in Mississippi instructed him by resolutions "to vote for the acts remonetizing silver and repealing the Resumption Act," and to use his "efforts to secure their passage." He offered to withdraw from public life rather than vote for measures which he deemed to be injurious to the country:

§ 6. During the passage of the Bland-Allison bill through Congress, Senator Matthews (Ohio) introduced a concurrent resolution on which as much debate was spent as on the Bland bill itself. This resolution50 aimed to establish the technical right of the United States to pay the principal and interest of its public debt in silver dollars of 412½ grains:

The question of moral and legal right was fully argued51 by the Senate. There seems to be no doubt as to the technical right of the United States to pay interest and principal of all the public debt in silver, if the Government so chooses. But, on the other hand, it is equally beyond question that resumption of specie payments would have been rendered impossible on January 1, 1879, had it been understood from 1876 to 1878 that "coin" meant silver and not gold; because only on the explicit explanation of the Secretary of the Treasury (John Sherman) that the word "coin" would be interpreted as gold was he able to sell the bonds needed to secure a gold reserve for resumption purposes. The passage of the Matthews resolution, in fact, was recognized as part of a plan to scale debts, public and private, by giving free coinage to silver; and, as a consequence, our bonds began to come back from Europe in large quantities. In one week there came an amount of ten millions, and in 1818 it was said by Mr. Allison that one hundred millions had been returned. This action shows distinctly enough whether there had been any tacit understanding in the minds of purchasers of bonds that they expected to be paid in gold.

When the silver bill was vetoed52 by President Hayes, he urged as his reasons for not giving his assent to it that (1) the proposed dollar was 8 or 10 per cent less in value than it professed to be; that (2) it made the dollar a legal tender for debts contracted when the law did not recognize such coins as lawful money; that, (3) by making the dollar receivable for duties, the gold revenue of the United States would be cut off, and so necessitate the payment of principal and interest of the national debt in silver; that (4) of the bonded debt then outstanding $1,143,493,400 was issued prior to February, 1873, when no silver was in use, and $583,440,350 had been refunded since that time, when gold was the only coin for which the bonds were sold (gold being the legal unit since 1873), and so understood by the parties to the contract; that, (5) owing to the fall in the value of silver, the Administration would have been unable to sell the $250,000,000 of bonds at 4 per cent, placed on the market since 1876, had they not quieted the doubts of the purchasers by a public statement of an intention to pay the bonds in gold and not in silver; that (6) to pay the bonds in a coin less than that received would be a grave breach of public faith; and that, (7) in case the silver dollar should not rise to par with gold, the act afforded no provision for exempting pre-existing debts from this law. But these considerations did not prevail with a sufficient number to prevent the bill from being passed over the head of the Executive.

At the time when Congress was discussing the silver bill a commission53 was sitting, appointed to investigate the causes of the change in the relative value of gold and silver, the effects upon trade, and to report on the policy of restoring the double standard in the United States. Three Senators, Jones (Nevada), Bogy, and Boutwell; three Representatives, Gibson, Willard, and Bland, and two "experts," Mr. Groesbeck and Professor Bowen, formed the commission. It was packed in favor of a report for the remonetization of silver, and its conclusions have never had much weight. The minority report of Prof. Bowen and Mr. Gibson is, however, excellently done. Messrs. Jones, Bogy, Willard, Bland, and Groesbeck signed the majority report, submitting the following as some of their conclusions:

Part III, Chapter XV

Operation of the Act of 1878

§ 1. With the exception of the paper-money period of 1862-79, the United States has expressed prices and contracts both actually and legally in the gold standard since 1834. For the purpose of bringing the law into harmony with the actual facts, gold was made the sole legal unit in 1873. In all this time there was some consistency in our national monetary policy. The Bland-Allison Act of 1878, however, was a most radical departure from the policy of preceding years. It inaugurated a wholly new experiment with silver, leading to still greater extremes in the Act of July 14, 1890, and culminating in the panic of 1893, which finally brought about the repeal of existing laws for the purchase of silver. This period, which begins in 1878 and ends in 1893, is quite out of the ordinary, both as regards the startling character of our monetary policy and the tremendous commercial interests involved.

The Act of 1878 provided for the purchase by the Treasury of not less than two, nor more than four, million dollars' worth of silver bullion per month, to be coined into dollars each containing 371¼ grains of pure silver (or 412½ grains standard silver); and these dollars were to be "a legal tender at their nominal value for all debts and dues, public and private, except where otherwise stipulated in the contract." How great a departure this act was may be seen by the following epitome of our coinage previous to 1878:

That is, from 1806 to 1835 there were coined no silver-dollar pieces at all; and in the whole period from 1793 to 1877 only $8,031,238. Yet we had free coinage of both gold and silver until 1873.

The number of dollars coined from "two million dollars' worth" of silver varied with the value of our paper dollar during 1878, and after January 1, 1879, with the amount of silver which could be bought by the fixed sum of gold. As silver fell in price, the two million dollars of gold bought more ounces of silver, and more dollars could be coined.54 Using the discretion permitted them by the law, the Secretaries of the Treasury have generally purchased only the minimum requirement. This has resulted in a coinage of from 27,000,000 to 34,000,000 of standard silver dollars each year.

The Act of 1878 also introduced a new kind of paper money into our currency. Whatever objection may be urged against the use of silver dollars, owing to their heaviness and bulk, it has been largely removed by the provision for silver certificates. Any owner of not less than ten silver dollars may deposit the same with any Assistant Treasurer of the United States and receive therefor certificates, which "shall be receivable for customs, taxes, and all public dues, and, when so received, may be reissued." It is to be noted that silver certificates are not a full legal tender for all debts, "public and private," as silver dollars are. But in practice certificates are received equally with silver dollars; because, if refused, the holder can readily obtain silver dollars. To be forced to receive silver-dollar pieces would be more annoying than the immediate acceptance of certificates, even though they are not legal tender. If it were not for these certificates no great amount of silver could be kept in circulation. It will be seen, by reference to Chart XVIII, that the silver-dollar pieces actually in circulation can not be forced above a certain amount (the highest sum ever reached being $67,248,357 in November, 1890). The line of total silver circulation includes the larger sum of certificates and Treasury notes as well as the silver dollars themselves.

By the preceding legislation the Government itself became the purchaser of silver bullion, and gained all the profit arising from the seigniorage, or the difference between the market price of the metal in the coin and its overvalued face value. There was no free coinage of silver. No private person could have silver bullion coined into dollars. The coined dollars belonged to the Treasury, and were parted with in no other way than was gold or any other money. Our experiment was radically different from the contemporary use of silver by Germany or the Latin Union. In those countries the silver coins were not owned by the governments, for they did not buy any bullion. They only coined silver for those who presented it at their mints; and after the mints were entirely closed to silver, it was the country as a whole that owned the depreciated silver, and not the Treasury. The old thalers and five-franc silver pieces of full legal-tender power in use had come into circulation before free coinage ceased, and still remained a part of the currency. Closing the mints to silver in Europe did not disturb the existing legal-tender silver coins in circulation.

§ 2. The introduction of a new kind of money necessarily touches very closely the institutions dealing in capital which hold large sums of cash. The attitude of the banks toward silver is essential to an understanding of the practical operation of the Act of 1878. The banks also form the connection between the business public and the Treasury; and the relation between the two has a very important influence upon our monetary situation. Banks are always debtors as much as they are creditors; hence the invariability of the standard is a vital matter to those they represent—the depositors as well as the borrowers; and, of course, they early showed suspicion toward silver because of its uncertain value.

The banks, however, do not refuse to receive silver currency on deposit, but they make every legitimate effort to prevent it from accumulating on their hands. Silver certificates equally with silver dollars are receivable for customs, and such banks as have importers for customers are able to pass out to them silver currency which is intended for paying duties. The silver is thus turned in again to the Treasury, to the obvious disadvantage of the Government balances, although it is a method adopted from the lack of a proper system of redemption (see § 6). And if the Treasury is cut of to this extent from the supply of gold needed to maintain gold payments, it must secure the gold elsewhere. Hence, in the end, so long as silver is receivable equally with gold for customs, the Treasury must in all probability provide as much gold as it would have needed had it established direct redemption of redundant silver dollars in gold.

The United States Treasury receives and makes its largest payments at its principal office in New York, the Sub-Treasury in Wall Street. For its own convenience, in order to save the transfer of large sums of specie, the Sub-Treasury at New York has become a member of the New York Clearing-House Association, composed chiefly of national banks. The kind of money the Treasury pays out at this principal office in New York, is therefore closely watched, as indicating its general condition. As its dealings are with the Clearing-House, the moment it should begin to pay the Clearing-House balances against it in other money than that equal to gold, we should have evidence of the abandonment of the gold standard.

Some months after the passage of the Bland bill the Clearing-House Association (November 15, 1878) decided to refuse silver dollars for balances. But July 12, 1882, in an act extending the charters of the national banks, this decision of the New York banks was met by further legislation,55 which forbade any national bank to join a clearing-house association that refused to accept silver certificates for balances. Inasmuch as the largest number of banks in the association were national banks, they were obliged to rescind their rule (July 14, 1882); and nominally they do not refuse to accept silver certificates, although none are offered. By common consent, silver is not offered between banks, and no legislation can compel them to do it. Their purpose, however, is to hold as little silver as possible.56

§ 3. The operation of the new silver legislation of 1878 may be best studied by inspection of Charts XVIII and XIX. In line A of Chart XVIII it will be seen at once that the circulation of silver-dollar pieces is relatively small, and partakes of the nature of subsidiary coins. Since 1886 the amount in use has fluctuated about the line of $60,000,000; silver-dollar pieces beyond that sum can not be retained in circulation. Being a denomination of larger value than subsidiary coins, of course, the amount of dollars which can be kept out is about the same as the total of fractional silver; but the quantity required is fixed by the same general demand for small change in retail transactions, which fixes the output of the smaller denominations of silver coins (even though the dollar piece is an unlimited legal tender). Relatively to the total silver currency, however, as indicated by line B, the silver-dollar pieces (line A) are unimportant. Congress appropriated the means to pay for shipping the silver-dollar pieces free of express charges to any part of the United States to all who called for them. This, however, did not prevent their returning, through the banks in which they were deposited, to the Treasury in payment of dues. After certificates in denominations less than five dollars were issued, in 1886, there was no reason for this means of urging silver-dollar pieces on the public.57

Unless the silver certificate had been devised, the Act of 1878 would have had a very different history. The denominations of the silver certificates, moreover, have very much to do with the amount kept out. Line B indicates the total silver currency (including silver-dollar pieces, silver certificates, and, in and after 1890, Treasury notes) in circulation outside of the Treasury. The fundamental fact must be remembered that by this act the Government became the purchaser of silver bullion and the owner of all the silver coined from it. The question of importance to our currency, therefore, is how the Treasury could dispose of this form of money which it owned; whether it could get it out into circulation at par with other forms of money. The novelty of the Act of 1878 is seen when it is recalled that never before in our history did the Government buy gold or silver bullion outright with its income; it never has done for gold what it did for silver. Gold bullion was never bought to be coined. The purchase of silver bullion, with intent to buoy up its price, is unique in monetary history. Gold has always been left to take care of itself under the regulation of ordinary commercial laws. Free coinage of gold is in no sense whatever a purchase of gold.

Since the Government was taking from taxes upon the property of its citizens about $30,000,000 a year, and with it buying the product of a special mining industry, the country must necessarily be rich to afford it, and its income must be largely in excess of its outgo, in order to do this with impunity. Hence we shal see that the Act of 1878 is involved with our fiscal policy; when deficits come, the heavy burden of silver purchases will be recognized.

The Act of 1878, moreover, intimately concerned the character of the existing currency. Was there a vacuum for this new-coming silver? Could the Treasury dispose of it? or would it remain stored up in its vaults? Naturally, the mixing of two kinds of coin, both unlimited legal tender, would create difficulties. It was solely a question as to how much silver could be put out without choking up the Treasury, and driving out its gold (for in 1878 gold had been collected in preparation for resumption on January 1, 1879). Line B in Chart XVIII shows how this succeeded, while line A in Chart XIX shows when and in what quantities silver collected in the Treasury, and line B of Chart XIX indicates the condition of the gold reserves. As the eye follows line B of Chart XVIII, it is seen that in general the silver currency was successfully pushed out of the Treasury, especially after 1886, and reached at its height nearly $540,000,000 in December, 1893. How was this accomplished? for certainly there were many vicissitudes in the earlier part of this period.

In the two years immediately after the passage of the Act of 1878 distrust of silver money was great; the denominations of the silver certificates used were at first very large; and silver accumulated in the Treasury almost as fast as it came from the mints: The only way in which the silver could be kept in circulation was, of course, in the form of certificates; and yet the first issues of certificates in denominations of $1,000, used to pay for purchases of bullion in San Francisco, were returned to New York58 in ten days, to be used in payment of customs to the Treasury. The large denominations were never in the hands of the people; they were held by large firms or banks, who knew well how to get rid of them through the customs. This illustrates how certainly the rich can take care of themselves in times of currency disorders, for the silver certificates never got into general circulation until such small denominations were used that they met the needs of the masses of the people for change. These people are not so quick in escaping any possibility of loss when the money is distrusted; and, consequently, if disaster should come through this kind of money, they would be the ones in whose hands it would be circulating, and upon whom the losses would fall.

From June, 1878, to the middle of 1880, almost all the silver coined stayed with the Treasury; only a few certificates were out. In September, 1880, however, a successful method was devised for getting out silver by offering drafts on the Sub-Treasuries in the West and South, payable in silver certificates to those who wished to make remittances there, in exchange for deposits of gold coin at the New York Sub-treasury. It amounted to a transfer of funds to distant parts of the country free of charges for exchange.59 This fell in with the usual demand in the autumn for remittances to the West for "moving the crops." The general revival of trade following the resumption of specie payments in 1879 made the years 1880-1884 highly prosperous; gold was imported, and the Treasury gold reserves felt the results in a larger inflow during 1881 (see line B, Chart XIX). The national bank circulation increased; and those small denominations of money, such as ten and twenty dollars, used in retail trade, were called for in larger sums. Yet in these very years the gold reserve (see line B, Chart XIX) proved very sensitive to any increase of silver in the Treasury. In 1880, when silver rose, gold fell; in 1881, when silver fell, gold rose; at the end of 1882, as silver rose, gold fell. Generally, with the growth of Treasury silver, gold fell off.

One effect of the silver legislation of 1878 on the resumption of specie payments has an importance quite out of the ordinary. From 1862 to 1879 we had had neither gold nor silver in circulation; and after a dreary experience of seventeen years we had come out of the bog of depreciated paper money on to the solid ground of the gold standard. Gold had been accumulated in the Treasury; but just as we were sure of the gold standard, the Act of 1878 began the series of enactments whose effect was to destroy confidence in the steadiness of our standard. Indeed, as a matter of monetary study, our silver legislation does not so much raise questions as to the effect of an increased quantity of money on trade and prices, but as to the possibility of a change of standard from one metal to another. The process of an addition of money equal in value to that in use offered nothing very new; but the possible drop from a gold to a silver standard was full of startling uncertainties. This was the cause of the alarm felt by the business community, and it was a very real one. The great incubus hanging over the country since 1878 had been this fear of a change in our standard.

In 1880 and 1881, when large crops and favorable conditions brought to us $175,000,000 of gold imports, we might have absorbed it at a most opportune time into our currency. But we had gone off into a strange kind of an experiment with silver; we had bought silver, and injected it into the circulation instead of the gold—that is, we put poor material into our building, when good and lasting material was lying just at hand. The folly of this beginning was finally expiated by the losses in the crisis of 1893.

§ 4. As early as 1884 the Treasury was involved in difficulty due to its purchases of silver. This mechanical and forced coinage of fixed sums of silver each month, irrespective of the desires of the business community or of the needs of exchange, was flying in the face of the principle of demand and supply. The legislators in 1878 had omitted to repeal the law of demand and supply. Just as silver rose in the Treasury, alarm was felt by the world of trade. If silver were paid by the Sub-Treasury in New York, as we have before explained, it would be a virtual confession that the Government's stock of gold had become exhausted, and the silver standard had arrived. It boots little that the danger was postponed; the fear was always there.

In a populous town there was once placed a cage of wild beasts, and in the very beginning the frailty of the bars gave timid people considerable alarm; but the mere fact that the creatures did not get out convinced passers-by, in the course of years, that there was really no danger, after all, and men hurried past the animals, hearing the sounds of their baffled ferocity, but gave them no great attention. Therefore, when, on an uncomfortable day in late winter, one of the sub-keepers of the beasts carelessly sauntered in front of the cage, and casually remarked that the bars of the cage were almost gnawed through (he was sorry he could not help it), and asked the bystanders what they thought of it, it is not to be wondered at that a sudden paroxysm of alarm seized even sensible men, and that there ensued a general attempt to put a barrier between them and possible harm. The expression of seriousness under the assumed carelessness of the sub-keeper's manner seemed to imply that he was acting under directions from his superior, and that it meant something. The alarm spread at once. For many years silver dollars, like the beasts in our fable, were kept confined in the Treasury, and the Government was not forced to make payments in gold; but on the 21st of February, 1884, it was believed that the silver was to be let out. The sub-keeper of the fable was, in fact, the Sub-Treasurer in New York city, who addressed the manager of the Clearing-House Association on the probable effect of his paying Government balances at the Clearing-House60 in silver dollars. This alarm, however, passed by, for no attempt to pay in silver was finally made at that time.61

The expansion of trade during the good years following the resumption of specie payments was succeeded by the usual reaction. It did not take the form of a violent crisis, but the commercial depression was marked and severe. Failures in May, 1884, led the way to restricted production and lessened activity in all industries. Lessened need of exchange made our currency redundant. Then went into operation our quasi-system of redemption of silver currency, (described in § 6). The very forms of money most used in retail transactions accumulated in idle sums in the banks, and by the banks were always worked off in payment of customs duties to the Treasury, thus enabling the banks to retain gold, while silver collected in the Treasury. The working of the Act of 1878, as shown in Charts XVIII and XIX, will receive further explanation from Chart XX, which indicates by the dotted line, A, the percentage of gold paid to the Treasurer at New York; by line C, the percentage of silver receipts; and by line B, the percentage of greenbacks received. The chief supply of gold comes to the Treasury from customs, and as New York receives the largest share of these payments, the percentages here given quite accurately indicate the nature of the total receipts of the Treasury. In Chart XX it will be seen that gold payments began to fall off from September, 1883, while larger percentages of silver and greenbacks were received. By the end of 1884 gold receipts had dropped to twenty per cent, as compared with eighty per cent in 1883, while silver receipts had risen from fifteen per cent in 1883 to forty-five per cent in 1884. This was the process by which the redundant currency contracted itself—that is, the least desirable portion was sent in to the Treasury. The folly of a mechanical increase of currency still going on perforce when a redundancy was sending it back to its issuer, then became clearer than ever. The Treasury, however, was obliged by law to go on buying bullion and coining silver just as in times of prosperity. When new silver was being coined at the rate of $30,000,000 a year by the Government, which could not be ejected from its vaults, and, in addition, a distrusting and overburdened public was sending back a stream of silver formerly in circulation, it can be easily understood why the condition of affairs became critical. This explains why, line A, in Chart XIX, indicating the net silver holdings of the Treasury, rose in the years from 1884 to 1880, and it shows why line B, the net gold reserve, fell below $120,000,000 in 1884 and 1885). And just as the net silver in the Treasury increased, we find that the amount of silver in circulation ceased to rise. (See line B in Chart XVIII for 1885 and 1886.) The mischievous operation of the new silver circulation upon the maintenance of the existing gold standard stood plainly revealed.

At this time there was genuine fear that the Government, unable to contend against the stream of silver, with a diminishing gold reserve, must soon be unable to give its creditors the option, hitherto always preserved, of payment in gold. It was certainly a very serious situation. The only way out of it was to (1) cease unnecessary payments which required gold; (3) try new devices for working silver into circulation; (3) and encourage gold receipts. The first plan was within the immediate control of the Treasury. Large surpluses had made it possible to pay off many millions of the national debt each year; but in September, 1881, this was stopped, and no calls for the three per cent bonds (then redeemable at the pleasure of the Government) were made for over a year (until December, 1885). Here was another effect of the silver legislation of 1878: it crippled the patriotic payment of our public debt. Instead of being used in reducing this interest-bearing burden, our surplus was used in purchases of silver, which not only could not be got out of the Treasury, but prevented gold from coming in. This cessation of debt-paying, however, saved the Treasury from the necessity of paying out large sums in gold.62

The second scheme was the creation of a vacuum in the circulation into which the silver dollars could flow. This was not an easy matter, for heavy dollar pieces move sluggishly. Hitherto the denominations less than five dollars were United States notes; no national bank-notes of less than five dollars have been issued, by Act of 1875, since resumption of specie payments (1879). The issue of United States notes of less denomination than five dollars was stopped in June, 1885, with the purpose of making the circulation of silver dollars for change necessary. At first, this had the tendency to prolong the use of soiled notes of small denominations, to save the carrying of silver dollars; but in time more silver dollars were required for change. The effect of this measure can be seen in the rise of line A in Chart XVIII in the last half of 1885, and in the year 1886.

Lastly, in July, 1885, the associated banks of New York came to the aid of the Treasury by turning over to it $5,915,000 of gold in return for fractional silver.63 This had a moral effect, in that it was understood the banks were willing to advance additional supplies of gold if needed by the Secretary. The banks, having worked off their silver, and having with due caution increased their holdings of gold, were in a far better condition than the law-ridden Treasury.64 Indeed, when the Treasury is in dubious condition, it is the bounden duty of the banks to be unusually conservative. When the Treasury has gold in abundance, the banks can easily pay out gold, because it goes the rounds in the general circulation without being intercepted and returns to them; when gold runs low in the Treasury and silver heaps up there, the banks can not pay out gold, but must collect it.

The result of these combined efforts was a rise in the gold reserve in the latter part of 1855 (see line B in Chart XIX), even though the dead silver in the Treasury was increasing, and kept on increasing, in 1886 (see line A in Chart XIX). Although a perceptible revival of business late in 1885 increased the receipts from customs, and helped somewhat the demand for "large change," the tension did not slacken until late in 1886. The dead silver in the Treasury grew until September, 1886; and it was not until that time that such confidence was re-established as to induce any considerable gold payments for customs (see line A in Chart XX).

§ 5. An examination of line C in Chart XVIII will throw much light on the causes which made a large silver circulation possible in the years subsequent to 1886. The striking downward movement of line C has much to do with the great rise of line B; that is, the withdrawal of national bank-notes made a vacuum into which the silver currency flowed. The reason why the national bank-notes were withdrawn has to do mainly with the price of the United States bonds held by the national banks as security for their notes. With a given rate of interest, United States bonds rose in price as the credit of the country improved; and the low-priced three-per-cent extended bonds were rapidly paid off. The effect was as bonds rose in price to make the security deposited for their note issues cost the banks more, as compared with the interest to be obtained from direct lending of their funds; and as business revived, bringing better rates of discount, the profit to the banks on taking out note issues diminished. From 1878 to 1882 the bank circulation increased by perhaps $40,000,000; but the redemption of three-per-cent bonds, held chiefly by the banks, and the prosperous rate of discount, together reduced the profit on bank circulation to a minimum. From that time began a marked decline in the national-bank circulation, which fell from $356,953,345 in November, 1882, to $161,922,040 in June, 1891. This extraordinary diminution of one important component of our currency, just as the Treasury was obliged to find means of pushing silver into circulation, was of great assistance. Indeed, there could be no such amount of silver as is now in circulation except by the withdrawal of other forms of money. The action, however, was not anticipated or designed. The national bank circulation was not allowed to dwindle because the Government had first carefully decided that bank-notes were undesirable, and should be discouraged. Far from it. The bank-notes were the only issues which, if the proper reforms were secured, had in them the possibility of elasticity; but these reforms were disregarded, and the obligatory silver issues were driven into their place. Not only did we go out of our way to buy silver outright, but we allowed the national bank issues to decline while silver took their place. Such was the nature of our monetary wisdom.

The marked rise in line B of Chart XVIII, showing the increase of silver circulation in and after 1886; the consequent decline of the net silver held by the Treasury from the middle of 1886 (see line A of Chart XIX); the large percentage of gold receipts by the Treasury after September, 1886 (see line A of Chart XX); and the consequent replenishment of the gold reserve in the Treasury in and after 1886 (see line B in Chart XIX)—formed a new situation. The decline of the national-bank circulation had created a vacuum; but the success in getting silver out of the Treasury was finally due to a rider to the General Appropriation Act of June 30, 1886, authorizing the use of silver certificates in denominations of one, two, and five dollars. To this time the silver circulation had gone out in the form of certificates, mainly in denominations of ten and twenty dollars, as permitted by the Act of 1878; and the inability to use smaller denominations had been one main cause of the difficulty in keeping silver out of the Treasury. This new measure made more effective the former withdrawal of one- and two-dollar United States notes (in June, 1885). In short, silver certificates were given the right of way formerly held by small denominations of greenbacks, and, more than all that, by the withdrawal of bank issues. After June, 1886, certificates of small denominations could be issued. From this time on, nothing impeded their circulation; and after 1889 practically all the silver bought and coined passed out of the hands of the Government into circulation. Consequently, the silver did not for years accumulate in the Treasury in a manner to excite alarm. And for several years, 1886-1890, gold payments were freely made to the Treasury, and the gold reserve was ample. How clearly this period stands out above all others may be seen by consulting Chart XX, and noting the steady elevation of line B in Chart XIX.

How important the provision for small denominations of certificates in 1886 was may be judged by the fact that the increase of silver certificates was mainly in those of one, two, and five dollars. In Professor Taussig's tabulation of the results,65 it appears that in 1878 there were outstanding 499.1 million dollars of United States notes, bank-notes, silver certificates, and silver dollars; in 1890 this had grown to $773, 000,000, making a gain in twelve years of $273,000,000. Not all, therefore, of the new silver currency to the amount of about $500,000,000 is to be counted as an increase of the circulation. As an offset, the withdrawals of other kinds of money is to be reckoned; hence the net increase to the currency, as a result of the Act of 1878, was about $273,000,000. And this increase has been mainly in small certificates—that is, with a period of normal business growth, accompanied by the usual increase of population, there is an increasing demand not for the larger denominations of money (where checks are largely used), but for the smaller denominations used in retail exchanges and carried about the person. This is all there is of the popular theory of a per capita circulation. As compared with a country's transactions as a whole, there is not necessarily any need of an increased circulation proportional to an increased population; but since retail transactions, to an amount of about fifty per cent, are performed by actual money, an increase of population and of retail exchanges demands an increasing volume of the smaller denominations. This, however, does not at all imply that in wholesale transactions the circulation should grow in similar proportions.

§ 6. The Act of 1878, as actually passed, differed vastly from the free-coinage Bland bill which came up from the lower house of Congress. The opposition debate, it should be noted, was largely directed against the dangers of free coinage of silver; and many prophecies were made as to the possible effects of a bill in this form, which could not prove true of the act as passed, and which have since been thrown in the teeth of the opponents of the bill. These prophecies, however, might have proved wholly true if the act as passed had been a free-coinage measure. It is unjust, therefore, to recall statements applying to the Bland bill as it passed the House, as if they were made of the final act, which was excised of its free-coinage provisions. In studying the effects of the law we must keep this in mind.66

The operation of the Act of 1878 has been complicated to many minds by the absence of the free-coinage provision, which permits only the Government of the United States to purchase bullion and have it coined into dollars of 412½ grains (to the worth of not less than $2,000,000 nor more than $4,000,000 a month). It was not apparent why this dollar, which in 1878 contained but ninety cents' worth of pure silver, could, when issued, circulate at par with a gold dollar; nor is it understood why the silver dollar is to-day, at par with United States notes redeemable in gold. There are several reasons to account for this.

By the issue of a dollar piece containing an amount of silver less than its face value, such a coin is made similar in its character and qualities to an overvalued subsidiary, currency, and much that is true of one is true of the other; except that, in this case, the silver dollar is an unlimited legal tender, while subsidiary coins are a legal tender only to an amount of ten dollars. This matter was mentioned67 in the debates of Congress. It is well known that 100 cents of our subsidiary coin contain only 345.6 grains of pure silver, while the silver dollar contains 371.25 grains; and yet we constantly receive for "change" two half-dollars, or four quarters, in exchange for gold, or for paper redeemable in gold, on equal terms. The reasons, therefore, which give currency to the subsidiary coins will mainly account for the currency of the dollars of 412½ grains. In the first place, they are limited in quantity, as compared with the uses to which they can be put. Silver dollars, moreover, can enter into our common circulation only as they are sent forth from the United States Treasury in payment of its dues. And as they serve as "change" in lieu of one- and two-dollar United States notes (no national-bank notes being issued of denominations less than five dollars), there is an evident use for them, just as there is a use for smaller silver pieces (which are overvalued); and, if the silver dollars had been issued on the principle that they were to supply the place of small bills, a very considerable quantity could have been permanently retained in the circulation at par.

Another fact which maintains the silver dollar at par with gold, and which is of considerable importance, arises from the provision of the act which authorizes the issue of silver certificates. The important consideration, however (and, to my mind, one of the most important provisions of the act), is that these certificates, in the words of the statute, "shall be receivable for customs, taxes, and all public dues." This is a species of daily redemption of the silver dollar; for as gold has hitherto been required (as it was during and since the war) in payment of customs, now that silver dollars are receivable equally with gold for that purpose, they must remain at par with gold until there is forced upon the circulation more than is necessary for such uses. If silver dollars alone had been made receivable for customs and taxes, their weight and inconvenience in large payments would have restricted their use. So long, therefore, as the silver which gets out of the United States Treasury is in quantity sufficient to satisfy only the needs caused by the absence of small notes, and the sums demanded to pay customs and taxes, there is no reason why it should depreciate in value any more than the silver subsidiary coins should depreciate. In brief, we have unconsciously created a system of quasi-redemption of silver in gold by accepting silver at the customs when otherwise gold would be demanded. In practice this works very effectively. Whenever silver is too abundant, or whenever there comes a period in which the ability of the Government to maintain gold payments is distrusted, an outlet is created for silver to pass out of circulation, and it rapidly flows through the customs back into the Treasury. Consequently, although we then had no formal and legal system of redemption of silver dollars, yet we created one which indirectly produced very nearly the same results. Under the present system silver goes back to the Treasury, and gold remains in the hands of the public. The result would be practically the same if the importers paid customs in gold, then the Government paid out that gold in direct redemption of silver: the outcome would be a holding of silver by the Treasury and of gold by the public. In both cases the result would be essentially the same.

I do not mean to imply that a direct system of redemption in gold would not be highly preferable. Our present methods are makeshifts in lieu of a proper treatment of an overvalued silver dollar. So long as we have overvalued silver coins circulating with gold we should face the question squarely, and order their redemption in gold, in exactly the same way in which subsidiary coin is redeemed and kept at par. The "large change" should be treated on the same principle as the small change of the country.

The situation subsequently created by the Act of July 14, 1890 (discussed in the next chapter), gives this system of quasi-redemption an additional support. The act adds a statutory obligation to what was hitherto implied. After providing for the redemption of Treasury notes (of 1890) in gold or silver at the discretion of the Secretary, the act declares that it is "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." The Act of November 1, 1893, which repealed the purchasing clause of the Act of 1890 and stopped new silver issues, expressly reaffirms this principle by saying, "It is hereby declared to be the policy of the United States to continue the use of both gold and silver as standard money, and to coin both gold and silver into money of equal intrinsic and exchangeable value, such equality to be secured through international agreement, or by such safeguards of legislation as will insure the maintenance of the parity in value of the coins of the two metals, and the equal power of every dollar at all times in the markets and in the payment of debts." In view of these enactments the Executive, by his oath of office, is bound to keep silver money at par with gold; and the maintenance of a gold reserve large enough to always insure this equality is a part of the legal obligation.68 To criticise the Executive for selling ponds to protect the gold reserve is to attack him for carrying out the laws he solemnly swore to execute.

§ 7. It has been a mystery to many people that the silver dollar of 412½ grains should continue in circulation at par, while the trade dollar of 420 grains fell to its intrinsic value, and was not in circulation on equal terms with the Bland dollar, which contains less silver. The coexistence of these two silver dollars added to the complexity connected with the silver question, and it will be my plan to finish the story of the trade dollar, begun in a previous chapter,69 in order better to understand this subject.

It will be remembered that the coinage of the trade dollar was authorized by the Act of 1873. As the bill came from the Treasury officials, in 1871, it contained a provision for a dollar of 384 grains—that is, one of the weight of 100 cents of subsidiary coin. This was in the bill when it first passed the Senate, and also when, in 1872, it passed the House. January 7, 1873, however, Mr. Sherman reported the bill in the Senate so amended as to strike out the clause authorizing a dollar of the standard of the subsidiary coin, and inserted in its place the provisions70 for the coinage of the trade dollar, which was intended purely for merchants trading with the East. This amendment was promptly accepted by the House.

At the time the act was passed a silver dollar containing 420 grains of standard silver (378 grains of pure silver) was worth 104 cents in gold; but the fall in the value of silver after 1874 seriously affected the uses originally intended for the trade dollar. The fall of silver relatively to gold in 1876 was so great that the pure silver in a trade dollar became worth less than a gold dollar; consequently, money-dealers in California, where gold was the only money in use, found a profit in putting the trade dollars into circulation there. At this time, it will be recalled, this coin was a legal tender for sums of five dollars, owing to an unintentional provision of the Act of 1873. Although this law limited its use to small payments, the mere fact of its circulation in the United States called attention to the inadvertence in the Act of 1873, and all legal-tender power was taken away from the trade dollar by a section71 of the Act of July 22, 1876, and the Secretary of the Treasury was empowered to suspend its coinage altogether at his discretion.

As yet, however, the trade dollar had not come into use in States where gold was not in circulation, because the United States notes which occupied the place of gold were worth less than the silver coin. By 1877, however, the United States notes had so increased in value that they were worth 95 cents in gold to the dollar; but the average price of silver in 1877 was only 54¾d., so that the 420 grains of standard weight in the trade dollar were worth only about 93 cents. As a consequence, under the quick action of money-brokers, trade dollars suddenly appeared in circulation in the United States in large quantities. It was found more profitable to put the coin into circulation at home than to export it. After 1876 the trade dollars had no legal-tender quality whatever, and, inasmuch as dishonest persons were carrying them to remote districts, where the actual nature of the coins was unknown, and were passing them at full value, the Secretary promptly used the discretion granted him by the law, and ordered a discontinuance of further coinage of these commercial dollars. In all, there were coined 35,959,360 of these pieces, and numbers of them still remain in the hands of money-dealers or individuals. They are, however, worth no more than a similar amount of bullion. The Government does not redeem them, because the Government only coined them at the expense, and for the convenience, of owners of bullion, for commercial purposes, and did not create them as legal coins. They are coins only in shape and appearance; in truth, they are only round disks of silver bullion, refined, of course, with the stamp of the United States, certifying to their weight and fineness.

But even after the coinage of trade dollars was suspended, and their limited legal-tender quality had been taken away, a difficulty arose. Speculators had reimported them from China on the strength of the proposals in Congress that the Government should redeem them at their face value in gold, like subsidiary coin. Probably 2,000,000 of them were held on this understanding. Although a demand upon the country to help out a mistaken speculation was wholly illegitimate, Congress, by Act of March 3, 1887, yielded to the pressure, and passed a bill to redeem at par all that should be presented within six months. President Cleveland, not approving the purpose of the act, allowed it to become a law without his signature. Thereafter, the trade dollar passed out of our history, after $7,689,036 had been exchanged for standard dollars and fractional silver coin.

Part III, Chapter XVI

Act of 1890

§ 1. From the end of 1886 to the middle of 1890 the country enjoyed a short respite from monetary disturbance. In spite of the legislative agitation in Congress for free coinage of silver, the gold reserves were large and easily recouped by the receipts from customs (see line B in Chart XIX). During this period the Treasury received from 70 to 95 per cent of its customs duties in gold (see line A in Chart XX). This favorable state of affairs, however, did not long continue. The well-devised plans of the silver agitators in Congress brought about additional legislation in favor of silver. They made alliances with other interests in Congress, and a so-called compromise took the form of the Act of July 14, 1890, which had momentous effects on the country.

Although the mechanical details of the Act of 1878 were changed in 1890, the new law, in fact, continued the policy of the old, but increased the amount of silver bought. It should be noticed, however, that the Act of 1890 did not repeal the Act of 1878; it only repealed that provision of it which required the monthly purchase and coinage into silver dollars of not less than $2,000,000 nor more than $4,000,000 worth of silver bullion. Instead of this provision, the Secretary was directed to purchase "silver bullion to the aggregate amount of 4,500,000 ounces" each month, and to pay for it with Treasury notes in denominations from one dollar to one thousand. This meant the purchase by the Treasury in the beginning of much more silver than under the Act of 1878. Instead of buying under the old act so many dollars' worth of silver bullion (which produced a varying number of ounces, from changes either in the value of the dollar or the price of silver), the Secretary was required to buy a fixed number of ounces. Hence the total amount of Treasury notes paid out for this bullion would represent the total value of the silver at the time of its purchase. If the silver did not depreciate there would be behind each Treasury note an amount of silver equal to the face value of it in gold, but to the extent that the silver fell in price after it was purchased by the Treasury would there be a less than full value behind the notes. While the act of 1890 was in force there were bought 168,674,682.53 fine ounces of silver at an average cost of $0.9244 per ounce, or $155,931,002.25. That quantity of silver had lost value by 1896 ($0.65 per ounce) to the amount of about $46,000,000, and to that extent, or about 30 per cent, the notes have no value behind them.

A new kind of paper money was also introduced by the Act of 1890—the Treasury notes—which "shall be a legal tender in payment of all debts, public and private, except where otherwise expressly stipulated in the contract, and shall be receivable for customs, taxes, and all public dues," and when held by any national banking association may be counted as a part of its lawful reserve. Inasmuch as parts of the Act of 1878 remain in force, the provisions governing the issue of silver certificates are still binding. Hence there are two kinds of paper money arising from the purchase of silver. The silver certificate (see Act of 1878) is not a legal tender for "all debts public and private," while the Treasury note is, standing on a par with the greenbacks. But the Treasury note differs from the silver certificate in a more important respect. The silver certificates have not been formally redeemable in gold (see Chapter XV, § 6); but on demand of the holder of a Treasury note the Secretary must redeem it in gold or silver coin, at his discretion, which means in gold so long as the Treasury has any. There can be no more reason for the depreciation of Treasury notes (even though backed by only 70 per cent of silver bullion) than the depreciation of greenbacks. Instead of the quasi or indirect redemption of silver certificates, there is a direct redemption of Treasury notes.

In this connection, however, the Act of 1890 went further, and by its language evidently meant to convey the intention to include silver dollars and silver certificates in the general proviso concerning redemption (Section 2): "It being the established policies 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."72 Thereafter it became the legal duty of the Executive to prevent the silver currency—either silver dollars, silver certificates, or Treasury notes of 1890—from falling in value below its parity in gold.

§ 2. By reference to line A in Chart XIX it will be seen that, even with this creation of an enlarged silver currency, little difficulty was experienced in keeping it out of the Treasury. No such sums of silver were heaped up as in 1882-1888. Not only could there not be the same distrust of Treasury notes, redeemable in gold, as of silver certificates; but the expenditures of the Treasury were so nearly equal to its income at this time73 that its reserve funds were necessarily paid out. The absence of a surplus, however, did not prevent the silver current from returning upon the Treasury. So soon as conditions of depression arose, which made the currency redundant (such as the Baring crisis, late in 1890 and in 1891), the system of redemption previously described began to work; the banks strove to get rid of their silver; ceased to pay in gold to the Treasury (see Chart XX) for duties; and silver streamed into the Treasury. At a time when the country had a surplus it could invest this surplus in dead silver, and the operation would produce no public distress and cause no comment; but when the surplus dwindled, this process began to produce distress. Any large payments would have to be met in silver.74

The difference between the Treasury note and the silver certificate aided to keep the new issues in circulation. The banks could properly accept Treasury notes redeemable in gold in all payments to themselves, and they could be likewise received at the Clearing-House. Under these circumstances the banks would use the large denominations; hence, under the Act of 1890, it was possible to keep out a considerable quantity of the large Treasury notes, in addition to the smaller notes in general use for small and large change. It will be recalled that it had been impossible to keep large denominations of silver certificates out; and the gain under the Act of 1890 just described is clearly a result of the system of direct redemption.

The general situation, however, as it affected the Treasury and our currency was far from favorable. The mere fact of a large increase in the silver purchases by the Act Of 1890 was alarming. How long could the United States go on with this great annual addition of perhaps $40,000,000 or more to its silver currency without producing redundancy and loss of confidence in the maintenance of gold payments? The general state of mind among the shrewdest business circles is quickly reflected in the payments to the Treasury (see Chart XX. No one can look at the clear and easy condition from 1886 to 1890, and then observe the tangled confusion, whose beginning is apparent in the very month in which the new act went into effect (August 14, 1890) without seeing that we had entered upon a new and difficult stage of our monetary history. The percentage of gold payments to the Treasury began to decline at once; and the result was immediately apparent in the gold reserve (see line B, Chart XIX). Moreover, the gold payments into the Treasury continued to fall, and, with two brief exceptions (one in the end of 1891 and another in the fall of 1893), reached an insignificant sum, and 1894 practically ceased altogether. That was an ominous fact. So long as the banks believed that gold would be forthcoming from the Treasury, they could pay out gold with the assurance that it would come around to them again; but their accumulations of gold, and evident caution in paying out gold, showed their genuine distrust as to the status of the Treasury. Legal-tender notes, Treasury notes, and silver certificates collected in the banks, and by them were sent back to the Treasury. In short, the Treasury was thus being cut off from its usual source of gold. If it did not come in for duties, it could not come from elsewhere.

Chart XX shows since 1890 a confusion of lines comparable only with that of 1884-1886; but the two periods were in several respects different. In 1884-1886 silver accumulated in the Treasury (see Chart XIX); since 1890 the accumulations of silver in the Treasury have not been large, yet the gold reserve has been steadily falling in a most alarming way; while no such extreme decline in gold payments to the Treasury marked the earlier as it has the later period. The fear of a breakdown in gold payments certainly did not arise in the later period from a heaping up of silver in the Treasury. We must look in another direction for the cause. It is undoubtedly to be found in the long-continued agitation for a change of standard (see Chapter XVII, § 1).

During 1891 temporary expedients were resorted to to replenish the gold reserve, but in the end these were ineffective, being slight barriers against a strong current of distrust. One expedient was the offer to receive gold on deposit in New York, and to transfer money in forms of silver certificates to remote parts of the country at a slight expense. In this way silver money was pushed out into the West and South, and gold was collected to some extent in the Treasury. But the effect was only temporary.

§ 3. In advocacy of the purchase of 4,500,000 ounces of silver by the Act of 1890, its supporters strongly urged that this would raise the price of silver to par ($1.29 per fine ounce) with gold. There is good reason to believe that some of those engaged in pushing the measure through Congress were acting with knowledge of the operations of the most gigantic combination to speculate in silver of which we have any record. The passage of the "Sherman Act" was probably part of the scheme. At any rate, immediately upon its passage a combination of owners of silver in New York, London, and on the Continent began a speculative attempt to raise the price of silver all over the world, and its operations extended even as far as India.75 This succeeded for a brief period, and August 19, 1890, silver reached $1.21 per ounce fine. Immense amounts of capital must have been required to carry this silver.76 But the Baring failure punctured the speculation, making it impossible to carry such large sums, and the price of silver came down with most astonishing rapidity. This was the period just before the greatest fall in the par value of silver ever known. (See Chart XVII, Chapter XIV.) That is, the United States, wholly without regard to what was going on in the countries of Europe and Asia, rashly started on an additional purchase of silver. It was not statesmanship; there can hardly be any other explanation than that speculators had hoodwinked Congress and made it play a part in their game to raise the price of silver. In view of the situation in the rest of the world, there seems to be hardly any other conclusion. The outcome, moreover, did not meet expectations. Not only did the price of silver not go to par as a result of the Act of 1890, but never in the history of the precious metals has it fallen so low as in the years following 1890. Even during the continuance of the act, silver lead dropped from 17.26:1 (August, 1890) to 28.20:1 (July, 1893).

As the price of silver declined, the issues of Treasury notes diminished. Under the Act of 1878, with the quotation of silver at 67 cents per fine ounce, about $46,000,000 at the minimum would have been coined; while under the Act of 1890, at the same price, only about $36,000,000 of notes would have been issued. Under the Act of 1878 a larger number of ounces would have been bought by a given sum of gold, as silver fell in price; under the Act of 1890 a less total sum would be expended on the required number of ounces, as the price per ounce fell.

Part III, Chapter XVII

Cessation of Silver Purchases, 1893

§ 1. The real difficulty with the currency in recent years was due, in my judgment, to the prolonged agitation in regard to the standard. The persistent attempts of the silver party to pass drastic measures through Congress excited alarm. The failure to properly understand the essential functions of money masked the real cause of trouble, for the public was constantly forced to hear discussions of the dependence of prices on the quantity of money, the need of more money, and the like. In this agitation concerning the standard was disclosed some misunderstanding of the fundamental principles of money.

Since recent events—to my mind at least—indicate a failure to distinguish between two different functions of money, it will be advisable to make perfectly clear the basis for such a distinction. The two things to be kept distinct are: (1) The undisturbed maintenance of the standard, or common denominator, for prices and contracts; and (2) the means by which goods are exchanged. The stability of the standard is a matter quite distinct from the determination as to how much of this or that kind of money is needed as a medium of exchange. The standard in which prices are expressed should not be confounded with the machinery by which goods (whose relative values are already expressed in the standard money) are exchanged.77

A perfect standard of value, as every economist knows, is unattainable. Neither gold nor silver is a perfect standard, because price is a relation; and this relation may be altered either by causes affecting the money side, or by causes affecting the goods side of the comparison. Gold and silver have in fact been used as standards in default of better ones; silver having been mainly so regarded up to 1850, and gold having been largely so employed since 1850. Prices, with which every man of affairs has to deal, are affected by all the various influences touching not only the goods side, but the money side of the ratio. Prices, consequently, are modified (1) by an increase or diminution in the supply of money, (2) by an increase or diminution in the demand for the money material, or (3) by an increase or diminution in the cost of producing the goods exchanged against money. It is evident, then, that there are many natural and unavoidable causes at work on both gold and silver to modify their relation to goods, and thus to affect prices. Changes in prices are sure to arise from the numerous causes here set forth, over which legislation can have no control. The business community has enough to do to watch for and guard against changes arising from natural causes affecting the demand and supply of money and the vicissitudes of cost of production. It has not only a right to be saved from legislative artificial changes in the standard; but it will be incensed beyond endurance if such legislation is the result of political intrigue and campaign bargains. It is ready to demand in a very ugly humor that it shall no longer be worried by unnatural legislative changes in the common denominator itself.

But, more than this, gold is not the same kind of article as silver for monetary purposes, and the forces affecting the value of gold work differently from those which affect the value of silver. Gold is heavier than silver: gold is thirty times as valuable as silver, weight for weight: gold is needed for large denominations of coin; silver for small denominations. Therefore, for monetary uses, gold and silver are not homogeneous; a demand for money in general can not be satisfied indifferently by either gold or silver, since monetary needs differ among different people. Gold and silver are not interchangeable as money, any more than corn and wheat are interchangeable as food: both corn and wheat may serve as food, but corn-meal and flour will never be the same, will never equally please all palates, and will never be in demand equally the one for the other. The difference between gold and silver is still more pronounced. From the simple fact that gold is a metal different from silver, the conditions affecting the demand and supply of gold are different from those affecting the demand and supply of silver. The main supplies of gold come from regions other than those which furnish silver: the largest deposits of gold have been found in California, Australia, South Africa, and parts of the Rocky Mountains; while the largest finds of silver have been in Mexico, South America, and Nevada. From this brief summary of facts it must be evident why a standard of silver must inevitably be wholly different from one of gold. From the point of view of the function of money as a standard, every one must admit that the two are not homogeneous.

The logical consequences of these facts are momentous to our present discussion. If, in this country, gold should happen to have long been the common denominator with which all goods had been habitually compared; and if as a consequence prices and contracts had during this long period been expressed in gold (for this has been true of gold legally and in fact since 1834, except in the paper period of 1862-79)—then it follows that any attempt to change from an existing gold standard to one of depreciated paper, or to one of silver, having its own peculiar conditions of value, would have the destructive effect of a monetary earthquake. It would cause an upheaval of all prices and contracts not specifically expressed in gold. After having adapted itself to one metal, the business public must go through the trying process of learning how to adat itself to a new metallic denominator. Here is the destructive influence of a change. And, as Nature abhors a vacuum, the world of trade abhors change. The business community demands conditions in which it can clearly see a short distance ahead. Whatever be the length of time involved in a productive process—such as between buying the wool and marketing the finished woolen goods, or between buying iron and completing the house or bridge—men of affairs must be protected against unnecessary changes in the common denominator in which their sales and orders are expressed.

All this exposition seems so very elementary that I shall probably be taken to task for it; but the astounding fact remains that our Solons have for seventeen years (or since 1878) been straining the very timbers of the ship of state in a frantic—and, from a business point of view, an insane—attempt to tamper with the standard. A concerted and continuous effort to render the country uncertain as to the permanence of its standard, actually kept up for seventeen years, and embodied in national legislation, seems like a piece of folly too gross to be true in a modern civilized state; but that is the exact truth of the United States. Since 1878 we have not intermitted the policy, forced on us by selfish private interests, to keep steadily before us the possibility of a change from the gold to the silver standard. Since 1878 it must be recorded that there has never been a period of absolute certainty; there has never been a period when a producer could feel so entirely sure of the standard of payments that he could, without fear or hesitation, make his estimates a few years ahead.

A correct analysis of the situation, therefore, in my judgment, discloses the fact that the cause of all our monetary disturbances is not one connected with a medium of exchange, but one concerning the maintenance of a definite measure, or, common denominator, in which prices and contracts are expressed. It is not now a question as to how much, but what kind of money we shall have. It was the doubt as to what kind of money, or what standard, we were to have which brought us the panic of 1893. Politicians, manœuvring for party advantage, have been playing the game of tampering-with-the-standard at Washington, while the crippled industries of the land were burying their dead.

§ 2. The story of our standard since the Civil War is one of the most humiliating chapters of our monetary history; and that is saying a great deal. It was on December 31, 1861, that specie payments were suspended, after a long experience on a gold basis, since about 1834. In 1862 the Government made the error of trying to get a loan without interest by issuing irredeemable paper. The inability to understand that the interest on $450,000,000 was a small matter compared with the confusion produced in prices and credit by changing the standard from gold to a paper of dubious value (behind which there was not a dollar of reserve) was severely punished by disaster. The greenbacks then issued depreciated even 65 per cent. Without going into the subsequent history of this depreciated paper standard, it is sufficient to recall that, in 1875, the Resumption Act was passed, under the provisions of which a sufficient gold reserve was collected, and specie payments were resumed January 1, 1879. After a seventeen years' wandering in the wilderness of uncertainty, we returned to the same gold standard which had existed previous to the war. This return, however, was accomplished only after painful sacrifices which convulsed the country; but the result has proved well worth the cost.

Prosperity and credit have been chilled by every slightest suggestion of doubt as to the maintenance of this standard. Strange to say, with fatuous lack of judgment, the fixity of the standard had not been actually established before operations were started to undermine it. After resumption was attained, its guardians seemed to forget to care for it; and from 1878 to the present day the country has suffered under constant and repeated attempts to change the standard. Knowing the necessity of fixity in the standard for business prosperity, why have we allowed it to be constantly threatened? The first serious threat to it stability began with the Bland-Allison Act, in February, 1878. It will be remembered that the Bland Bill, as it passed the House, was a free-coinage measure. It is true that the fangs of the bill were drawn by Mr. Allison in the Senate; otherwise, if passed, the standard would have been changed front gold to silver in the twinkling of an eye. But although we were saved by the Senate, the uncertainty produced by the agitation remained. The ill results have been far greater than is generally supposed. If a free-silver measure—meaning a complete transition to the silver standard—could pass one House, why might it not pass both houses in the future? The Senate to-day (1896) would not save us from free silver, our whole reliance being on the lower House and on the Executive. This uneasiness once aroused, although partially allayed for short periods, is ever present. It leaves the business system in a highly nervous condition, as after a bad attack of monetary grippe; and ordinary emergencies are magnified by the unhealthy conditions.

Under the operations of the Bland-Allison Act, the country received serious shocks to its confidence in the fixity of the standard, and especially in 1884-1886. This arose, as previously explained, from doubts as to the condition of the gold reserves in the Treasury. The Government can maintain gold payments only if it has gold with which to pay. But in the years 1884-1886, so great was the distrust in the ability of the Treasury to breast the stream of silver coinage, that the usual supplies of gold ceased to flow in through payments of revenue: gold was held back, and other kinds of money were sent in instead. The flood of silver choked the inlets to the Treasury; and a panic was narrowly averted. Finally, by making a vacuum for silver money in the general circulation, the stream of silver was prevented from overflowing the Treasury, and confidence was again temporarily established. By October, 1886, gold was once more freely paid into the Treasury for public dues. (See Chart XX for the result since 1886.)

During this period of disturbance the net gold in the Treasury fell to within about $15,000,000 of the reserve of $100,000,000, then regarded as the danger line. It is of present interest, however, to note that this reduction of gold had no connection with deficits between national income and expenditure; for the surplus in each year was as follows: in 1884, $57,603,396; in 1885, $17,859,735; in 1886, $93,956,583. No device for increasing the revenue would at that time have been considered for a moment as helping to restore the confidence in the standard. There was no question of a lack of revenue in other kinds of money than gold; there was money in abundance in the Treasury, but not money of the right hind. The difficulties of the tin time arose solely from a fear that the standard might be changed from gold to silver; and this fear was distinctly reflected in the nature of the payments by the public into the Treasury. Gold was withheld, and other forms of money sent in for dues.

When it had been once shown, by the administration of the Bland-Allison Act, that the annual coinage of silver could be kept from choking up the Treasury, a period of four years of monetary quiet ensued, except in so far as ineffective silver agitation during these years may have disturbed the situation. The uncertainty as to the standard was again temporarily removed; but vigilance was still necessary. The net gold reserves in the Treasury were fully adequate, remaining during this period at from $150,000,000 to $200,000,000. Large reserves like this, so long as they existed, removed all anxiety. It was not essential to the situation in 1887-1890 that the revenues supplied a surplus; for a surplus, as was shown, had existed when the troubles of 1884-1886 were upon us. In short, the surplus theory gives us no explanation of the history in those years; the source of evil was elsewhere.

The success in warding off the dangers to the standard inherent in the Bland-Allison Act seemed to encourage the belief that the country could take more and greater risks with impunity. In l890 Congress redoubled its sinister attempts to pry up the foundations of our monetary system. Congress passed, and President Harrison signed, July 14, 1890, the so-called Sherman Act, which nearly doubled our purchases of silver, and thereby increased the difficulties of maintaining our existing standard, which in 1884-1886 had almost succumbed to the operations of the Bland-Allison Act. We might have carried the burdens of the latter lay vigilance and skill, but the additional weight of the Act of 1890 brought us humiliation and enormous losses. The question of the standard was opened all anew: from the very passage of the act dates the steady decline in the percentage of gold paid into the Treasury for public dues (see Chart XX) from which we have not since recovered; from it dates the steady decline in the amount of the Treasury balances, and the swift collapse of the net gold reserve (see Chart XIX); and from that time began the heaping up of the explosives which burst out in the fearful monetary catastrophe of 1893. It was not a question of sufficient revenue; for we had no deficits to the end of the fiscal year of 1893, which included the outbreak of the panic. The cause of disaster seems to have been the unspeakable blindness to the folly of tampering with the standard.

The free-coinage agitation, directed openly against the standard on which we have done business since 1834 (excepting the paper period, 1802-1879), unsettled confidence at home and abroad in the stability of our monetary policy. No one could know that contracts entered into when a dollar stood for 100 cents in gold might not be paid off in silver which stood for 50 cents on a dollar. That was the predicament in which every investor found himself who had an obligation payable only in "coin" and not in gold.

That is the reason, too, why Government bonds would be more desirable to investors if made specifically payable in gold. Objectors may say that it destroys credit in our bonds to introduce this clause, because it raises the question which ought to be taken for granted—that the "coin" bonds are to be paid in the best money. But this answer is conclusively falsified by the very facts of past and present distrust as to our monetary policy, and by the utter impossibility of predicating that coming Congresses and their constituents will be any more sane than they have been in the past. How does any one know that the Treasury will always pay gold, when a majority of the Senate in 1896 would destroy the gold standard in a moment if it could?

§ 3. The same reasons which led Americans to distrust the stability of the gold standard affected Europeans who held our securities. In the very nature of things, they would try to dispose of these securities before the gold standard was abandoned, and a very general distrust and large sales would certainly cause a fall in prices of obligations and general depression, if not worse. When all are affected by the same fear, and all are selling, a panic is to be expected.

The extent of the foreign distrust of our monetary situation was measured by the amounts of our securities sent home, and the consequent exportation of gold to pay for them. In brief, this was a withdrawal of capital from the United States, and, of course, if withdrawn, it must go back in that kind of money, which was equally good abroad and at home—gold. In 1891 the net exports of gold amounted to $68,130,087. The Baring failure, moreover, required London to sell securities marketable in other places, and many of the best stocks and bonds were sold here to help hard-pressed merchants in London over the crisis. The American crops were large and in great demand for export. Indeed, in 1892 the excess of exports of merchandise was over $200;000,000. And yet no gold came back in payment of these enormous exports, for the reason that Europeans were alarmed, and sent back securities as an offset to food purchased from us—that is, the silver specter prevented our circulation from filling up normally with gold. And it did more than that: in addition, it sent gold out of the country. There could be but one result of this condition of affairs if long continued. As the gold reserve of the Treasury must bear the strain, it must soon become exhausted. Both home and foreign demands reduced the Treasury reserve, already weakened. When the gold reserve should go below the danger point, the demand for gold before the silver standard was reached would result in the withdrawal of gold from circulation, and thereby produce a contraction of the currency. The limit of $100,000,000 had been always regarded as sacredly kept for redemption of United States notes.78

The panic came in 1893, but it did not break out until—for the first time since the resumption of specie payments in 1879—the net gold reserve fell below $100,000,000. In April, 1893, this traditional amount was broken into, and then the unrestrained fear as to the standard of payments culminated in a panic. Safety disappeared and chaos reigned. As there was a universal desire to exchange property for gold, it seemed as if gold was scarce; in reality, it was an abnormal offer of property for sale brought on by a fear of the silver standard. It is not now my purpose to explain in full the causes and progress of the panic of 1893; suffice it to say, it was a standard panic. It was not caused by any scarcity of money; so far as that factor could be said to have entered, it was only a consequence, not a cause, of the panic. The dominating cause was the final culmination of the long-felt uncertainty as to the fixity of the gold standard, which had been operating since 1878 and had been intensified since 1890. It was the perfectly natural fear—natural after what had appeared in our legislation—that, before securities could be sold and realized upon, silver would take the place of gold as the standard of payments. This was the reason of the frightful rapidity with which the gold reserve fell during the latter part of 1892 and early in 1893 (see Chart XIX). The decline of the general Treasury balance followed the inevitable diminution of revenue due to the panic. The gold reserve was not low because the balance was low. That is a complete inversion of cause and effect. The true sequence was as follows: The distrust of the standard, caused by wild legislation, diminished gold payments into the Treasury; that lowered the gold reserve; that produced a reflex influence on a public confidence already impaired; the probability that the Treasury could not long maintain gold payments brought on the rush to sell; the panic caused the falling off in the general revenues and in the Treasury balance. For to July 1, 1893—after the panic broke out—there was no deficit. To suppose that more revenue would have saved the gold reserve at the end of 1893 is, in my judgment, sophistical. The true cause was the tampering with the standard.

§ 4. An uprising of public sentiment against our silver legislation, due to the panic of 1893, was the force which swept that legislation out of existence. Seldom in our history has anything been more dramatic. Congress was supposed to have a majority in both Houses favoring silver, and yet such a general consensus of belief existed throughout the business world that our silver laws had brought on the panic that the great wave of indignation swept everything before it. President Cleveland called an extra session of Congress for August 7th, and on the 21st a bill repealing the purchase clause of the Act of 1890 passed the House by the extraordinary vote of 239 to 108. The public feeling was very ugly, and grew stormy with impatience while the Senate delayed action on the bill for over two months. There was a great wrench of former political relations; the strong influence of President Cleveland conquered, and on October 30th the bill passed the Senate by a vote of 43 to 32. November 1, 1893, the bill became a law, and the date is memorable as marking the close of a long period of fifteen years' folly in the purchase of silver. It is a policy unique in monetary history; it is unequaled for audacious disregard of all sound reasoning and of the experience of the last.

It might be said that since the Sherman Act brought us disaster, its repeal ought to restore prosperity. It is to be borne in mind, however, that it was the existing accumulations of silver heaping up since 1878 which finally brought us destruction, and all that weight is still bearing down upon our financial mechanism. The question now is, Can we carry the present silver burden?

Moreover, although repealed, the Sherman Act still remained with us in the form of $150,818,582 (November 1, 1893) of Treasury notes issued under its provisions, which requires that the "Secretary of the Treasury shall, under such regulations as he may prescribe, redeem such notes in gold or silver coin, at his discretion, it being the established policy of the United States to maintain the two metals at a parity with each other upon the present legal ratio," etc. Hence the Secretary must always be ready to redeem these notes in gold; for a discrimination against them would create two standards of money—one redeemable in gold, another in silver. Consequently, these notes created an additional demand on a gold reserve already too small even for the greenbacks. Under such circumstances the doubts as to the fixity of the standard must still remain. The reserve could not possibly serve for a sudden emergency, such as a threat of war against Great Britain. To mean anything, redemption must redeem on any and all occasions. Anything short of this is a share.

It has been urged in some quarters that the dwindling gold reserve was due to the deficits of our budgets; that, if the revenue were increased sufficiently, the gold reserve could be maintained intact. There are two ways by which the Treasury can obtain gold: (1) Through the receipts from revenue; or (2), just as blankets or shoes can be got, by purchase through the offer of bonds or their equivalent. It has been shown that the first and normal source of supply had been entirely cut off; and hence the reserve could be replenished in only one other way, so long as the existing distrust continues—and that is by the sale of bonds. No matter how much more revenue be raised, no matter how much larger the mere surplus of income over expenditure may be, the gold reserve could not be maintained if that greater revenue and that larger surplus consisted of greenbacks or silver money—the very objects to be redeemed. To increase taxes, to swell out the surplus, would not avert our monetary danger unless thereby a change were made in the kind of money paid into the Treasury. It seems like a joke to say that increasing taxes would increase confidence in the standard, when no gold could come in from an increased revenue, as things then stood.

From 1890 to the end of 1893 the steady fall of the net gold reserve was accompanied by a fall of the Treasury balance; but whether the balance was large or small, it was during this time largely made up of gold. From the end of 1893, however, a very different condition of things appeared. The balances were increased by the sale of bonds for gold; and yet gold continued to escape. The wide discrepancy between the Treasury balances and the net gold showed that the resources of the Government were ample, but that these resources were not made up of the right kind of money. Two years of experience proved that increasing Government balances did not insure a stable gold reserve, even though the increased balances were caused by the direct purchase of gold by the sale of bonds. Now, on the other hand, if the increased balances had been produced by a mere increase of revenue, when the revenue was sure not to be paid in gold, how much less ground was there for supposing that the gold reserve could have been maintained! If it were wrong to have used, even indirectly, for the general demands on the Treasury, the proceeds of the sale of bonds intended only to supply the gold reserve, it must be apparent that the deficits, whatever they were, have been already met by the new funds covered in to the Treasury. If the deficits have been paid by the proceeds of the bonds, and yet the gold reserve were still threatened, it would be nonsense to propose to increase the revenue to pay off deficits already met, in order to protect a gold reserve already shown to be uninfluenced by increased Treasury balances.

The Treasury had money, but not the proper kind of money. The situation resembled that of a body of troops suddenly surrounded by the enemy: their supply of ammunition is running low, when they are startled by the announcement that, although the wagons contain an abundance of cartridges of a different size, there are only a few that fit their rifles. Just as the proper cartridges give out, the enemy presses in on them; but they can make no resistance—with useless ammunition. So it is with the Treasury: when its stock of gold ran low, it could not defend itself with silver or paper; for that would be a confession of bankruptcy, and a public notice that an end of solvency had been reached.

It may be true that the notes once redeemed by the gold obtained by bond sales have been paid out again, and paid out to meet general demands on the Treasury. This is why it has been charged that the Secretary took funds intended for the gold reserve and applied them to meet the deficits. But how else could the Secretary have acted, in view of the law of May 31, 1878, which required him to reissue redeemed notes? How else could he reissue them except in payment of general demands? If not only the gold itself obtained by bond sales, but also the notes presented in exchange for gold, should be kept inviolate, then the fault is in the law requiring the reissue of the notes, not in the Secretary's policy. If the Opposition wished to "corner" the Administration, and to prevent it from using the redeemed notes in paying off deficits (an indirect result of the bond sales)—thereby making tariff legislation for increased revenue a necessity—the only way it could be done was by forbidding the reissue of notes once redeemed, and by providing for their cancellation. If this had been done, the proceeds from the sale of bonds for gold could not have been indirectly used in wiping out the deficits. This measure would have entirely separated the tariff question from the money question.

The effect of allowing the reissue of notes once redeemed is the same as largely increasing the volume of currency secured by the gold reserve; the consequence is, that any given reserve is smaller in proportion to the demands upon it than it would otherwise be. If we wish the happiness of proving ourselves superior to all experience by reissuing redeemed notes, and do it all over again, we must simply provide a larger gold reserve than would be otherwise necessary. If we wish to maintain the gold standard, no other kind of money than gold will serve the purpose as a reserve. It makes no difference how high in the bucket stands the level of the water which is kept for thirsty men, if the bucket is largely filled with sand; so a large Treasury balance does not mean a large gold reserve. Or if there be a hole in the bucket by which only the water, and not the sand, goes out, filling up the bucket with water only temporarily raises its level; so the constant re-presentation of notes once redeemed acts like a hole in the Treasury to draw off the gold and leave the other kinds of money within. At present (1896), redemption is skillfully arranged so as not to redeem; and it presents another of the many curious absurdities of our monetary history.

Appendix I

A. Production of Gold and Silver in the World, 1493-1850.

B. Annual Production of Gold and Silver in the World, 1850-1875.

C. Production of Gold and Silver in the World, 1851-1875.

D. Production of Gold and Silver in the World Annually since 1875.

E. Production of Gold and Silver in the United States since 1873.

[1.]"There is no reason why we should move now, except that given by the man, when met with the question of an irate wife as to why he came home so late at night, who answered, 'Because all other places are shut up.' "—Senator Morrill, "Globe," vol. vii, Part I, 2d session, 45th Congress, p. 616. Hereafter, in speaking of this volume of the "Globe," I shall refer to it as vol. cxxxvi.

[2.]Mr. Bright (Tennessee) claims that he was the first to call attention to the remonetization of silver in January, 1875. See "Globe," vol. vii, Part I, 2d session, 45th Congress, p. 584.

[3.]"Globe," vol. iv, Part V, 1st session, 44th Congress, p. 4704.

[4.]"Globe," vol. iv, Part VI, 1st session, 44th Congress, p. 5186. "H. R. Bill No. 3,635."

[5.]"Globe," vol. v, Part I, 2d session, 44th Congress, p. 149. It will be noticed that there is a great similarity in the main provision of Mr. Bland's original bill with that which at the present time (fall of 1885) is put forth as the so-called "Warner bill." Both are plans for the issue of bullion certificates.

[6.]"I confess that I am in favor of the bill as originally introduced. I agree that the certificates authorized to be issued for bullion deposited in the Treasury would take the place of your national bank-notes."—Bland, "Globe," vol. v, Part I, 2d session, 44th Congress, p. 172.

[7.]"I suppose that the officer of the United States Army who had charge of the excavations at Hell Gate, an hour before the explosion, could have given you the lay of the ground on every square foot of Hell Gate ledge;... but if he had pretended to tell any one, just after the explosion occurred, how the ledge lay, how deep the water was, and what the situation of the channel was in regard to navigation, he would have proved himself a charlatan and a cheat.... But there has been an explosion under the silver question as it stands related to gold—an explosion as much greater than the explosion under Hell Gate ledge as the continents of Europe, Asia, and America are greater than Hell Gate itself.... Now... it is proposed, in the hot haste of a two hours' debate, under the tyranny of the previous question—the two hours being parceled out into fragments of five or ten minutes apiece—it is proposed in this chamber that we settle this world-wide question and determine it to-day."—Garfield, ibid., p. 167. For the names of the voters, see ibid., p. 172.

[8.]Among those who voted Yea were: Bland, Buckner, Carlisle, Conger, J. D. Cox, S. S. Cox, Crittenden, Ewing, Foster, Goode, Hubbell, Hunton, Keifer, Kelley, Knott, McKinley, McMahon, Morrison, Reagan, Spriner, Vance. Nay: Chittenden, Claflin, Frye, Gibson, A. S. Hewitt, Morse. See "Globe," vol. vi, 1st session, 45th Congress, p. 241.

[9.]Among the nays, as the more extreme silver advocates in the Senate, were Beck, Davis (Ill.), Garland, Jones (Nev.), Thurman, Voorhees.

[10.]This was passed by a vote of 40-30. An amendment that the coinage of silver dollars should not interfere with the coinage of gold and subsidiary coins was lost, 23-46; to fix the number of standard grains in the dollar at 425, instead of 412½, which was proposed by Mr. Blaine, was lost, 23-46; to make it 440 grains, lost, 18-49; to make it 420 grains, lost, 25-44; to limit the legal-tender power of silver dollars of 412½ grains to $20, lost, 20-46; to exclude payment of duties and interest on the public debt in silver dollars, lost, 18-45. See "Globe," vol. vii, Part II, 2d session, 45th Congress, pp. 1076-1110. Hereafter, in speaking of this volume, I shall refer to it as vol. cxxxvii.

[11.]Among the yeas was Mr. Windom, afterward Secretary of the Treasury in 1881.

[12.]"Globe," vol. cxxxvii, pp. 1243-1285.

[13.]Among the nays on this motion, or those who wanted unlimited coinage were Blackburn, Butler, Carlisle, S. S. Cox, Ewing, Knott, Mills, Reagan, Springer, Vance.

[14.]Among the nays were Blackburn, Bland, Buckner, Burchard, Candler, Carlisle, Conger, J. D. Cox, S. S. Cox, Ewing, Foster, Hanna, Hiscock, Hubbell, Hunter, Keifer, Kelley, Mills, Knott, McKinley, Morrison, Reagan, Springer, Tucker, Vance.

[15.]"Globe," vol. cxxxvii, pp. 1418, 1419. See, also, infra, § 6.

[16.]As it now stands, the act of 1878 ought to be called the Allison bill, because his amendments changed its whole character. As it originated in the House and was first introduced by Mr. Kelley, it might properly be known as the Kelley-Allison bill; but as it was under the charge of Mr. Bland in the House, it may be well to accept the common usage, and speak of it as the "Bland bill."

[17.]"Globe," vol. cxxxvii, pp. 1263, 1264.

[18.]Tipton (Illinois), ibid., p. 602.

[19.]McDonald (Indiana), "Globe," vol. cxxxvi, pp. 957, 958.

[20.]Turner (Kentucky), "Globe," vol. cxxxvii, p. 1278.

[21.]Henderson (Illinois), ibid., P. 1279.

[22.]"Globe," vol. cxxxvii, p. 1250.

[23.]The "Cincinnati Gazette," in June, 1877, said: "This notion got a start and great momentum from the apparent showing that it was cheaper than the greenback dollar. The promise of a specie dollar for payment of the bondholder and of all the 'creditor class,' cheaper than payment in legal-tender notes, was too captivating not to be received with great favor in this country, where every man is a financier and thinks that the way to pay debts is by fabricating currency."

[24.]"By it [act of 1873] one half of our money-metal is virtually abolished, silver money is abrogated, the Government, the several States, territories, cities, all corporations, and the people, are deprived of their right to pay their debts in silver coin."—Senator Merrimon, "Globe," vol. cxxxvi, p. 977.

[25.]"But we are told that policy forbids restoring silver to our coinage independent of our legal right; that the quantity of metal which we propose to coin into a dollar is worth but ninety cents in gold, and a depreciation of 10 per cent in all values would follow. This is a queer argument to urge in the face of the fact that worthless paper, bearing the impress of Government authority, with no intrinsic value whatever, by being invested with the functions of money is worth nearly its face value in gold."—Senator Jones (Nevada), "Globe," vol. cxxxvi, p. 440.

[26.]"If I could sink low enough in my own estimation to be willing to take advantage of my creditor, and insist that it was right for me to pay him but ten cents for the dollar which I honestly owed him; much more, if, in a legislative body, in making the law, when the question is not what the law is but what it ought to be, I should claim that it would be right or proper for me to aid in passing such a law to enable me and all other dishonest debtors to justify our dishonesty under the legal power conferred by such an act, and thus to encourage dishonesty, I should feel that all men would have the right to say of me that, but for the restraint of the law, I could be a knave and criminal."—Senator Christiancy, "Globe," vol. cxxxvi, p. 668.

[27.]"But it is urged that if we remonetize silver, it, being the cheaper, will drive gold out of the country. Suppose it does; if, as is predicted by the enemies of the bill, silver will flood the country, and we pay all our debts with silver, both public and private, if this bill should become a law, where is the injury to the nation or the citizens thereof? But it is not true that gold would be driven out. Why does it not have that effect in France? Why did it not have that effect from the foundation of the Government down to the date of its demonetization?"—Senator Hereford, "Globe," vol. cxxxvi, p. 206.

[28.]Senator Jones, of Nevada, "Globe," vol. cxxxvii, p. 1080.

[29.]"These rights depend on the law; the law is their definition and measure; and whatever dealings with them on our part are lawful must be right, and therefore honorable."—Senator Morgan, "Globe," vol. cxxxvi, p. 140.

[30.]"It seems to me, however, that these gentlemen overlook the fact that the object in remonetizing the silver dollar is not alone to furnish money for the payment of the public debt. The main purpose is to arrest the movements inaugurated in Europe, and blindly followed in this country, to destroy a great part of the wealth of mankind.... The remonetization of silver aims at the restoration of commerce, manufactures, agriculture, and all our industries to their former prosperous state."—Senator Bailey, "Globe," vol. cxxxvi, p. 306. State aid was also appealed to by Senator Merrimon (North Carolina), ibid., p. 978. "This silver mania,... seems to me to be a very peculiar disease.... Its intensity seems to be manifested very nearly in proportion to the proximity of the victims to the great bonanza mines.... It seems to have passed to the people, attacking with most severity those most deeply in debt."—Senator Christiancy, "Globe," vol. cxxxvi, p. 667. "It is needed to utilize our vast silver mines, to employ our mining labor, and to turn the silver streams into the channels of trade. It is needed for the encouragement of our languishing industries and the employment of our starving laborers."—Bright, "Globe," vol. cxxxvi, p. 585.

[31.]Durham, "Globe," vol. cxxx, December 13, 1876.

[32.]Landers (Indiana), ibid., p. 165.

[33.]Senator Withers held that contraction had led to the panic of 1873. "Following upon this was the additional contraction caused by the act of 1873 demonetizing silver, thus reducing at once by about one half the capacity of the country to pay the bonds, depreciating largely the value of silver, and, as a natural consequence, enhancing the value of gold—all of which inured directly to the interest of the bondholder, and added from 8 to 10 per cent to the value of the bonds."—"Globe," vol. cxxxvi, pp. 849, 850. Cf. also Willard (Michigan), "Globe," vol. cxxx, p. 165.

[34.]December 10, 1877, "Globe," vol. cxxxvi, p. 91.

[35.]"Globe," vol. cxxxvii, pp. 1017-1026. He quoted a table in the New York "Public" of May 18, 1876.

[36.]"I do not hesitate to affirm that an examination of all the facts bearing upon the case... will demonstrate that gold again began to rise about ten years ago, and especially about five years ago, as measured by commodities, land, and labor, and that its rise is still unchecked; and that this last rise of gold, as so measured, has been so greatly in excess of its rise as compared with silver as to show that silver has not fallen in value; or, in other words, that the average fall in the gold price of commodities has been so much greater than the fall in the gold price of silver as to make the conclusion irresistible that silver, instead of having depreciated in value during the last few years, has actually appreciated, though not to the same extent as gold."—"Globe," vol. cxxxvii, p. 1019. The inconsistency of this position with that of most advocates of remonetization was distinctly pointed out by another Senator: "But, notwithstanding it is so evident and so generally admitted that the demonetization of silver, by checking a demand for it, reduced its price and increased the demand for, and the price of, gold, the argument is now started that the whole effect of the demonetization of silver was to leave silver exactly where it was, and to elevate the price and value of gold."—Senator Christiancy, "Globe," vol. cxxxvi, p. 794.

[37.]Page 163.

[38.]Senator Wallace said: "If we coin annually one half of the world's supply of silver, its rise in value is inevitable."—"Globe," vol. cxxxvi, p. 641. Similarly Hill (Georgia), ibid., p. 850. Allison thought that the United States with the Latin Union might restore silver to its former value. "If we restore silver, shall we not practically place in circulation and in use an equivalent of the amount of silver demonetized by the action of the German Government?"—"Globe," vol. cxxxvi, p. 175.

[39.]"Globe," vol. cxxxvi, pp. 786-788.

[40.]Senator Johnston (Virginia), "Globe," vol. cxxxvi, p. 823.

[41.]"It is said that an inferior currency always drives away the superior, which is true in a measure; but, in my opinion, the argument will not hold good in this instance, because, first, as a currency of general use in the current transactions of trade and barter among the masses, silver is not now, and never has been, inferior to gold; second, supposing it to be the cheaper of the two, it can not drive out the superior until it becomes equal in volume to it, sufficient in quantity to fill up the channels of trade, which is not likely to occur."—Finley, "Globe," vol. cxxxvii, p. 1264.

[42.]This is one example of many: "Enact this law and confidence will be restored in the public mind.... The people of this country, and especially the people of the west, have an abiding confidence that the enactment of a law of this kind will give them not only immediate but permanent relief.... They understand that every dollar of silver that is coined in this land adds one dollar to the material wealth of the people[!]."—Tipton (Illinois), "Globe," vol. cxxxvi, p. 601. See, also, Senator Jones, vol. cxxxvii, p. 1024. As amusing as any of the bits of rhetoric was that by which Senator Allison, without considering where the value was to come from to be exchanged for the coin, argued that very large sums of silver might be coined because the negroes of the South would take such very large quantities. "Who does not believe that if it is made a legal tender, or rather if silver dollars are coined, these colored people, like the people of China and the East Indies, will hoard this money in considerable sums, so that we shall be able to go on coining at the rate of $30,000,000 per annum for many years to come without disturbing the relative value between gold and silver?"—"Globe," vol. cxxxvi, p. 175.

[43.]"Globe," vol. cxxxvi, p. 734.

[44.]Beck, "Globe," vol. cxxxvi, p. 257.

[45.]Morgan (Alabama), "Globe," vol. cxxxvi, p. 143.

[46.]"Globe," vol. cxxxvi, p. 822. Mr. Blaine believed that the double standard was established by the Constitution! "No power was conferred on Congress to declare that either metal should not be money. Congress has, therefore, in my judgment, no power to demonetize silver any more than to demonetize gold; no power to demonetize either anymore than to demonetize both.... If, therefore, silver has been demonetized, I am in favor of remonetizing it." But he urged a dollar of 425 grains standard silver, instead of 412½ grains, worth in 1878 only 93 cents in gold. "I think now very clearly, with the light before me, that it [the act of 1873] was a great blunder."—"Globe," vol. cxxxvii, p. 1063.

[47.]Senator Ingalls, "Globe," vol. cxxxvii, p. 1052.

[48.]"Globe," vol. cxxxvi, p. 765.

[49.]"Globe," vol. cxxxvii, p. 1061.

[50.]Introduced December 6, 1877 ("Globe," vol. cxxxvi, p. 47). Passed the Senate January 25, 1878, by a vote of 43 to 22. Passed House, without debate, January 28th, by a vote of 189 to 79. It was not a party question. It was supported by 116 Democrats and 73 Republicans, and opposed by 23 Democrats and 56 Republicans.

[51.]A speech by Senator Cockrell ("Globe," vol. cxxxvi, pp. 480-491) is a fair example of the arguments for the technical right to pay in silver. See, also, Matthews's speech, ibid., pp. 87-91.

[52.]For the text of the message, see "Globe," vol. cxxxvii, p. 1410.

[53.]Authorized August 15, 1876. Report ordered printed March 2, 1877, as "Senate Report No. 703," 2nd session, 44th Congress.

[54.]See the coinage figures in Appendix V.

[55.]Act of July 12, 1882, § 12.... "Such (gold) certificates, as also silver certificates, when held by any national banking association, shall be counted as part of its lawful reserve; and no national banking association shall be a member of any clearing-house in which such certificates shall not be receivable in the settlement of clearing-house balances." It is worth noticing, however, whether "such certificates" does not refer solely to gold certificates, described at length in the previous section, and already mentioned as "such certificates."

[56.]At that time the banks, in view of the great uncertainty of the future, accumulated a gold reserve greatly in excess of the legal requirements. In the statement for December 20, 1884, it appeared that the New York banks held $70,816,147 in gold or its representatives, and but $2,022,803 in silver and silver certificates. For the Clearing-House rules, see "Finance Report," 1878, p. 169. Taussig ("Silver Situation," pp. 12, 29) points out that only New York, Boston, and Philadelphia banks refuse to use silver currency, while Chicago, St. Louis, Kansas City, and Denver banks treat silver exactly as other forms of money.

[57.]Any one who moves about in country districts will see enough silver-dollar pieces to make it impossible to agree with Professor Taussig's statement ("Silver Situation," p. 45): "Though permanently out of the Treasury, the fifty or sixty millions of silver dollars are probably not at all in actual monetary use."

[58.]See Taussig, "Silver Situation," p. 78.

[59.]See Finance Report, 1881, p. 430. This method was abolished in January, 1885.

[60.]On joining the association the Treasury agreed to give thirty days' notice of its intention to change its kind of payment, which was then gold.

[61.]In August, 1884, it was again believed that the condition of the United States Treasury required payments in silver, but the emergency was tided over. February 10, 1885, the Treasury did actually pay out silver to a certain amount to the Clearing-House, but it has not repeated the act since.

[62.]"It is obvious that the Treasury could pursue with success the course just described only because its income exceeded its expenditure. In the eighteen months between the beginning of 1885 and the middle of 1886 the Government received over twenty-six millions in silver certificates which it did not reissue, paid out, in addition, some thirty-six millions of silver bullion, which was coined into silver dollars, and in that form stowed away in the Treasury vaults, and materially increased its net holdings of gold. These enormous sums, of course, represent an excess of income over outgo. Notwithstanding the decline in its receipts as compared with earlier years, the Government still had a surplus so large as to enable it to hoard sixty millions of silver currency, and to add twenty-five millions to its holdings of gold, before it resumed, in the beginning of 1886, the repayment of the public debt. In the financial history of any other country such a surplus would be considered a rare piece of good luck. We had it for so many years that we did not fairly realize what risks it enabled us to run without coming to grief."—Taussig, "Silver Situation," p. 32.

[63.]Cf. House Executive Document, First Session, 49th Congress, vol. xxx, No. 100.

[64.]By May, 1885, the New York banks held $177,000,000 of gold.

[65.]" Silver Situation," pp. 43 ff.

[66.]Professor Taussig ("Silver Situation," pp. 8, 9) intimates that economic writing, following absolute teaching, had at that date predicted the disappearance of all gold. Of course this would not take place so long as the new silver was kept at par. If all our money were equally good, and then became redundant, some of it might go abroad; but that is an entirely different thing from dropping to a lower standard of silver. Free coinage of silver (as proposed by the Bland bill), by introducing an unlimited amount of money of a lower value than gold, would at once drive all gold from circulation; and the Bland bill was what most persons had in mind. The Act of 1878, however, was a radically different measure from the Bland bill.

[67.]"I am willing to compromise... on this subject, and make silver more than a subsidiary coin, but I would limit its legal-tender power. Why? For the very reason of the example you have before you. The Senator from Missouri has thrown it in our faces that two of the present half-dollars are of less weight than 412½ grains, and yet they pass at par. Why? Is it because the value of the silver in them is equal to 25.8 grains of gold? No, sir; but because of the limit in legal-tender power, and because there is no other currency with which it comes in competition. For the very same reason your minor coins pass at par."—Senator Hill, "Globe," vol. cxxxvi, p. 846.

[68.]In a letter to James P. Helm, Louisville, Ky., in September, 1896, Secretary Carlisle said: "With a knowledge of these assurances, the people have received these coins and have relied confidently upon the good faith of their Government, and the confidence thus inspired has been a most potent factor in the maintenance of the parity. The public has been satisfied that, so long as our present monetary system is preserved, the Government will do whatever its moral obligations and express declarations require it to do, and, very largely in consequence of this confidence in the good faith of the executive authorities, the silver coins have not depreciated in value. It is not doubted that whatever can be lawfully done to maintain equality in the exchangeable value of the two metals will be done whenever it becomes necessary, and although silver dollars and silver certificates have not, up to the present time, been received in exchange for gold, yet, if the time shall ever come when the parity can not be otherwise maintained, such exchanges will be made. It is the duty of the Secretary of the Treasury, and of all other public officials, to execute in good faith the policy declared by Congress; and whenever he shall be satisfied that the silver dollar can not be kept equal in purchasing power with the gold dollar, except by receiving it in exchange for the gold dollar, when such exchange is demanded, it will be his duty to adopt that course. But if our present policy is adhered to, and the coinage is kept within reasonable limits, the means heretofore employed for the maintenance of the parity will doubtless be found sufficient in the future, and our silver dollars and silver certificates will continue to circulate at par with gold...."

[69.]Chapter vii, § 4.

[70.]See the act in Appendix IV, A; VI, § 15.

[71.]See Appendix IV, A, X, § 2.

[72.]See also the confirmatory effect of the Act of November 1, 1893, on this point.

[73.]In 1890 the duties on sugar were removed, and appropriations were increased.

[74.]Professor Taussig points out that this obliged the Treasury to pay in silver certificates the sums due the several States in refunding the direct tax.—"Silver Situation," p. 64.

[75.]Cf. chapter xiii.

[76.]One smelting company in the United States, not in the combination, held on to its silver as it rose; and then, when the break came, lost $500,000 on its holdings.

[77.]General Francis A. Walker says money performs the function of a measure of value "in respect to a vast bulk of commodities where it is not called on to become a medium of exchange.... It requires the actual use of money, for a longer or shorter space of time, to effect those double exchanges which we call buying and selling; but the prices resulting from such exchanges may be applied to far greater bodies of wealth without the use of money. For example, a farmer sells a cow to be sent to the city for beef. It is only in the actual sale that money is used: but he takes the price—the money-value—thus determined, as the means of estimating the value of his herd; and so does the Government in taxing him.... The farmer compares his cow with the one he has just sold for money, and, knowing it to be as good a cow, or better, or poorer, fixes her price, in denominations of money, for the purposes of the contemplated exchange."—"Money," p. 64.

[78.]As to the understanding regarding this limit of the gold reserve, cf. Horace White, "Money and Banking," p. 206.

[Note: Footnotes to the many tables in the Appendices are available within the scanned gifs of those tables. Footnotes to the text sections in the Appendices are recorded below, numbered in order of appearance in the Appendices.—Econlib Editor]

Appendix II