FORTY YEARS OF AMERICAN FINANCE

A SHORT FINANCIAL HISTORY OF THE GOVERNMENT AND PEOPLE OF THE UNITED STATES SINCE THE CIVIL WAR 1865-1907

BY
ALEXANDER DANA NOYES

Being the Second and Extended Edition of "Thirty Years of American Finance"

G. P. PUTNAM'S SONS NEW YORK AND LONDON The Inicherbocker Dress

I. FUTHAM S SONS

......................................

G. P. PUTNAM'S SONS

PREFACE

SINCE this book was first published in 1898, under the title Thirty Years of American Finance, I have been repeatedly urged to bring the history up to date, in order to cover the remarkable financial episodes of 1901 and afterward. The undertaking did not then seem feasible, because the movement of events in one direction was so swift that, so to speak, no stopping-place was obtainable for a broad and comprehensive survey of the period. Such a stopping-place seems to have been provided by the panic of 1907. I have therefore undertaken to treat the ten years in American finance, which followed 1897, as I had already treated the thirty years preceding.

I take this opportunity to thank the numerous educators, public men, and others who have written to me since the publication of the first edition, for their interest in, and appreciation of, what this book has endeavored to accomplish. Their cordial reception of a work which was not an economic treatise, but, as far as its author possessed the power of making it so, a fair and unbiassed history of our own times, has greatly encouraged me in taking up a period so

surrounded by economic controversy, political prejudice, and confusion of financial ideas, as the decade from 1897 to 1907.

Another point, to which some of the Treasury officers of the second Cleveland Administration have lately called my attention, is the assertion, on page 249, that the undertaking of the bankers' syndicate of 1895, to protect the Treasury gold reserve, had "broken down," and that "apparently, the syndicate experiment had failed." Against this view of the matter, it has been urged that, since the syndicate's contract was technically closed in June, by delivery of the stipulated sums

of gold to the Treasury, the undertaking could not be said to have broken down. In so far as regards performance of the stipulated deliveries, this inference is correct; the bankers had even managed to "protect the Treasury against the withdrawal of gold pending the complete performance of this contract." The belief of the day was, however, that, as a result of the protective measures, the Treasury would be put permanently on its feet and the exhausting drain of gold ended. In this respect, the experiment was a failure; the subsequent loss of gold was probably greater because of the artificial damming up of gold exports in the spring. I therefore believe it to be strictly correct, as a matter of economic history, to say that the "undertaking to protect the Treasury had broken down," and I have not altered the passage.

My treatment of the financial history of 1901 and 1907 is largely based on my own discussion of the two episodes, in articles published in recent years by the Quarterly Journal of Economics of Harvard University. I wish here to acknowledge the courtesy of the editors in permitting free use of the matter contained in those articles, but at the same time to point out that in surveying the period as a whole, as this book endeavors to do, the narrative has of necessity been almost completely re-written.

A. D. N.

CONTENTS.

				-
.—The Inflation	PERIOD			•	3

Reasons for writing the history of the past thirty years—Distinctive character of the epoch—Industrial expansion of the United States after the war—Opening up of the West—Rise of the American grain trade—Origin of the nation's currency problems—The Legal-Tender Act—Purposes of its authors—Congress resolves to retire the legal tenders—The Contraction Law of 1866—Hugh McCulloch and the anti-contractionists—Congress revokes the Contraction Law—The Presidential campaign of 1868—The repudiation plan and the Public-Credit Act of 1869—Inflation at its worst—The panic of 1873—Defeat of the Administration party—Congress passes the Resumption Act.

II.—The Struggle for Resumption

Character of the Resumption Act—Its large grant of power to the Executive—Its vague provisions—Problems of its administration—The question of a gold reserve—John Sherman in the Treasury—His career as legislator and administrator—His skill in financial negotiation—His relations with the banks—Congress threatens the Resumption Act—It passes the Silver-coinage Law—Declares Government bonds payable in silver—Sectional breach in the Administration party—Attitude of President Hayes—The elections of 1878—Gains of the Administration—Final preparations for resumption.

AGE

disputes—The labor movement in politics—Rise of the industrial trusts—Europe buys American securities—England's search for an export trade—The Treasury surplus after 1886—Difficulty in releasing the Government's accumulations—Public deposits with the banks—Congress refuses to reduce the revenue—Bond redemption at heavy premiums—The Treasury and the currency.

VI.—THE TWO LAWS OF 1890

127

The Presidential campaign of 1888—Declaration of the Republican party—Of the Democratic party—Two opposing plans to reduce the surplus—Election of Mr. Harrison—The party's policy—The President's Message—His advice on appropriations—Congress raises the tariff rates—Increases appropriations—Heavy fall in revenue—Approach of a deficit—The Silver-Purchase Act—Its origin—Its hasty preparation—William Windom in the Treasury—His previous official career—His faults as an economist—His purpose in framing the Silver-Purchase Bill—His argument in its favor—Nature of his plan—Confusion of its details—His views on currency contraction—On silver coinage—On the price of silver—His mistakes of judgment—House of Representatives modifies the bill—Senate votes for free coinage—The compromise committee—Purpose of their measure—Opinions of free-coinage Senators—Gold redemption asserted—Passage of the law.

VII.—THE EXPULSION OF GOLD

153

The Silver-Purchase Act and the silver market—The law fails of its purpose—Fall in silver bullion—Altered views of Secretary Windom—Of President Harrison—The markets of 1890—Violent expansion of the currency—The foreign speculation—Deficient wheat crops and high grain prices—London and its Argentine venture—Failure of Baring Brothers—The panic of 1890—Recall of English capital—Continued increase in United States currency—Gold export begins in quantity—Various explanations offered—The true cause—Its menace to the Treasury—

PAGE

Heavy gold payments by the Government—Fall of the gold reserve—The harvest of 1891—Its remarkable influences—Situation changes for the worse—The "hundred-million reserve"—Its history—Its legislative authority—Displacement of gold with legal tenders—Gold payments stopped by the New York banks—By the Treasury—The gold exporters and the banks—They fail to get gold in New York—Presentation of legal tenders for redemption—Why it was unavoidable—The elections of 1890—Sweeping opposition victory—The Fifty-second Congress—It attempts to pass a Free-coinage Law—To change the tariff—It increases expenditures—The election of 1892—The curious political platforms—The Democrats and silver—Breach in the party—Rise of the Populist party—Mr. Cleveland re-elected President

VIII.—THE PANIC OF 1893

, 2 ,

Last days of the Harrison Treasury administration—Secretary Foster and the banks—Problems of the new Administration—Secretary Carlisle and the gold reserve—The hundred-million fund impaired—Rumors of silver redemption—Their effect on the markets—The Secretary's declaration—The President pledges gold payments—Precarious nature of the situation—Outbreak of panic—The corporation failures—The run on the country banks—Heavy strain on the New York institutions—Issue of clearing-house certificates—Cash payments suspended by numerous city banks—The premium on currency—Its good effects—Its effects—Heavy gold imports—Gold the sole medium of exchange—Extra session of Congress—The Repeal Bill—Attitude of the Republicans—Of the Democrats—The struggle in the Senate—The Silver-Purchase Law repealed—The effect on the silver market—On general trade—End of the panic—Record of failures in 1893—Industrial depression returns—Great increase of the money supply—The Treasury and the gold imports—Gold reserve paid out to meet the deficit—Decrease in merchandise importations—In revenue—Attitude of Secretary Carlisle.

IX.—THE GOVERNMENT LOANS AND THE TARIFF

OF 1894. . . . . . . . . . . . . . . . . . .

Secretary Carlisle's embarrassments—His appeal to Congress—Critical condition of the Treasury—Congress refuses help—The first bond-issue announced—Attacks on the Treasury in Congress—The courts sustain the Administration—Difficulties in floating the loan—Mr. Carlisle's policy—The banks finally subscribe—Treasury gold withdrawn for subscription purposes—Questionable character of the action—Gold exports resumed—Recall of foreign capital—Discouraging commercial outlook—The railway insolvencies—The labor uprising—"Coxey's army" and the Railway Union strike—Failure of the corn crop—Fall in the price of wheat—Tariff legislation begun—Necessity for such legislation—The question of a deficit—Mistakes of the framers of the Wilson Act—Motives of the House of Representatives—Of the Senate—The breach with the President—Blunders in the revenue estimates—The income tax before the Supreme Court—Declared unconstitutional—Grounds for the decision—Probable yield of the tax overestimated—Congress votes to coin the seigniorage—The President's veto—Continued fall in the gold reserve—The second bond-issue—The "endless chain"—Heavy gold exports—Crisis in the Treasury

X.—The Bond Syndicate Operation . . . . 234

International bankers take the loan of 1895—Their remarkable contract—Its harsh terms—Its pledge to stop gold withdrawals—Exasperation in Congress—The President defends the contract—Nature of the syndicate operation—Its magnitude—All the sterling bankers unite to protect the Treasury—Skepticism of European critics—Progress of the operation—The gold reserve restored—Change in the trade situation—Rapid advance in prices—Foreign buying of American securities—Its connection with the London mining craze—Decline in foreign exchange—Bad results of the American speculation—Balance of foreign trade re-

PAGE

versed—The wheat market blockaded—Europe sells back its American securities—Defects in the syndicate plan come to light—The redundant money supply increased—Artificial rates for exchange—The syndicate loses control of the sterling market—Gold exports begin again—Situation at the close of 1895—The industrial outlook—The political outlook—The change in currency conditions—Plans for a new loan—The \$100,000,000 bond sale—Its curious influence on the money market—Legal tenders at a premium—Success of the loan of 1896—Great change in the commercial situation—Conclusion.

XI.—THE "INDUSTRIAL BOOM"

A new chapter in world finance—Increase of gold output and rise in commodity prices—Its effect on the United States—The free-coinage campaign of 1896—Influences which defeated Bryan—Markets and the gold-standard victory—Slowness of industrial recovery—Illusions regarding the immediate effect of the electoral vote—The American trade in the early months of 1897—The Dingley tariff bill—Its effect on the revenues—On prosperity—Europe's wheat famine and the great American crop—Revival of business—Import of foreign gold and final establishment of the gold standard of currency—The "American invasion" of industrial Europe—Reason for Count Goluchowski's warning—Unprecedented expansion of our export trade—Reconstruction of the insolvent rail—way systems—How it was accomplished—Its remarkable results—The Spanish War of 1898 and the financial markets—The "Leiter corner" in wheat—Outbreak of the Transvaal War—Cost of the conflict—England's financial situation—America a lender on the European markets—Continuous growth of the "foreign trade balance"—Extraordinary situation in this country at the close of 1900.

XII.—THE SPECULATIVE MANIA OF 1901

284

investors and the market for securities—The company

AGK.

amalgamations of 1899—Phases of the new trust movement—Promoters and stock-watering—Attitude of the investing public—The second Bryan campaign—Its shifting of issues—Political chaos in the Democratic party of 1900—Influence of prosperity on the vote—Outburst of speculation after the election—The "Burlington & Quincy deal"—Expedients of the great promoters—Collateral trust bonds and "holding companies"—Mr. Morgan's plan for the steel trade—Efforts to buy out Andrew Carnegie—His history, and the price demanded by him—The billion-dollar Steel Trust organized—Expedients by which the stock was floated—Craze for speculation seizes the general public—Extraordinary Wall Street market of April, 1901—The Shipping Trust—Attitude of foreign steamship lines—Of the English public—The "Northern Pacific corner"—Morgan and Harriman in financial collision—Northern Pacific stock goes to \$1000 per share—The "May 9th panic"—Temporary crisis on New York Stock Exchange—Crop failure and industrial reaction—Insolvencies of 1903 among the new industrial trusts—Steel Trust's market valuation reduced one half—The "rich men's panic"—Roosevelt's sweeping pluralities of 1904.

XIII.—World-wide Rise in Prices

212

Place of 1903 in financial history—Reasons for the country's rapid recovery from depression—Influence of expanding gold production—The Transvaal mines after the war—Extraordinary rise in cost of living between 1904 and 1907—Part played by the trusts—By farmers' combinations—By labor unions—Outbreak of land speculation throughout the United States—The Russo-Japanese war—Cost of the contest—Absorption of the capital of neutral states—Japan places its bonds in this country—Financial and industrial activity stimulated throughout the world—New securities on the English and German markets—Rapid expansion of the world's iron production—Speculative excesses of 1905 and 1906 in Germany—In

PAGE

Egypt—In Japan—In South America—In the United States—The Wall Street capitalists and the Stock Exchange—Part played by American banks in the speculation—Position of the general public—World-wide tension in money markets—American bankers raise great sums in Europe—The New York money rate at 125 per cent.—Predictions of a coming financial panic—Leroy-Beaulieu's analysis of the situation.

XIV.—Social and Political Results $\,\cdot\,\,$ . $\,$ . $\,$ 33

XV.—THE PANIC OF 1907 . . . . . . 35

Europe's attitude towards the United States on the eve of panic—Enormous foreign loans to Wall Street—Use of

PAGE

Index . . . . . . . . . . . . . . . . . . .

FORTY YEARS OF AMERICAN FINANCE

CHAPTER I

THE INFLATION PERIOD

A GLANCE over the financial history of the United States, from the close of the Civil War to the panic of 1907, will detect three separate periods. The first, which began in the currency depreciation era of the sixties, ended with specie resumption in 1879. The second continued up to, and a little beyond, the panic of 1893. The third had its beginning in the striking economic phenomena of the last few years of the nineteenth century.

It is my purpose to review the history and examine the underlying influences of all three periods. For dramatic interest, neither of the two earlier periods ranks with the third and last; yet the events between 1897 and 1907 cannot be fully understood except by studying with them the thirty years preceding. It was with the close of the Civil War that

financial America first became an influence of great importance in world-finance; it was as a sequel to the Civil War that many of the problems with which the country is still wrestling—economic, fiscal, and social—had their origin.

crowding such as followed the Napoleonic wars, but provision was made for three or four hundred thousand immigrants annually. European capital in enormous volume was drawn upon to provide the means for this development. Finally, the United States rose from the position of a second- or third-class commercial state to the first rank among agricultural producers and exporters. Each of these several phenomena had its special influence on the period. The new West, the contented or discontented farmer, the foreign investor, and the export trade in grain, will come into very frequent view during the progress of this history.

Not less immediately connected with this opening up and settlement of our agricultural West was still another phenomenon, of peculiar interest to the study of the ensuing period. The average price of grain had advanced with great rapidity during the Civil War. In 1867, the price of wheat, even on the Chicago market, reached the remarkable level of \$2.85 per bushel; nor was this price very greatly above the annual maximum of the period. In a large degree, this advance resulted from inflation of the American currency. But the upward movement was world-wide; in 1867 and 1868 the average price, even in England, was close to the equivalent of two dollars a bushel. That any such abnormal market could be maintained in the face of the new American supplies was at least improbable. The area of wheat, corn, oats, rye, and barley in the United States rose from 64,418,518 acres in 1867 to 86,287,-

Sauerbeck's tables of English prices.

648 in 1875, and to 100,283,160 in 1878. The yield of these five crops increased from 1,320,236,000 bushels in 1866 to 2,290,008,000 in 1878, the annual wheat crop more than doubling in magnitude. The increase in cereal production was twice as rapid as the country's increase in population; the United States became therefore the leading figure in the world's export markets; and this was certain to have important influence on prices.

Annual Reports, U. S. Bureau of Agriculture.

Ibid.

Official Russian Report on Railways, 1878.

own new Granger railways, were at once engaged in carrying to the seaboard supplies of grain which never before had reached an export market. Commercial estimates placed the total wheat crop of 1875, in the world's ten chief producing states, at 1,501,000,000 bushels. In 1878, the same ten states produced 1,763,000,000, and another increase, equally large, was made within the next four years. The problem of an earlier generation had been how to feed the constantly increasing population; a wholly new problem was presently to arise, based on the question how to find a ready and profitable market for the year's output of breadstuffs. Prices, in short, which rose almost continuously throughout the world during the period of slack production from 1858 to 1873, receded almost as continuously in the ensuing generation. Nowhere was this phenomenon destined to have more immediate importance, economically, socially, and politically, than in the United States.

In my examination of the thirty years after 1865, I shall endeavor to give due attention to the influence of these grain markets on national politics and finance. The opinion is more or less widely held that the decline in prices, notably of grain, has resulted from legislation on the currency. Without for the present arguing that proposition, it may be affirmed with entire safety that a good share of the period's currency legislation has resulted from the decline in the price of grain. The fall in wheat has been the typical argument for arbitrary increase of the silver or paper currency in almost every Con-

¹ Liverpool Corn Trade News estimates.

gressional debate since 1872. What is perhaps even more significant, the division in almost every Congressional vote upon these subjects has been, not political but geographical—the commercial East against the agricultural West.

The questions of silver coinage and of Government issues of paper currency have had as profound an influence on public finances, during the last thirty years, as the question of agricultural prices and production has had on private trade. Both of these currency problems, in their later form, have arisen since the Civil War. There had indeed been silver coinage and suspension of silver coinage long before 1865; but there had been neither a "silver question" nor a "silver party." The legal-tender notes had been introduced and brought to their maximum issue before the return of peace, but there had never been a "greenback party," or a demand in any responsible quarter for a permanent currency of Government paper.

During the eighty-four years after Washington's inauguration, only a trifle over eight million silver dollars in all had been coined at the mints of the United States; 'when, therefore, in the statute revision of 1873 the silver dollar was dropped from the nation's coinage list, the action was received with indifference by the entire community. The question of "free coinage" was not so much as named in any Presidential platform, even as late as 1876. The sudden appearance of the "silver problem," only one year after the 1876 election, resulted very

¹ U. S. Mint Report, 1893, p. 282.

largely from the decline in agricultural prices. It resulted also, beyond any reasonable question, from the fact that silver production in the United States, reckoned prior to 1861 at less than a million dollars annually, and in 1869 at only twelve million dollars, had risen by 1878 to no less an annual sum than \$45,200,000. It will be found that even in 1880 a conservative President was reciting, not without approval, the maxim that the United States, producing "more silver than any other country," was "directly interested in maintaining it as one of the two precious metals."

President Hayes, Annual Message, Dec. 6, 1880.

Such was the theory and purpose of the public

^1 Secretary Chase, letter to Ways and Means Committee, January 29, 1862; Justice Bradley, opinion in Legal-Tender cases, 1871.

^2 Spaulding, History of the Legal Tender Money Issued during the Great Rebellion, p. 5; W. P. Fessenden, Senate speech, February 12, 1862; Charles Sumner, Senate speech, February 12, 1862; Samuel Hooper, House of Representatives speech, February 21, 1866; John Sherman, Senate speech, March 6, 1876.

^3 President Lincoln, Annual Message, December 1, 1862; Secretary Chase, Treas. Rep., 1863, p. 20; Secretary Fessenden, Treas. Rep., 1864, p. 24; Spaulding, Appendix, p. 16.

^.1 Speeches of Morrill and Hurlburd, House of Representatives, February 21 and March 15, 1866.

^3 U. S. Senate Report of 1892, Part I., p. 91; Sauerbeck's London tables; Soetbeer's Hamburg tables.

precaution a large margin of safety in the retail price of goods, and this bore heavily on ordinary purchasers. With flour at \$16 a barrel, butter at 55 cents a pound, coal at \$10 a ton, and wages and salaries advanced since 1860 hardly one third as far as prices, the demand for currency reform obtained ready endorsement from the people.

This popular sentiment was further strengthened by the Administration's attitude at the opening of Lincoln's second term. Hugh McCulloch, then Comptroller of the Currency, and a well-known advocate of retirement of legal-tender notes, was appointed Secretary of the Treasury. He held this office up to the end of President Johnson's term. Mr. McCulloch's first official Treasury report, dated December 4, 1865, took positive ground for the reduction of the legal-tender debt. Although conceding that contraction ought to be and must be slow, he declared that "there is more danger to be apprehended from the inability of the Government to reduce its circulation rapidly enough, than from a too rapid reduction of it." He asked, therefore, authority to issue bonds in his discretion, at six per cent. or less, "for the purpose of retiring not only the compound interest notes, but the United States notes."

The report containing this outline of policy was, like all Mr. McCulloch's public documents, a state paper of exceptional ability; it may be profitably read to-day for its broad and lucid treatment of the problem. Together with the Secretary's public

¹ Treas. Rep., 1865, pp. 12, 13, 14.

speeches, it had decided influence. Two weeks after the publication of this report, on December 18, 1865, the House of Representatives resolved, by a vote of 144 to 6,

"that this house cordially concurs in the view of the Secretary of the Treasury in relation to the necessity of a contraction of the currency, with a view to as early a resumption of specie payments as the business interests of this country will permit; and we hereby pledge co-operative action to this end as speedily as practicable."

terest, and which need bear no interest, why it is to be taken up and put into bonds." The excellence of a circulating medium "that rests on the property of the whole country, and has for its security the faith and patriotism of the greatest and freest country on the face of the globe," played its usual part in the discussion; so did the argument that "the amount of legal tenders now outstanding is not too much for the present condition of the country." In short, all the arguments which have been made familiar by the twenty subsequent years of controversy, cut a figure in this opening discussion. Even the peculiar virtues of a high protective tariff, through which the country might by a short cut reach a situation where resumption would be easy, were recited in this debate of 1866.

As a matter of fact, even the restricted powers of note retirement granted under the law of March, 1866, were revoked within two years. Little or no progress had meantime been made towards resumption of specie payments. The Secretary himself had officially pointed out that two commercial influences must be removed before resumption would be possible; the excessively high prices in the United States and the heavy balance of foreign trade against us. But prices continued above the European level, and, as a consequence, export of mer-

^1 Thaddeus Stevens, House of Representatives, March 16.

W. A. Darling, House of Representatives, March 16.

Iohn Sherman, Senate, April o

^4 W. D. Kelley, House of Representatives, February 21; W. A. Darling, House of Representatives, March 16.

Freas. Rep., 1865, p. 13; 1866, p. 11.

chandise was checked and imports greatly stimulated. The entire gold product of each year in the United States was sent abroad. Some effort had indeed been made to accumulate a specie reserve in the Treasury, obtained through the required payment of customs dues in gold. But part of this fund was disbursed again for interest on the public debt; the mercantile community protested urgently against the hoarding of any excess, with gold selling at 150'; and in the end, the Treasury was forced repeatedly to throw its own coin surplus on the market, simply in order to check the disastrous operations of the speculators.' Resumption, in short, which Mr. Sherman had predicted as a certainty within eighteen months of March, 1866, was, if anything, further off than ever.

Contraction of the inflated currency, even if pursued under the limitations of the Act of 1866, would in time have brought about conditions under which resumption might have been planned. But events outside of the United States now moved in such a way as to turn the entire financial community against the Secretary's policy. Hardly two months after the vote of March came a wholly unexpected crisis in the foreign money markets. The London collapse, precipitated by the Overend-Gurney failure of May, 1866, was in some respects as complete as any in the history of England. It affected every nation with which Great Britain had commercial

Memorial of New York bankers and shipping merchants to Secretary McCulloch, July, 1866.

^3 Treas. Rep., 1866, p. 9.

dealings; not least of all the United States, of whose securities it was estimated that European investors even then held \$600,000,000.¹ During three months the Bank of England kept its minimum discount rate at the panic figure of ten per cent.; the consequent sudden recall of foreign capital put a heavy strain on the American markets.

^1 McCulloch, Treas. Rep., 1866, p. 12.

^3 O. P. Morton, Senate speech, January 9, 1868; A. G. Cattell, Senate speech, January 10, 1868.

^8 John Sherman, Senate speech, January 9, 1868.

tion policy was promptly rejected by the House, and on January 22, 1868, the resolution passed both chambers in its original and final shape.

duced in his Annual Message of December 7, 1868, the extraordinary suggestion that "the six per cent. interest now paid by the Government" on its debt "should be applied to the reduction of the principal in semi-annual instalments"; in other words, that the plan of repudiating interest obligations—since adopted, with no agreeable results, by Turkey and Greece—should be formally approved by the United States. This remarkable utterance was first condemned by an overwhelming vote in both House and Senate; next, by an almost equally decisive vote, on March 3, 1869, Congress adopted the Public Credit Act, promising coin redemption of both notes and bonds, and concluding with the declaration that the United States "solemnly pledges its faith to make provision, at the earliest practicable period, for the redemption of the United States notes in coin."

The promise was as easily made as the similar pledge of December, 1865; it was still more easily broken. No such arrangement was made, nor any serious attempt in that direction, until the matter was forced on the party by the exigency of politics. Not only was no effort made to reduce outstanding legal tenders, but the supply in circulation was heavily increased; rising from \$314,704,000 in the middle of 1869 to \$346,168,000 in 1872, and two years later, as a result of the Treasury's weak experiments in the panic, to \$371,421,000.

The period was congenial to such juggling with public credit and legislative pledges. Socially, financially, and politically, it stands out quite apart from any other decade of the century. It comprised,

The panic of 1873 left the country's financial and commercial structure almost a ruin. It had, however, several ulterior results so valuable that it is not wholly unreasonable to describe the wreck of credit as a blessing in disguise. American prices, long out of joint with the markets of the world, and thoroughly

Congress was not by any means disposed, however, to seize the opportunity. The first result of the money market crisis in 1873, as in all similar years, was urgent public clamor for more currency. The

Supreme Court had decided finally, in 1871, for the constitutionality of the legal tenders; the Secretary of the Treasury, in 1873, had so far yielded to the prevalent excitement as to reissue legal-tender notes already formally retired. The first response of Congress, therefore, was an inflation measure. By a vote of 140 to 102 in the House of Representatives, and of 29 to 24 in the Senate, a law was passed for the permanent increase of the legal-tender currency by \$18,000,000. The Republican party controlled Congress by unusually large majorities; but sixty per cent. of the party's vote in each chamber was cast in favor of the bill. Only the interposition of Grant's Presidential veto prevented this first positive backward step in the direction of fiat money.

It is reasonable to suppose that this curious vote of the Administration party, which occurred in April, 1874, measured the party's political desperation. They were about to receive, in the Congressional elections, the usual chastisement experienced by a dominant party when the people vote in a period of hard times; the inflation act was an anchor thrown desperately to windward. The experiment was in all respects a failure. Even the party's own State conventions failed to say a good word for the inflation bill, and it gained no mitigation of sentence in the November vote. In the Forty-third Congress, the House of Representatives had been Republican by the unusual plurality of 110; in the Forty-fourth, chosen in 1874, the Democrats controlled the House by 74 plurality.

^1N. Y. Financial Chronicle, Dec. 6, 1873.

Recollections of John Sherman, i., p. 510.

that specie resumption under the measure was impossible, and it was openly promised by the opposition party, about to come into control of Congress by a large majority, that they would make short work of the Act of 1875 on their return to power.

CHAPTER II

THE STRUGGLE FOR RESUMPTION

^1 U. S. Statutes, 43d Congress, 2d session, chap. xv.

stock of gold would be withdrawn for hoarding or export purposes. There was involved, therefore, a double problem of great delicacy: could a large gold reserve be acquired and kept in the Treasury before 1879, and could it be protected afterwards?

¹ Director of the Mint, Annual Report, 1877.

Comptroller Knox, Treas. Rep., 1877, p. 163

^2 Annual U. S. Mint Reports; U. S. Bureau of Statistics, Annual Reports.

the passage of the Resumption Law, to throw part of its gold fund on the market.'

There remained the foreign markets from which to obtain a gold supply. It was possible to buy gold abroad, even with foreign exchange against the United States. But Secretary Bristow expressed, in 1875, the very general doubt as to whether such an operation would not be deliberately obstructed by foreign institutions. Nor was this apprehension groundless. France and Germany were already accumulating specie for exactly the purpose contemplated by the United States, and it was common belief, even three years later, that the Bank of England would resort to extreme measures for the protection of its own reserve.

I have said that the Law of 1875 involved the double problem of providing for resumption at the stipulated date, and of maintaining it afterward. It is the first of these undertakings which we shall survey in the present chapter. There were, as we have seen already, two influences at work in 1875, which made possible the achievement as it would not have been in 1866. These influences—the shifting of the foreign trade balance in favor of the United States and the subsequent check to gold exports—were factors on which no finance minister could have reckoned. Both in fact developed after the passage of the Resumption Law. But even after allowing for these accidental commercial ad-

^1 Treas. Rep., 1875, p. xxii.

⁹ Ibid., p. xxi.

Letters of Treasury's London agent, August 11 and 15, 1877

⁴ Ibid., August 10, 1878

vantages, the credit for the return to specie payments on January 1, 1879, belongs individually and without dispute to John Sherman.

^1 Senate speech, January 9, 1868.

^3 Senate speeches, December 22, 1874; March 16, 1876; Recollections, i., 510.

^3 Senate speech, December 22, 1874.

⁴ Senate speech, January 15, 1868.

⁵ Senate speech, April 9, 1866,

What was perhaps still more essential, at this juncture in the Government finances, was the faculty displayed by Mr. Sherman, of keeping the mastery of outside negotiation. This was no small achieve-

^1 Letter to Colgate & Co., December 1, 1877; Specie Resumption, pp. 22, 23, 24, 80, 81, 201, 709; Treas. Rep., 1877, p. ix.; 1878, p. xiv.

^* Treas. Rep., 1878, p. x.; 1879, p. x.; 1880, p. xiv.

¹ Recollections, ii., 638; Specie Resumption, 291, 665; letter of

^3 Specie Resumption, pp. 280, 358.

^2 London Economist, October 19, 1878; Treasury's London correspondence, August 3, 10, and 17, 1878.

⁴ Letter of August Belmont to Sherman, April 26, 1878.

during his time precisely the results proposed, and achieved them promptly, is to concede his administration's practical success. Nor were these results attained through extravagance or waste. In his refunding and resumption operations, Mr. Sherman placed the bonds of the United States on better terms than any of his predecessors. On one noteworthy occasion, he sold to a foreign syndicate a considerable block of bonds at a figure virtually above the price of the same bonds on the open market, and he did this after banking acquaintances had warned him that the achievement was impossible. It was through Secretary Sherman that the plan of sales direct to the investor, without the intervention of a syndicate, was afterwards introduced.

Some mistakes in detail policy usually occur in any complex banking operation, and criticism has by no means spared Mr. Sherman. But even in these disputed questions, the Treasury had a good defence. The blunder of fixing a thirty-year term to the \$741,000,000 4 per cents., frequently laid at his administration's door, was in fact decreed arbitrarily by the Funding Act of 1870, and was inserted in that statute against Mr. Sherman's own advice. Conceivably, the extension of maturing 6

^1 Treas. Rep., 1877, p. viii; Recollections, i., 570, 571.

^2 Letter of H. C. Fahnestock, March 23, 1878; Specie Resumption, pp. 279, 281, 283, 284, 285, 294.

^3 Recollections, i., 574; letter to the Senate, March 26, 1879; H. C. Adams, Public Debts, 236.

^* Recollections, i., 454

per cents. at 3½ subject to call, arranged a few months after Secretary Sherman's term expired, might have been feasible in 1877 and 1878. Yet it must be remembered that the credit of the United States, after two years of specie payments, was a very different thing from its credit in the earlier period. Congress, moreover, true to its record of the whole Administration, used the 3½ per cent. proviso as a means of deliberate embarrassment to the Secretary's operations. It loaded down its new refunding bill, in which that rate was authorized, with stipulations of a character so wild as to necessitate a Presidential veto.'

Of all the criticism on the Secretary's policy, that which clung longest was the charge that in the use of Government deposit funds, he granted undue favors to the banks. That Mr. Sherman was at times politically indiscreet, in permitting concentration of the bulk of his deposits with a single bank, cannot be doubted. But it by no means follows that the action was unwise financially. The syndicate of foreign bankers, through whom the large resumption loan was placed, were allowed to name their own depository, and the institution named by them had been the most efficient agent of the Government. Politically, the Secretary would have played a wiser part had he distributed this deposit; from any other point of view, it was a matter of complete indifference. If the example of foreign

¹ Recollections, ii., 758, 796.

Recollections, ii., 798; letter to a New York banker, January 13, 1879; Specie Resumption, p. 459.

governments had any bearing on the matter, the selection of a single bank was preferable. As for the general policy of bank deposits, that was not only sustained by precedent in this and other countries, but it was indispensable. When any block of new refunding bonds had been sold and paid for, ninety days had to elapse, under the formal notice, before the old bonds could be taken up. In the British Government, all such surplus of the exchequer goes, as a matter of course, on deposit with the Bank of England. Common prudence required that the purchase money in our Government's possession, during these three-months intervals, should be similarly kept on the open market. In extending these deposits, always abundantly secured, Mr. Sherman not only followed common-sense and precedent, but had the best advice, legal and financial, to sustain him.

I have spoken of the obstacles thrown in the Administration's way by Congress. The circumstances under which the Hayes Administration entered office were in all respects discouraging. Administrative plans and policies have frequently enough been obstructed by opposition majorities in one or the other branch of Congress, by dissension in the Administration party, or by the popular discontent arising from hard times. The Hayes Administration had to meet all these obstacles at once, and at a time when its

Report of Treasurer Spinner, Annual Treas. Rep., 1866, p. 171

Letter to the Senate, March 26, 1879,

^3 Opinions of Attorney-General Devens, of Comptroller Knox, of Geo. S. Coe; Specie Resumption, pp. 117, 135, 136.

own official prestige was marred by its disputed title. Whether Mr. Hayes was entitled to the two doubtful States whose votes were eventually awarded to him, and without which he could not have been elected, is a question regarding which opinion will probably always differ. The elaborately constructed Electoral Commission, to whom the question was referred, divided almost exactly on the lines of party affiliation. But that the actual majority of the voters was against Mr. Hayes in 1876, and in favor of Mr. Tilden, there is no doubt whatever. The Republican count itself awarded to Mr. Tilden a popular plurality, in the whole United States, of 252,224. The tangible result of this popular minority was a House of Representatives containing an opposition plurality of twenty votes.

Nor was this opposition content with a mere blockade of Administration measures. It undertook to wreck the entire policy of the President. The Senate was Republican by a plurality of three, but on questions of finance, this slender plurality could not be trusted. The first year of the new Administration was a period of stagnant trade and popular unrest; its second year was a period of falling prices. The Pittsburg railway riots, which rose for a time to the proportions of industrial insurrection, broke out hardly four months after the inauguration of President Hayes. Business failures were more numerous and serious in 1877 than in 1874, the increase being particularly rapid in the younger Western States; and in 1878 the record of insolvencies far exceeded even that of the panic year

1873.' Four years of prostrated enterprise had utterly discouraged the people; when, therefore, politicians laid the blame on the Treasury's operations, they had no trouble in getting a hearing. The opposition to Mr. Sherman's plans, which in fact included many well-known Republican Congressmen, believed itself to be backed by an overwhelming popular sentiment. It therefore laid its plans deliberately to upset the pending negotiations.

¹ Dun's Review, annual tables.

which produced in 1873 only \$645,000 of silver ore, turned out \$16,000,000 in 1875. In the three years following 1874, the two mines of the "Comstock lode" yielded \$42,000,000 silver. The statute dropping the silver dollar from this country's coinage list was enacted February 12, 1873; the German law for retirement of silver coinage was adopted July 9, 1873; and a year later the news of the rich Nevada "ore-finds" became public property. Between the German sales and the sales at Nevada City, the price of silver yielded. In 1874, for the first time in a generation, 412½ grains of standard silver would have been worth more when coined into a legal-tender dollar than when sold in the bullion market. The motive of the mining interest in the free-silver coinage agitation of 1876 and 1877 was not mysterious.

The motive of the anti-Administration party in Congress was somewhat different. There is not the slightest question that the silver-coinage movement, in the agricultural West particularly, had the same origin and the same following as the paper inflation movement of a few years before. Mr. Bland himself, the author of the silver bill, declared that the question was presented as between what he called "honest resumption" with silver coinage, "or on the other hand a forced unlimited inflation of paper money." In the heat of debate on the silver bill, the same statesman declared in Congress that if his

¹ Shinn, The Story of the Mine, p. 191

Lindermann, U. S. Mint Report, 1877.

Annual Reports, U. S. Mint.

⁴ Congressional Record, Aug. 5, 1876

In each of these three controversies the Adminis-

¹ Treas. Rep., 1877, p. iv.

^9 Sherman to F. O. French, June 19, 1877; Specie Resumption, op. 80, 81, 84, 91.

^3 Speech of D. W. Voorhees, Senate, January 15, 1878; of F. M. Cockrell, Senate, January 23, 1878; of W. H. Felton, Senate, November 14, 1877.

Senate speech, December 10, 1877.

sumption plans. The future Secretary of 1894, destined to issue under the Resumption Act more bonds than even Secretary Sherman, sat in the House in 1877 and voted to revoke the power of issue.

Sherman's comment on the reactionary policy, even before the Allison substitute bill had been framed, was as faltering in its tone, and as thoroughly imbued with timid compromise, as if its author was again the Sherman of the Senate. A personal letter of the Secretary, in September, 1877, to the author of the Matthews resolution, contains the most extraordinary quibbling with the question. Mr. Sherman himself confessed, seventeen years after the struggle of 1878, that the veto message did not meet with his approval.

Congress adjourned on June 19th. Even before Congressional adjournment, the canvass for the November State elections had begun. The State Convention platforms, in the summer of 1878, were not in all respects such as the session's work in Congress would have suggested. It is true, the Democrats throughout the West and South went to extremes in denouncing the Administration's policy. The Ohio Democrats, for instance, demanded "absolute repeal of the Resumption Act," "removal of all restrictions to the coinage of silver," and "substitution of United States legal-tender money for national bank notes," and Democratic Conventions in Indiana, in Iowa, and in most other Western and Southern States, made exactly similar declarations. The policy set forth by the Ohio Democrats was

¹ Treas. Rep., 1877, p. xxi.

^3 Letter to Stanley Matthews, September 11, 1877; Recollections, ., 593-

Recollections, ii . 623.

⁴ Ohio Democratic Convention of June 26.

The trend of public sentiment, in fact, very soon showed itself to be unmistakably in that direction, and this was shown by the altered tone of the oppo-

^1 W. D. Kelley, House of Representatives, November 3, 1877; J. J. Ingalls, Senate, December 6, 1877; W. A. Wallace, Senate, January 29, 1878; T. O. Howe, Senate, February 5, 1878.

Platforms of the Indiana and Ohio Republican Conventions, June 5 and 12, 1878.

There was not much danger from the closing session of a Congress whose earlier ventures had received this response from the people. Without interruption or annoyance from the legislative body, the Secretary of the Treasury now put the final touches on his arrangements for resumption. Partly by accident and partly through stress of circumstances, the Treasury gold reserve was defined, in

later years, at a fixed and arbitrary minimum. The theory adopted by Mr. Sherman, however, in his early operations, was different and undoubtedly better. Following probably the practice of the Bank of England, he fixed his reserve at forty per cent. of outstanding notes—"the smallest reserve," he wrote to Congress, "upon which resumption could be prudently commenced and successfully maintained." On this basis he held in the Treasury, on December 31, 1878, \$114,193,000 gold in excess of outstanding gold certificates, which was a trifle over forty per cent. of the Government notes then circulating outside the Treasury. Of this gold reserve, \$95,500,000 had been obtained through sale of bonds, part of the coin being procured in Europe.

There remained now to be settled only the formal machinery of exchange between the Treasury and outside institutions. The city banks were naturally willing to lend all possible aid to the achievement. But the mere good-will of the banks has proved largely useless to the Treasury on two not at all dissimilar occasions—in 1861 and in 1894—and at both those junctures the fault distinctly lay in lack of timely business management by the Treasury. It is conceivable that with the vacillating policy of those two years applied in 1878, the Government's financial schemes might even now have broken down.

Letter to President of the Senate, May 17, 1879; intervew with H. R. Banking and Currency Committee, April 18, 1878; Recollections ii., p. 631.

^* Treasurer's Annual Report, comparative tables.

^3 Treas. Rep., 1878, p. ix.

^1 Letter of Assistant-Treasurer Hillhouse; Specie Resumption, p. 308.

^3 Letter of Assistant-Secretary French, November 5, 1878; Specie Resumption, p. 396.

another and against the Government, and to admit the New York Sub-Treasury into regular membership.' At the same time, the requirement of coin payment of customs duties was revoked, and public officers were directed to receive coin or legal tenders at the payer's option—a move of obvious propriety, since refusal to take notes in payment would merely send the importer to the Treasury's redemption office to convert them into coin.' All these preliminaries had been formally and positively settled before the close of 1878. On December 17th, the premium on gold disappeared, for the first time since 1861; on January 1st, specie payments were quietly resumed. Whether resumption could be maintained without fresh purchases of gold, without new bond issues, and without recurrent strain on financial confidence, depended on influences no longer subject to the Government's control.

^2 Treas. Rep., 1878, pp. xii., xiii.; Treasury circular to disbursing and receiving officers, December 14, 1878.

^1 Resolution of the clearing-house at New York, November 12, 1878, Specie Resumption, p. 401; at Boston, November 15, Specie Resumption, p. 408.

CHAPTER III

RESUMPTION OF SPECIE PAYMENTS

THE danger to the Treasury's redemption fund lay, as every one understood, in possible gold exports. As it happened, there was no gold movement in progress at the time of specie resumption; but foreign exchange was only a trifle below the normal gold-exporting point, and no spring season for eighteen years had passed without gold shipments. In the first half of 1877, nearly twenty millions gold had been exported from New York, chiefly obtained from the city banks. On January 1, 1879, these New York banks held in specie only \$19,781,400, but they held twice as much in legal-tender notes redeemable at the Treasury in gold. Supposing, then, a further rise in exchange and a heavy export of gold, there was not the least doubt over what would happen to the Treasury reserve.

Now it is true that every bank of issue is confronted continually with this possibility. In 1878 and 1879, while gold exports from London were in progress, the exporters carried their Bank of England notes to the Bank as a matter of course for redemption in gold, and shipped the gold. What was true

the Resumption Law was positively revoked. It was further provided, in this Act of 1878, that "when any of said notes may be redeemed or received into the Treasury under any law, from any source whatever, and shall belong to the United States, they shall not be retired, cancelled, or destroyed, but they shall be re-issued and paid out again and kept in circulation."

¹ Recollections, ii., p. 659.

³ Treas. Rep., 1879, p. x.; 1880, p. xiii.

Mr. Sherman's assumption in his report of 1879 was as unwarranted as his criticism of a later Secretary of the Treasury for not claiming precisely the same discretionary privilege.'

Forum for April, 1806

^* Circular of McCulloch & Co., New York, May, 1879

Ellison & Co.'s cotton circular, January, 1879.

^4 Annual Report, New York Chamber of Commerce, 1879, p. 104.

promised with that event?' is the question frequently coming to us. 'Wheat is no higher. Corn is no higher. There is no money in any of the earth's products. Where is the promised prosperity?'''

New York Financial Chronicle, March 8, 1879.

^9 London correspondence of Treasury, February 22, 1879; Specie Resumption, p. 525.

Fry to Sherman, January 13, 1879; Specie Resumption, p. 461.

^4 Treasury's London correspondence, February 22; Specie Resumption, pp. 525, 536, 723.

on foot inquiry into the possibility of controlling specie exports through sales of Government exchange. Such recourse, Mr. Sherman plainly intimated, might become necessary "in preventing popular alarm." Not even this expedient was feasible; sterling continued to advance, and finally, in the second week of June, a million and a quarter gold was shipped. This gold was obtained from the Treasury in exchange for notes; it reduced to precisely that extent the Government reserve. London financial judgment of the time was thus expressed: "The effect of resumption has passed off, and we may expect to find gold steadily drifting from that side to this."

The wheat harvest of 1878, in England and on the European continent, had been, as we have seen, one of the largest on record. When 1879 was well advanced, wheat from the English farms was still moving in quantity to storage-points. At the close of March, the stock of wheat at Liverpool was larger than at any time within five years; the same was true of every cereal product. Frosty weather and heavy rains in England had indeed advanced the price of wheat sixpence a bushel, and it was then admitted that the English crop of 1878 would not be duplicated. But meantime the reserved supply was ample, demand from consumers was only

^1 Sherman to Conant, March 15; Conant to Sherman, April 3; Specie Resumption, pp. 569, 602.

^* Treas, Rep., 1879, p. 338.

^* London Statist. Tune 7, 1870

Annual Report, New York Produce Exchange, 1879, p. 447.

moderate, and early in March observers of the market predicted that prices had reached their high level for the year. This forecast seemed for some time to be correct. Wheat had advanced nine cents per bushel on the New York market since the opening of January; the price now fell from \$1.17\frac{1}{2}\$ in March to \$1.10 in the second week of April.

^1 London correspondence, New York Financial Chronicle, March 7, 1879.

² Ibid., July 11, 1879.

^8 Treasury's London correspondence, July 12; Specie Resumption, p. 739.

To the United States, the huge American grain crop of 1879 was a double stroke of fortune. In England, it stopped the mouths of Mr. Chaplin and the protectionist reactionaries, who had begun to clamor against the free right of entry to American export grain. In the United States, it settled the question of resumption. All circumstances seemed to con-

¹ Mark Lane Express, London, January 5, 1880.

^2 Gazette tables.
³ Bulletin des Halles, Paris, January, 1880.

⁴ London Economist, November 22, 1879.

^1 Annual Reports, U. S. Department of Agriculture.

New York Produce Exchange, Annual Report, 1879, p. 395.

^8 Financial Chronicle, October 4, 1879.

⁴ Glasgow Herald, November, 1879.

dence, the famous tide-water pipe-line from the Pennsylvania oil-wells was completed in 1879, and the year's export of this product rose nearly two million barrels over the highest previous record. By another coincidence, equally independent of any events already noticed, the cotton crop of India in 1879 was a partial failure; Europe's supply on hand fell off thirty per cent. from the autumn stock of 1878 and fifty per cent. from 1877, and with the consequent heavy purchases by foreign spinners, the season's export of American cotton was the largest ever yet recorded.

The first result of this sudden change in the situation was a fall in the foreign exchanges, and consequent dissipation of all fears that the resumption fund would be impaired. With this menace removed from the financial outlook, the country's torpid enterprise awoke. The trade revival which ensued was without question the most remarkable in this country's commercial history. In the entire range of American industries, there was practically no exception to the movement. In the iron trade, consumption, which had been cramped and paralyzed for half a dozen years, and which at the opening of 1879 was not large enough to move the surplus stocks, had by December run so far beyond capacity for immediate production as to yield a profit of one hundred per cent. on current rates of cost.

In spite of the rise in raw cotton, the spinning in-

Annual Report, New York Chamber of Commerce, 1879, p. 50.

^* New York Financial Chronicle, September 27, 1879.

Annual Report, New York Chamber of Commerce, 1879, p. 104.

The Government's gold reserve accordingly rose from \$119,956,655 at the close of June to \$157,140,-114 at the opening of November. As early as September, Secretary Sherman notified agents of the Treasury that "gold coin, beyond the needs of the Government, having accumulated in the Treasury," they were thenceforward to pay out gold freely on ordinary disbursements.

¹ Circular to disbursing officers : Specie Resumption, p. 780.

Liverpool Corn Trade News estimates,

had the advantage in the foreign trade. Even in 1881, when a good part of the American crop was destroyed by drought, the foreign harvest too ran short, and what our farmers could spare for export was sold at the highest prices in nine years.

^1 New York Chamber of Commerce, Annual Report, 1880-81, p. 85.

iron.' Of course this bubble too collapsed; by June, the price had fallen to \$23.

New York Chamber of Commerce, Annual Report, 1880-81, p. 99.

Most unfortunately for the transportation industry, the leader in the movement was Jay Gould, whose

standing the fact that Kansas Pacific stock was earning nothing while Union Pacific was earning and paying six per cent. per annum. Gould and his confederates of course played this particular game through the stock market, where it was easily possible for any one aware of the purposes of the two companies to buy Kansas Pacific stock at nominal figures and sell it out in the advance accompanying the announcement of the combination. At the close of 1880, it was possible to say that Jay Gould controlled every important through railway route west and southwest of St. Louis, except the Atchison, Topeka, and Santa Fé and the Atlantic and Pacific.' The opportunities for mischief of this kind, with such power in the hands of such a man, were almost unlimited.

The reckoning for all this chapter of railway plunder came in 1893, when the extraordinary list of railway bankruptcies cannot easily be explained without tracing the history of the companies back to 1880. For other companies were bound to imitate the methods of this arch-plotter; going so far, in one notorious instance, as to sell to shareholders a new issue of six-per-cent. thirty-year bonds at twenty cents on the dollar, when the shares themselves were selling between 80 and par. Yet the extent to which all these companies continued to prosper and profit under this load of improperly incurred liabilities was perhaps the strongest of all testimony to the soundness of the trade revival. The Chicago, Rock Island, and Pacific company, for instance, doubled its stock in 1880 through a "scrip

^! New York Financial Chronicle, January 8, 1881.

dividend "of one hundred per cent., and continued to pay seven per cent. per annum on its doubled stock; the Louisville and Nashville paid six, after a similar increase; the Chicago, Burlington, and Quincy, after a twenty-per-cent. "stock dividend," paid eight per cent. Actual increase in the total stock and bonds of railways in the United States, during 1880, was \$524,411,843; but net earnings increased no less than \$30,000,000.

What was true of railway profits was true also in other lines of trade, and 1880 was undoubtedly the most prosperous year of the generation. This may be fairly judged by that faithful index, the record of business failures. In 1878, there were 10,478 such commercial deaths; in 1880, there were only 4735. The liabilities involved fell from \$234,383,-000 in 1878 to \$65,752,000 in 1880. The people were contented, employment was abundant, and the industrial agitation of the preceding years had apparently disappeared.

No one who has followed thoughtfully the influence of trade conditions on the sentiment of voters, as already reviewed in our study of 1866, of 1874, and of 1878, will doubt what was the reasonable political expectation after the trade revival of 1879 and 1880. If the elections of 1879 had been held in June, it is doubtful what the verdict would have been. Resumption was then denounced in many quarters as a failure. The best financial plea that the Ohio Republicans could put forward, in their

¹ Poor's Manual of Railroads, 1880

Dun's Review, annual tables

convention platform of May 28th, was the saving of interest charges through the Administration's refunding operations. On June 4th, the Democrats of that State retorted by demanding "the full restoration of silver... as a money metal," and "the gradual substitution of Treasury notes for national bank currency," and by nominating for Governor Thomas Ewing, the author of the bill of 1877 to repeal the Resumption Act. This attitude was imitated, to a greater or less extent, by the opposition party in other Western States. It affected even the East. On July 1st, the Democrats of Maine declared for "the free and unlimited coinage of silver"; as late as July 16th, the Pennsylvania Democrats adopted a platform framed to suit anybody and mean anything on the currency.

But the situation, long before election day, was wholly reversed. By the early autumn months, the Administration could point out results following specie resumption even larger than what had been promised in advance,—a very unusual advantage. In 1878, the party had lost heavily in many Western constituencies; mainly, as we have seen, because of the low price of grain. In 1879, election day came at the very climax of a violent rise in agricultural prices, paid for the largest crops ever produced in the United States. Naturally, the autumn party declarations changed their tone along with the rapidly changing business outlook. The proclamations of Republican conventions began to strike a note of triumph. "We congratulate our fellow-citizens upon the restoration of confidence and the

As we have seen, there was more or less truth in this allegation. But the public mind does not trouble it self with such subtleties; it rewards or punishes, usu ally, on a strict basis of post-hoc reasoning, and in the vote of 1879 it recognized properly enough the

Massachusetts Democratic convention, October 7, 1870.

^9 Speech at Cooper Union, New York, October 27, 1879.

The Administration's victory was complete. After five years of almost uninterrupted contest over the standard of value, the battle was ended. This fact was tacitly conceded in the Presidential platforms of both parties during the summer of 1880. On the 6th of June the Republican National Convention at Chicago endorsed in the most unqualified language the financial achievement of the Hayes Administration. Both the Stanley Matthews wing of Republicanism and the timid jugglers with the issue in the

Except for the disputed claim involved in the 1876 election, the party had small reason to apprehend the national vote of November, 1880. The event proved even this misgiving to have been exaggerated. But for this same clouded title, President Hayes would logically have sought renomination, and would have deserved it. When Mr. Hayes refused to submit his name, there seemed to be some probability that Secretary Sherman's services would

At Cincinnati, three weeks later, the National Democratic convention was a gathering as tame as the Chicago convention had been exciting. The rank and file were full enough of confidence, but the party's experienced leaders were well aware that with industrial contentment on all sides their case was hopeless. The manner in which a candidate manœuvres for the nomination, or his friends in his behalf, is governed wholly by the prospect of success. For nomination and defeat, especially if the defeat be overwhelming, commonly lead in the United States to political oblivion. In the party's National Convention of 1868, with a somewhat parallel situa-

tion, nearly all of the shrewdest Democratic leaders avoided nomination, and Horatio Seymour was eventually forced to take it against his will. The case of 1880 was similar. The party's strongest candidates were named to the Convention in a perfunctory way, there was little or no contest, and on the second ballot General Hancock, who with his purely military record had nothing to lose through a political defeat, was readily placed in nomination. The result of the November ballots amply justified such misgivings. Against the 185 electoral votes awarded to Hayes in 1876, Garfield in 1880 captured 214. Tilden, in 1876, obtained on popular vote a plurality over Hayes, even by the Republican count, of 252,224; Garfield's plurality over Hancock, in 1880, was 9464.

The party whose most sagacious leaders had fought and won the resumption battle seemed, in brief, to be surely seated in the control of public matters, from which the panic of 1873 and the resultant trade stagnation had so nearly banished it. But the problem of the currency remained. The silver question was not the only cloud on the party's horizon. The problem of resumption had been solved for 1880, and for many subsequent years, by a happy accident of nature. Far-sighted public men recognized, however, even at the climax of the party triumph of 1880, that the system on which resumption had been founded still left the national finances at the mercy of future commercial accidents. In almost the last official papers of the Hayes Administration occur two declarations very remarkable for their positive

Recollections. ii., p. 808.

^1 Annual Treas. Rep., 1880, p. xiv.

CHAPTER IV

THE SILVER PROBLEM

¹ Recollections, ii., p. 623. Treas. Rep., 1878, p. xvi.

President Haves, Annual Message, December 6, 1880.

definite appeal for the "importance of further limiting the coinage of the silver dollar." But the Law of 1878 was left in force, and so rapidly now did the Secretary's misgivings deepen, that in the summer of 1880 he privately declared that "the silver law threatens to produce within a year or so a single silver standard. . . . I could at any moment, by issuing silver freely, bring a crisis."

Let us see what was the reason for this remarkably pessimistic judgment, at the very time when outside trade was moving towards the high tide of prosperity. When President Hayes vetoed the Silver Act of 1878, he expressed his judgment that circulation of a dollar worth intrinsically less than the gold dollar would sooner or later "put an end to the receipt of the revenue in gold," and thus deprive the Government of the means of paying its gold obligations. It was this objection to the law which presently turned out to be the matter of serious concern. The Silver Coinage Act had been only a very short time in operation before the President's prediction was confirmed by the movement of events.

The legal-tender notes were redeemable in coin, and since the Resumption Act was passed when the only authorized United States coin, except the trade dollar, was gold, it was quite universally conceded that gold redemption was peremptory. Even the Congressional resolution of January, 1878, which declared for silver payment on the bonds, had made

¹ Treas. Rep., 1879, p. xiv.; 1878, p. xv.

Letter to James A. Garfield, July 19, 1880.

^2 Veto Message, February 28, 1878.

no such suggestion regarding the legal-tender notes. Being redeemable in gold, the notes could not depreciate so long as the Treasury had the power and means of providing gold for such redemption. They therefore circulated freely, and were not only used for banking purposes in the cities, but were absorbed in the every-day interior exchanges, being easily portable and issued in convenient denominations.

possible to keep in circulation more than thirty-five per cent. of the dollars coined.

So long as the silver circulation was small, and the return of the silver coin from interior circulation had not yet become active, the New York Clearing-House rule was regarded as a mere routine banking arrangement. When, however, silver dollars began to crowd the channels of public

^1 Secretary Sherman, Treas. Rep., 1880, p. xviii.

Specie Resumption, p. 401.

^3 Sherman to George S. Coe, November 13, 1878; Specie Resumption, p. 402.

revenue, the Treasury's inability to get rid of its silver through the Clearing-House became a matter of considerable moment. Its stock of legal tenders was already very low, and except for the legal-tender notes, gold was the only medium for these New York payments. As a result, the silver surplus in the Treasury increased during the early months of 1880 with great rapidity, while its surplus gold fund, which had been materially enlarged during the harvest movement of the previous autumn, decreased even faster. With the Treasury's mass of gold obligations, this was a serious sign of danger.

This policy of the New York Clearing-House came in for a round of angry denunciation on the floor of Congress. It was declared to be a conspiracy of Eastern bankers, designed, first, to discredit the silver currency, and second, to get the advantage of the Treasury. It was formally proscribed in July, 1882, when the twenty-year charters of the national banks, about to expire under the banking law, were renewed by Congress. In granting extension of these charters, Congress added the positive stipulation that "no national banking association shall be a member of any clearing-house in which such [silver] certificates shall not be received in settlement of clearing-house balances."

In all this controversy, the New York banks seemed to be on the defensive. Let us see, however, what was their actual motive. The New York banks perform for the United States the office which the London banks perform for England; they manage the country's settlements on foreign exchange

^1 Secretary Sherman, letter to President of New Orleans Clearing-House, December 10, 1878; Specie Resumption, p. 420.

Pixley & Abell, annual London tables.

But the inevitable result of such conversion of the New York banking reserve into silver coin worth intrinsically less than gold would be that gold for purposes of foreign settlements could be had only at a premium. In other words, the entire currency would depreciate. It was to avert this possibility that the Clearing-House framed its rule of 1878. It was a most unusual move, and it could hardly in the

¹ U. S. Mint. Annual Reports. # 1

Meantime, however, the very causes which had drained off the legal tenders from the Eastern banks had also reduced the Treasury's supply to small proportions. At the close of 1880 the Government held less of the legal tenders even than the New York banks. This was the opportunity for relieving the Treasury's stock of idle silver, and it was promptly utilized. In September, 1880, Secretary Sherman offered, in return for deposit of gold at seaboard

^1 Weekly statement, New York Associated Banks, November 6, 1880.

I have gone thus fully into this introductory silvercoinage episode, at the risk of wearying the reader

^1 Treasurer Gilfillan, Annual Treas. Rep., 1881, p. 429.

^2 Ibid., p. 436.

There were some signs of a change in the movement of prosperity, as early as 1881. Most people, in succeeding years, were accustomed to date back the "turn of the tide" to the assassination of President Garfield on July 2, 1881. Undoubtedly this event was a shock to the financial markets; particularly to markets in which excited speculation for the rise had cut so large a figure as it did in those of 1880 and 1881. But Garfield's death was not a decisive influence on the situation; it was in fact a coincidence rather than a cause. A far more permanent influence was exerted by the destructive drought of 1881 in the entire harvest district of the United States. The country's wheat crop of that year turned out only three fourths as large as the crop of 1880; its corn crop was the smallest since 1874.

^1 Annual Reports, U. S. Bureau of Agriculture.

Poor's Manual of Railroads, 1882.

months ending with June, 1881, had reached the enormous sum of \$259,700,000, fell in the next twelve months to less than \$26,000,000. By the close of 1881, the foreign exchanges, so long held down in favor of the United States, began to move against us. By March, 1882, heavy export of gold began; before the close of the fiscal year, in June, \$32,500,000 had been shipped,—the largest export of gold since 1876.

^1 U. S. Senate Report on Prices and Wages, p. 9.

^9 New York Financial Chronicle, January 6, 1883.

^1 Liverpool Corn-Trade News estimates

The cotton crop met with an exactly similar experience, the American yield of 1882 being by far the largest on record, in the face of flagging demand from the foreign cotton-spinners. In almost every staple market, the course of events was identical; notably in the iron and steel trade, where production and speculation had been forced to the highest pitch at the moment when, as a result of 1881's unsatisfactory earnings, orders for new railway construction slackened. In short, production in the majority of industries had outrun consumption; a readjustment of prices was inevitable, and producers who were slowest to reduce their prices had to make in the end the largest sacrifice. Meantime the wind was rushing out of the balloon of American speculation.

The bearing of this altered trade situation on the silver-currency problem we shall presently notice. For the time, the currency problem was in a considerable measure obscured by the question of the surplus revenue. The enormous importations of foreign merchandise, which in 1882 were larger by sixty per cent. than those of 1879, and the consequent increase of the customs, had now introduced that unique problem of American finance, a revenue too large to be conveniently disposed of. The surplus of public revenue over expenditure was \$6,879,300 in the fiscal year 1879; in 1882 it was \$145,543,810. Now it is true that the funded debt

Ellison's Annual Cotton Review, January, 1883.

^a Annual Reports, American Iron and Steel Association, 1882, 1883.

of the United States, even after the large redemption of bonds in the ten preceding years, remained at a billion and a half of dollars, and that nearly one third of these outstanding bonds were redeemable at par at the pleasure of the Government. But the surplus revenue, if continued at the annual rate of 1882, would extinguish all this redeemable debt within three years, leaving no outlet for the surplus except purchase of unmatured bonds at whatever price they commanded in the market, or enormous increase in expenditure.

The Administration reasoned that such an outlook pointed distinctly to reduction of the taxes, and to that end the President and the Secretary of the Treasury earnestly urged on Congress a revision of the customs tariff. President Arthur went beyond the mere question of the surplus, and submitted a strong plea for the relief of "industry and enterprise from the pressure of unnecessary taxation." Unfortunately for this apparently reasonable advice, the customs taxes were protective, and the Republican party, then in power in all branches of the Government, was committed to protection. Rather than reduce the surplus revenue, therefore, Congress began to spend it. Out of the forty-four millions increase in the annual Government expenditure, between 1879 and 1883, only a trifling part arose from

Secretary Folger, Treas. Rep., 1882, pp. xxx., xxxi.

Ibid.

President Arthur, Annual Messages, December 6, 1881, December 4, 1882; Secretary Folger, Annual Treas. Rep., 1882, pp. xxvii., xxix.

larger outlay for the Civil List, the Federal armament, or the Indians. In 1872, when reporting the session's appropriation bill, General Garfield had declared in the House of Representatives: "We may reasonably expect that the expenditures for pensions will hereafter steadily decrease, unless our legislation should be unwarrantably extravagant." And in fact, between 1872 and 1878 the annual expenditure of the Pension Bureau did decrease some seven millions.

¹ Congressional Globe, January 23, 1872.

and Harbor Bill, on the grounds of its unconstitutionality and unwarranted diversion of public funds.' Within twenty-four hours the bill was passed over this Presidential veto, and the majority of votes to override the veto came from Administration Congressmen.

¹ Veto Message, August 1, 1882.

the nomination for Governor of New York, were also called into public question; but since Congressional elections were impending, the record of Congress itself naturally played the leading part. The Republicans themselves could not fail to recognize the importance of this issue. So peculiarly embarrassing was the veto episode to the Administration party, that even the New York Republican State convention formally applauded the President's "courage in resisting the enactment of the River and Harbor Bill, which violated the accepted rules of constitutional power."

^1 September 21, 1882.

Democratic ticket by a plurality of 192,854. Robert E. Pattison, running for Governor of Pennsylvania on the Democratic ticket, carried that Republican stronghold by 40,202 plurality. In States as widely separated as Connecticut, Michigan, Kansas, Colorado, and California, the Democrats reversed majorities from the previous elections and carried their candidates for Governor into office. The tide of political reaction ran so high in Massachusetts that General B. F. Butler, who had captured the Democratic nomination despite his inflationist record, was chosen Governor by a plurality of 13,040.

This sweeping opposition victory was at once accepted as a verdict for revision of the revenue. It was publicly admitted, even by recognized friends of the protective system, that a "substantial reduction of tariff duties" was "demanded, not by a mere indiscriminate popular clamor, but by the best conservative opinion of the country." In Congress, however, there was a strong minority, determined to resist, by whatever means, any concession from the protective-tariff theory. This faction had so far anticipated the situation as to secure in May, 1882, the appointment of nine commissioners from civil life to investigate the entire question of the tariff, and to report its findings to Congress in December. The move was clever; for the President named a protectionist commission, with the president of the Wool Manufacturers' Association at its head, and when Congress assembled in December, the com-

Report of Tariff Commission, 1882, i., p. 5.

^* Taussig, Tariff History of the United States, pp. 230-233.

mission's voluminous report and recommended bill were ready.

¹ Report of Tariff Commission, 1882, i., p. 6.

John L. Hayes in Bulletin of Wool Manufacturers, quoted in Taussig, p. 254.

^2 W. R. Morrison, House of Representatives speech, March 3, 1883; J. B. Beck, U. S. Senate speech, March 2, 1883.

yielded \$18,000,000 annually; the tax was now reduced to three. On tobacco, the impost, which produced in 1882 \$25,000,000, was cut down from sixteen cents a pound to eight.

Yet the argument as applied to 1883 has absolutely

no foundation. The reduction in revenue, to begin with, was no larger than the advocates of an altered tariff, including the Secretary of the Treasury, had originally recommended. Under the Act of 1883, the revenue reached its lowest point in the fiscal year 1885; yet there was a surplus revenue, even in that year, of \$63,463,771—larger by thirty per cent. than the requirements of the Sinking Fund. The bulk of such reductions as were actually made by Congress came, as the framers of the Law of 1883 intended, in the excise schedules. The Administration had opposed reduction of these taxes, which were a charge, not on necessities but on luxuries, and the change was nowhere seriously advocated in the electoral campaign of 1882. But Congress, under the influences already noticed, wholly ignored such well-known facts

Nothing can better prove the purpose of the legislators than the original title of the Law of 1883: "a bill to reduce internal taxation." We have seen already that taxes on tobacco manufactures were reduced forty to fifty per cent.; in the preceding fiscal year they had yielded \$47,000,000 revenue. Taxes on bank deposits, capital, and checks, and on other miscellaneous objects, had hitherto yielded annually upwards of \$10,000,000; these taxes were abolished. Here, then, was \$31,000,000 struck off deliberately, without considering

^1 Secretary Folger, Treas. Rep., 1882, p. xxix.

President Arthur, Annual Message, December 4, 1882; Secretary Folger, Treas. Rep., 1882, p. xxxi.

Commissioner of Internal Revenue, Treas. Rep., 1882, p. 73; 1884, p. 79.

The so-called panic of 1884, an immediate consequence of these disquieting developments, chiefly

¹ New York Financial Chronicle, January 17, 1885.

¹ New York Financial Chronicle, March 1, 1884.

New York Chamber of Commerce, Annual Rep., 1884.

tion was a firm foundation of genuine and increased wealth.

New York Financial Chronicle, January 3, 1885, p. 8

Comptroller Cannon, Annual Treas. Rep., 1884, p. 157.

^‡ Įbid., p. 158.

and singly. But when it is considered that the performances of John C. Eno, Grant & Ward, the Marine Bank, and the Metropolitan Bank, all came to public knowledge within a single week and in the same community, the shock to financial confidence is not hard to understand.

¹ Comptroller Cannon, Annual Treas. Rep., 1884, pp. 139, 153.

under still more interesting circumstances, in our review of 1893.

This New York panic in the spring was followed by a heavy fall in agricultural prices; partly occasioned, perhaps, by the disordered money markets, but chiefly by the immense increase of home and foreign production. The American grain crop of 1884 was larger even than that of 1882; the whole world's wheat production was twelve per cent. larger than the crop of 1878, under which, it will be remembered, prices had broken continuously. In 1884, the price of wheat fell lower than in 1878; in other staple products, prices fell nearly to the level of the earlier year of depression. If, as had been argued in the debates of 1878, the fall in prices was caused by an insufficient currency, no such result ought to have been expected in 1884; for notwithstanding the gold shipments of the year, the total money supply in circulation in the United States had increased \$425,000,000, or fifty per cent., since the resumption of specie payments.

The debaters of 1878 were not familiar, however, with the statistics of foreign grain production. Necessities of life can never, strictly speaking, be "over-produced," but they may be produced in such quantity that, in order to sell them all, new customers must be brought in by fixing a lower range of prices. The world's product of wheat, in 1884, was not only the largest in history, but it was not equalled again during the next half-dozen years. The average price of

¹ Liverpool Corn-Trade News estimates.

^9 Treas. Rep., 1884. ³ Liverpool Corn-Trade News estimates.

wheat in 1884, accordingly, was not only the lowest ever touched up to that time in American history, but it was also lower than any yearly average thereafter until 1892. Public authorities on agriculture flatly declared that there was no profit in raising wheat at the prices of 1884. This was undoubtedly an exaggeration; but when a National Bureau of Agriculture published such a statement, it is not difficult to guess what must have been the feeling of the farmer.

The Republican party went into the Presidential campaign of 1884 under this double handicap of acute financial depression in the East and unfavorable agricultural markets in the West. It was burdened, in addition, with its failure to modify the tariff in the direction of lower duties—a failure which drove into renewed opposition the element which won the election of 1882. The fact that, even against these odds, the Republican party actually came within 23,000 votes of a plurality on the whole country's popular vote of November, 1884, proves how powerful was the prestige gained through the achievement of resumption. As it turned out, however, the party was defeated, the vote of New York State against Mr. Blaine turning the scales.

The Democratic party thus obtained control of the National Administration, for the first time in twenty-four years. It inherited from its predecessor a very serious financial situation, the outcome of which, when President Cleveland took office in 1885,

U. S. Statistical Abstract, 1896, p. 293.

^2 U. S. Department of Agriculture, Annual Rep., 1885, p. 348.

¹ Treas. Rep., 1884, p. xxxi.

^9 Assistant-Treasurer Graves's reply to H. R. resolution, Feb. 10, 1885.

Grover Cleveland, letter to A. J. Warner and others, February 24, 1885.

CHAPTER V

THE SURPLUS REVENUE

¹ New York Financial Chronicle, July 8 and July 25, 1885.

of the Treasury's difficulties, it was quite as fruitless then as the similar recourse was in 1893 and 1894. The silver, after being held by the New York Clearing-House for three or four months, as security for certificates issued to its owners and used in bank exchanges, was returned to the Treasury for legal tenders.

¹ New York Financial Chronicle, November 7, 1885

^3 Treas. Rep., 1881, p. 426

such denominations could be kept in constant use. Nor is this preference hard to understand. Wages are paid in bills for five dollars or less; retail purchases rarely require exchange of anything larger than a ten-dollar bill. Very few people carry about with them currency in bills of one hundred or five hundred dollars, but every citizen is apt to have in his pocket-book a handful of paper money in the smaller denominations. The pocket-books of sixty million citizens, with business active, are capable of absorbing permanently, in this way, enormous sums.

Treasurer Jordan, Annual Treas. Rep., 1886, p. 78.

The new Administration began by keeping in the Treasury all of the one- and two-dollar legal tenders paid to it, and by using in its own disbursements only notes in large denominations. This policy had prompt results. Within a year, complaint of the scarcity of small notes came in from various sections

of the country; and in 1886 Congress was asked to permit the issue of silver certificates in small denominations. Congress consented grudgingly, and in August, 1886, it authorized the issue of such silver currency in one-, two-, and five-dollar bills, and the exchange of large silver certificates for an equal amount in small denominations. With this authority, the Treasury tried at once the experiment of dislodging the legal tenders from the people's pocket-books and replacing them with small silver certificates, and the plan succeeded. By 1888, there were \$34,000,000 less in legal-tender notes for one, two, and five dollars in the country's circulation than in 1886, and all this void was filled by newly issued silver currency in the same denominations.

Meantime another influence was at work, which was much more useful to the Treasury's plans. I have mentioned the Government legal-tender currency as a permanent medium of retail circulation; I have not yet noticed the circulating national-bank notes. These notes were a very important factor in the operation just described. In 1884, there were more of the bank notes outstanding than there were of the legal tenders, and more than half of such outstanding bank notes were in denominations of ten dollars or less.' The demand for currency in the rapid trade expansion after 1879 had not only attracted foreign gold, and absorbed into interior circulation legal tenders and even silver, but it had stimulated the national banks to add some thirty millions to their circulating notes. It will be

^1 Comptroller Cannon, Treas. Rep., 1884, p. 186.

recalled that the check to trade activity, after the summer of 1882, sent gold back to Europe and silver and Government notes back to the Eastern banks and the Treasury. The same business motive, therefore, which had inspired the banks, in the three preceding years, to increase their note circulation, now encouraged reduction of such issues.

bank possessing them was compelled either to replace them with other Government issues bought on the open market, or else to retire its circulating notes. Under the circumstances, it is not surprising that the circulation was surrendered. Fully three fourths of the bank notes thus retired from circulation were in small denominations; and this, of course, signified growing scarcity in money available for small exchanges.

Secretary Manning and his associates in the Treasury were too sagacious observers of the undercurrents of finance to have failed to reckon this banknote movement into their plans for disposing of the surplus silver. But even the public men who discerned this curious phenomenon, and correctly pointed out its meaning, could hardly have imagined how far the contraction of the currency, thus automatically begun, was destined to be carried. In 1886, at the very time when the issue of small silver certificates was authorized, began the second enormous rise in public revenue since resumption. In 1885, excess of Government income over expenditure was \$63,463,771; it increased thirty millions in the next twelve months; by 1888 it had reached the sum of \$119,612,115.

The particular causes of this surplus revenue, whose consequences in many different directions were destined to be of the utmost importance, we shall presently examine. Its influence on the currency was immediate. To avoid direct contraction through heaping up a constantly increasing sum of

¹ Treasurer Jordan, Treas, Rep., 1886, p. 100.

money in the Treasury, the Government again enlarged its purchases of outstanding bonds. In the fiscal year 1886 it had bought only \$50,000,000; in 1887 it purchased \$125,000,000; in 1888, \$130,000,000. When, later on, the three per cents, redeemable at the Government's will, had all been retired through such purchases, the Treasury began to bid in the open market for its unmatured bonds. Banks which had paid 102 in 1879 for the four per cents, for instance, and had since employed the bonds as a basis of circulation, were now offered a steady market for them at 125 or higher. The temptation to accept such profit was strong, and the banks accordingly began to retire the circulation based on the four per cents. Between 1886 and 1890, national bank-note circulation decreased \$126,000,000, nearly one half this decrease being in notes of five or ten dollars each.

Such a reduction in the retail currency, coming along with the Treasury's policy of keeping in its own reserve the smaller legal tenders, opened the gate wide for the silver certificates. Even in 1886, the Treasurer was able to report that the average proportion of silver currency in payments at the New York Custom-House was barely twelve per cent., against thirty-six per cent. in 1885, while the percentage paid in legal tenders, which the Treasury could freely disburse again through the Clearing-House, increased from twenty-seven per cent. to fifty-nine. In the eight years between the passage of the Silver-Coinage Law and the middle of 1886,

Treasurer Jordan, Annual Treas, Rep., 1886, pp. 77, 142.

\$150,000,000 silver coin and certificates had been put into general circulation; in the four years after 1886, the country absorbed \$200,000,000 more, and this four-year increase happened coincidently, as we have already seen, with a shrinkage of \$126,000,000 in the bank-note circulation.

The Treasury's silver surplus, meantime, was reduced with such rapidity that it fell from \$97,745,.750 at the opening of August, 1886, to \$79,641,424 exactly one year afterwards, and to barely \$19,000,000 before the close of the Cleveland Administration. Most people will remember how suddenly, in those years, they lost sight of the once familiar bank-notes and small legal-tender pocket-money, and found instead, in their daily exchanges of petty cash, the new silver certificates. Whoever noticed this was unconsciously observing the working-out of one of the most curious economic experiments of the century.

For the second time, therefore, the anticipated crisis in the currency was averted, and on this occasion, so far as the silver certificates were concerned, it was permanently set at rest. What will occur in relation to this and other forms of United States currency in the future is a matter of simple guesswork. But with the subsequent halt in compulsory silver-coinage, under the law which will be noticed in the next chapter, the silver certificates took the place of the cancelled bank-notes in the retail circulation. In 1891 the bank currency reached its lowest point since 1865, but even at the close of the fiscal year 1896, the country's national bank-note circu-

lation was \$137,000,000 less than its maximum of 1882, and the silver currency made up one fourth of the total money supply outside the Treasury.

But the solution of the silver problem, temporary or otherwise, had not solved the problem of the surplus, which now became more awkward even than in 1882. It will be necessary, before this singular episode can be properly studied, to observe the character of the period which gave rise to it. No phenomenon in our financial history has had more immediate bearing on the strange chapter in American finance from 1891 to 1897. The United States is even now affected, in its public finances, by the traditions surrounding the period of the surplus revenue. The legislation of 1890 and the financial phenomena of 1893 were distinct results, in very large measure, of the four-year period after 1886. Neither 1890, nor 1893, nor indeed the succeeding years of American finance, can be understood except in the light of the epoch which we are now to examine.

The excessive rise in surplus revenue, after 1886, happened in spite of a further considerable increase in public expenditure. It was partly caused by a general increase in the product of internal taxes, but of the total gain in annual income, sixty per cent. was made at the custom-house. In 1885, the import duties made the lowest yield of any year under the tariff of 1883; in 1890, under the same law, they had risen forty-eight million dollars, reaching the highest record in the history of the Government, before or since.

It cannot readily be doubted, then, if the usual tests are to be trusted, that these were years of prosperity. There were, on the other hand, several

Annual Reports, American Iron and Steel Association.

Poor's Manual of Railroads

Returns of the General Land Office, 1888,

For a time, signs of equally angry discontent came from the farming districts. The American wheat crop of 1885 was the smallest since 1881, and, unlike the deficient crop four years before, it came at a time when supplies left over from the crop of the preceding year were double the average, and when Europe's wheat yield as a whole nearly equalled.

^1 Bradstreet's tables of U. S. Visible Supply, June, 1885.

Liverpool Corn-Trade Year-Book.

These combinations of laborers were not the only reflection of a considerably altered situation. A very singular parallel, at the opposite end of the industrial scale, was provided by combinations of corporations. This phenomenon came to public view with even greater suddenness. Political platforms may be counted on, ordinarily, to notice current events susceptible of use as "issues." But in

The limits of this book will not permit me to go at any length into this question of the trusts. It may, however, be noticed that in one respect the movement was an instructive symptom of the period. The trusts were organized to restrict a competition which their organizers declared to be ruinous if left unchecked. That there was some basis for this allegation may be judged from the course of many other markets, which pretty uniformly told a story of keen, close, and sometimes destructive competition. The over-capitalized and in some quarters unwisely projected railway systems naturally felt

the full force of this movement. A series of "rate wars" so far cut down profits that, although, with the heavy annual increase in the mileage, total gross earnings rose with great rapidity after 1887, net earnings and dividends actually decreased. With the opening of 1889, was introduced that extraordinary plan known as a "gentlemen's agreement," whereby the presidents of the important railway systems, not at all with a sense of humor, met and pledged their personal word of honor to see that rates were conscientiously maintained. Undoubtedly as a consequence of the same ruling conditions, the record of commercial failures, which stood in 1886 at 9834 individual suspensions, with total liabilities of \$114,644,119, rose by 1889 to 10,882, with

With home competition thus aggressive, the enormous merchandise import movement becomes a matter of curious historical interest. It might have been supposed that home competition would have shut out these imports. But the period which we are noticing was as peculiar in Europe as in the United States. Production by foreign manufacturers, during this period, reached a volume quite unprecedented; in Great Britain especially, the search for outside markets was urgent and aggressive. Merchandise exports from that country reached in 1890 by far the highest total in its history, having increased, since 1886, some \$287,000,000, or very nearly twenty-five per

Poor's Manual of Railroads.

^3 January 10, 1889

Dun's Review, Annual Tables.

cent.¹ In England, this was not a symptom of distress, although competition was aggressive; for 1889 was declared by English commercial authorities to be a year when labor was abundantly employed, and when trade compared very favorably, even in the matter of profits, with previous years.² But the unprecedented stimulation of production drove manufacturers to an urgent quest after new fields of export trade. In return for these heavy foreign sales of the English surplus product, securities issued by the countries to which the goods were sold were taken by English capital in enormous quantities.²

The investment phase of this operation led to some extraordinary phenomena in London during 1890, and had much to do with our own investment markets during that and the three ensuring years. For although there was not a nation in the commercial world to which Great Britain's exports, during the four years ending with 1889, had not been heavily increased, its exports to no other nation increased as did its shipments to the United States. The consuming power of this country had grown enormously with the extension of its wealth and population. I have already noticed the increase of one hundred per cent. in annual use of iron; in 1889, consumption of cotton was reckoned larger by 2,600,000 bales than in any previous year of the nation's history, and these markets were typical. Nor were the increased

Annual Trade Statement of the United Kingdom, 1891.

London Economist, Commercial Review of 1889. 3 Ibid.

Annual Trade Statement of the United Kingdom, 1891.

New York Financial Chronicle, September 14, 1889.

importations limited to any particular branch of foreign products. They embraced necessities and luxuries, finished manufactures and raw material of manufacture. In the four years prior to 1890, annual imports of iron increased \$4,000,000 and imports of precious stones \$4,000,000. There was a gain of \$17,000,000 in foreign cordage-ware received, and of \$10,000,000 in foreign silks. Along with a \$15,000,000 increase in annual importations of woollen goods came increase of \$9,000,000 in tobacco imports, nearly \$2,000,000 in import of foreign wines, and no less than \$1,800,000 in so small an item as foreign-made gloves.

These growing imports were doubtless evidence of increasing wealth. But nations as well as individuals will sometimes buy in excess of their means of ready payment; this being usually true of a speculative period, when hopes are high and moneylenders ready to make loans on easy terms and on all sorts of security. It is conspicuously true of such a period as that which we are reviewing, when foreign merchandise is taken and consumed in exchange for mere evidences of debt. Imports were equally heavy in the trade revival after 1879, but they were then for the most part Europe's method of settling its debt for our enormous grain exports. In none of the five years following 1885, on the contrary, did the annual breadstuffs-exports of the United States come within one hundred million dollars of the trade of 1880. Out of the 498,000,000 bushels American wheat crop of 1880, 186,000,000 bushels

¹ U. S. Bureau of Statistics, Annual Report. 1802, p. 2.

were exported; out of the 491,000,000 bushels crop of 1889, foreign consumers took only 109,000,000. There had, in fact, been another immense expansion in the grain-fields of foreign competitors. Not only did Europe enjoy fair harvests on an extraordinary acreage, but India and the Argentine Republic, which had hardly been noticed in the grain export markets of ten years before, were now in 1888 exporting fifty million bushels of wheat per annum.

the home of this invested European capital would be reasonably sure to cause its abrupt withdrawal. This had happened once before, in the London panic of 1866, with consequent serious embarrassment to the United States. But the foreign capital invested here in 1866 was a trifle compared with the amount poured into American enterprises between 1886 and 1890.

¹ Secretary Fairchild, Annual Treas. Rep., 1887, p. xxviii.

A careful effort was moreover made to distribute such deposits equitably; in 1888, they were shared by no less than two hundred and ninety separate institutions. Nevertheless, this recourse was as unpopular with the community at large as it was in 1878, and it was, moreover, even more limited in scope and permanency. The Government's deposits were liable to immediate recall, and they were looked upon as temporary in any case. Yet to qualify for such deposits, a bank was obliged to obtain Govern-

Annual Treas, Rep., 1888, p. 453.

^2 Ibid., p. 19

ment bonds at prices forced to a maximum by the Treasury's own purchases.¹ From any point of view, therefore, the bank deposits were inexpedient. There was one very obvious recourse—reduction in the revenue,—and this the Administration urged on Congress. But Congress refused to act. The House of Representatives contained an Administration majority, and it had already, in 1887, passed the Tariff-Reduction Bill of Mr. Mills. But the Republicans then controlled the Senate, and all such legislation was accordingly blocked. As a last resort, therefore, in April, 1888, formal authority was wrung from Congress to devote the surplus to bond redemptions at a premium.

A very extraordinary chapter in American finance now opened. During 1888, the Government four per cents. ranged on the open market from 123 to 129°; yet at these high prices the Treasury bought, within seven months, upwards of \$50,000,000.° The 4½'s, ruling, because of their near maturity, between 106 and 109, were redeemed, meantime, in the amount of \$33,000,000. During 1888 and the two ensuing years, \$45,000,000 was actually paid out in premiums; within four years, the enormous sum of \$235,000,000 was expended for bond redemptions in excess of the annual sinking-fund requirement.

To the world at large, this spectacle of public debt redemption, to the extent of nearly half a billion

Annual Treas. Rep., 1887, p. xxviii; 1888, p. 453

Annual Treas. Rep., 1888, p. 457.

^* Ibid., p. 455.

⁴ Treas. Rep., 1887, pp. 58, 60; 1891, pp. 98, 100.

CHAPTER VI

THE TWO LAWS OF 1890

might have been conservatively revised, but Congress refused to touch them. Instead, it voted to distribute \$37,000,000 to the States, and then proceeded to increase public expenditure. The next year happened to be a season of trade disaster; customs receipts in 1837, and with them the total revenue, decreased one half from 1836, while expenses were enlarged by twenty per cent. The result was prompt and logical. The surplus revenue of twenty millions in 1836 was changed only one year afterward to a deficit of thirteen millions, the "deposits" with the States had to be suspended, and before the close of 1837 the Government was issuing bonds to ward off actual insolvency.

Whether the experience of 1837 was or was not a precedent worth regarding, there is no evidence that it was studied by the statesmen of 1888 and 1890. The question of the surplus did, however, become the focus of a vast deal of more or less intelligent popular controversy. This was a natural result of the fact that the perplexities of 1888 reached their acutest point on the eve of a Presidential contest. Both political parties made the Treasury's situation the text of their campaign platforms, and both went into the campaign with a demand for reduction of the surplus. But the methods of reduction, as proposed by the two National Conventions, differed radically. At St. Louis, June 6, 1888, the Democratic party attacked the sytem of high import duties, to which it ascribed the excessive revenue. It accused the Republican party of endeavoring "to meet and exhaust by extravagant appropriations

and expenses " the abnormal surplus, and pledged itself not only to "enforce frugality in public expense," but to "abolish unnecessary taxation" through reform of the tariff system.

Now it is clear that either party's expedient,

^1 Minnesota Republican Convention, September 7, 1888.

Mr. Harrison might profitably have recalled the experience of President Arthur. That many of these expenditures were useful and necessary, no one doubted, but it was equally notorious that every committee and every President for ten years past had been driven to desperation to keep back jobbery and extravagance from such appropriations. No President before Mr. Harrison had dreamed of such a thing as urging river and harbor expenditure on Congress.

^1 J. G. Cannon, House of Representatives speech, Congressional Record, March 6, 1807.

^1 N. W. Aldrich, Senate speech, September 30, 1890.

Annual Message, December 3, 1880.

¹ Treas. Rep., 1892, p. cxx.

changed, receipts had fallen \$45,600,000 further. Instead of forty-three millions maximum reduction, the ultimate decrease in annual customs revenue under the law of 1890 was close to one hundred millions.

¹ Treas. Rep., 1894, p. exxiv

Treas. Rep., 1890, p. cxi.

³ Treas. Rep., 1889, p. xxii.

Treas. Rep., 1891, p. cxii.

Harrison's invitation, exclaimed "God help the surplus!" had very distinctly grasped the situation.

¹ Treas. Rep .. 1801, p. xxvi.

^* Treas. Rep., 1892, p. xxvii.; U. S. Revised Statutes, sec. 3694.

^3 Ibid., pp. xxi., xxii., xxviii.

crease grew to proportions so enormous that the President himself had to interfere, and rid himself of a commissioner who had been too literal in his interpretation of the Executive advice. By these and similar expedients, the emergency was staved off. There was a Treasury deficit in the fourth quarter of the fiscal year 1891, the first quarterly deficit in many years; it was repeated in two of the quarterly periods of 1892; but in each case a fortunate though temporary expansion of the revenue in other months helped the Treasury through the year. At last came a season when the trade from which the revenue was drawn contracted, with financial and political results as extraordinary as anything in our history.

The revenue and appropriation laws of 1890, then, had of themselves marked out a precarious future for the Treasury. But these laws were not the only or the most interesting achievements of the session. We have now to consider another law of 1890, of supreme and far-reaching importance—a law surpassed in its permanent influence on the national finances only by the Legal-Tender Act of 1862. I have noticed that the national party platforms of 1888 were so exclusively occupied with the revenue dispute that they quite ignored the lately urgent question of silver coinage. The Democratic Convention said not a word on the subject; the Republicans merely inserted the declaration that the party was "in favor of the use of both gold and silver as money"—a convenient platitude, familiar

Treas, Rep., 1801, p. 33. Treas, Rep., 1802.

in the platforms of both parties, which offended nobody and meant nothing, because it touched none of the questions of currency standards and mint restrictions on which alone the bimetallic controversy hinged. The campaign speakers and the candidates were as silent on the silver question as were the platforms. In his letter of acceptance, Mr. Harrison discussed the revenue, the immigration laws, the trust question, and the problem of civil-service reform, but he did not so much as mention the currency. He made no allusion whatever to the silver controversy in his inaugural address of March 4,1889, although that address discussed the purposes of the new Administration on numerous points of public policy.

Clearly, then, there was no party issue at stake in the silver question, no party or personal pledge to be redeemed, and no reason to anticipate an early and radical move in that matter by the Administration. Yet in the two or three weeks before Congress assembled in the winter of 1889, there was prepared a plan for revolutionizing the United States currency, and to the exposition of this project the Secretary of the Treasury devoted nearly one third of his first annual report, urging the plan on Congress with all the argument and persuasion at his command, and ending by the formulation of a bill which he sent to Congress with a plea for early action.¹ So radical and unprecedented was this proposed legislation that some time was required before Congress or the people could under-

^1 Treas. Rep., 1889, p. lxxiv.; Congressional Record, January 28, 1800.

stand what it meant. So hurriedly was it contrived that the President himself, in his Annual Message submitted after the publication of the Treasury report, frankly declared that he had "been able to give only a hasty examination" to the plan, "owing to the press of other matters and to the fact that it has been so recently formulated." What was this sudden after-thought of a Presidential canvass, and why was a new system of currency forced upon the consideration of Congress by an Administration elected on wholly different issues?

Now it was pretty well known that the united support of these senators could be obtained in return for the passage of a free-silver coinage bill. Their support could be obtained, without such inducement, for party measures endorsed by their

John Sherman, Recollections, ii., 1085.

constituents; but the high-tariff bill had not been thus endorsed. The Administration was properly unwilling to concede the question of free-coinage, and Mr. Windom undertook to frame a compromise. His plan as framed was a political concession, on the one hand, to the agrarian communities who demanded larger money circulation; on the other hand, to the silver-producing States of the Rocky Mountains and the Sierras. The second of these concessions was the more important. The primary purpose of the bill, as frankly stated by its author, was to create an artificial market for silver; the question of increased money supplies being treated as a minor consideration.

In this regard, the measure was absolutely unique in legislation. All previous silver bills had contemplated restoration of the double standard—a plan at least economically intelligible—or at a pinch they had decreed compulsory additions to the currency supply through limited coinage of silver dollars. Mr. Windom's plan proposed that the Government should buy at the market price the entire annual silver output of the world, or as much of the output as silver-miners chose to offer; that it should store away this silver in bulk at Washington, paying for it, meantime, in notes of the United States. All previous debates on the subject had urged remonetization, on the ground that prices of agricultural and other commodities would thereby be enhanced; Mr. Windom concerned himself with no commodity but silver.

^1 Treas. Rep., 1889, pp. lxxiv and lxxix.

Where other champions of the larger use of silver in the currency had pointed to the fall in wheat as the calamity which they were determined to avert, Mr. Windom discussed the fall in the price of the metal itself as the prime misfortune.' So firmly did the Secretary's mind seem to be fixed on this phase of the question that he recited as the chief advantage of his project the "utilization of silver" so that "a market would always be provided for the surplus product." This notion of an artificial market was the only part of his Secretary's plan which the President grasped at once. Although waiving comment on the details of the scheme, Mr. Harrison called attention to the fact that he himself had "always been an advocate of the use of silver in our currency," because "we are large producers of that metal, and should not discredit it."

This was not the only novel and curious feature of Mr. Windom's plan. The Treasury notes were to be issued "against deposits of silver bullion at the market price of silver when deposited"; but they were to be redeemable "on demand, in such quantities of silver bullion as will equal in value, at the date of presentation, the number of dollars expressed on the face of the notes at the market price of silver, or in gold at the option of the Government, or in silver dollars at the option of the holder." The reader of this extraordinary para-

^1 Treas. Rep., 1889, pp. lxii. and lxxiii.

Ibid., p. lxxvi.

Annual Message, Dec. 3, 1889.

⁴ Treas. Rep., 1889, p. lxxiv.

Plans for an unprecedentedly large increase in money circulation are usually based, like the Legal-Tender Act, on the necessities of Government, or, like the Silver-Coinage Act of 1878, on a theory that existing circulation is deficient. But the public revenue in 1889 was overflowing, while as to the circulation, Mr. Windom himself took pains to show that since 1878 the total increase in currency supplies had been seventy-four per cent., against only thirty-three per cent. increase in population. These facts did not, he argued, "appear to justify a largely

^* Treas Rep., 1889, p. lxxxii.

Jbid., 1889, p. lxix

Mr. Windom could not fail to notice that even with his curious plan of redemption of the notes in silver bullion, a fall in the price of silver would in-

¹ Treas. Rep., 1889, p. lxx.

Ibid. p. lxxi.

^3 Ibid., p. lxxvi.

Ibid., p. lxvi.

Ibid., p. lxxvi

Mr. Windom's extraordinary plan was not destined to be embodied in the statutes as its author framed

Treas. Rep., 1889, pp. lxxvi. and lxxvii.

³ Ibid., p. xxlxvi.

^* U. S. Mint Report, 1893, pp. 22 and 57.

It has sometimes been alleged that the preparation and enactment of the Silver-Purchase Bill of 1890 were made necessary, not by senatorial obstruction to the tariff bill, but by fear that in default of a com-

^1 John Sherman, letter to J. H. Walker, July 8, 1893; Recollections, ii., 1070 and 1188.

But the jeopardy, indeed, into which the tariff bill had fallen through the deadlock on the Silver-Pur-

^1 Annual Message, Dec. 3, 1880.

^9 Senate speech, April 29, 1896.

This conference measure, with its famous "parity clause," was chiefly the work of Mr. Sherman, for which reason the law became subsequently known, somewhat unjustly, as the "Sherman Act." Those who have studied Mr. Sherman's handiwork in legislative compromise, notably in the Resumption Act of 1875, will recognize something familiar in this compromise of 1890. Like the Resumption Law, it conceded a thoroughly bad principle in order to avoid the enactment of that principle in a still more

vicious form. Both laws were extremely obscure in their description of the duties imposed on the Treasury; each was susceptible of two diametrically opposite interpretations, according to the personal convictions of the Secretary who should administer it. Neither ventured to say in plain English what its author meant, and both were therefore destined to bring on their future administrators a storm of legislative protest and abuse.

¹ John W. Daniel, Senate speech, July 9.

Francis M. Cockrell, Senate speech, July 9.

^3 Wilkinson Call, Senate speech, July 10,

ceive whichever kind of coin he desired. We shall find this contemporary evidence highly important in the discussion of a later episode.

The conference measure promptly passed both House and Senate. It passed the Senate partly because senators from the silver-producing States, convinced that the Treasury purchases would raise the price of silver to the coinage parity, now took the floor in favor of it. But the true reason for its prompt enactment was the heavy party pressure now applied to recalcitrant Republicans. The final vote of July 14, 1890, is remarkable from the fact that in neither House of Congress did a single Republican member vote against the bill, or a single Democrat in favor of it.

Thus did this extraordinary measure pass into law. It was presently followed by the passage of the revenue law for which, as we have now seen, the silver-purchase legislation was the price. The situation at the close of 1890 was remarkable in many ways. The Treasury's accumulated surplus was about to be wholly dissipated. Prospect of making both ends meet in Government finances was to be subjected altogether to the chances of outside trade. In the face of these impaired resources, outstanding demand liabilities of the Treasury were to be increased by upwards of fifty million dollars annually, and this forced addition to the country's paper circulation was to be made at the very moment when the Treasury's hoards were thrown on the open

^1 John R. McPherson, Senate speech, July 9.

John P. Jones, Senate speech, July 8,

money market and when contraction of bank-note circulation had ceased.

Treas. Rep., 1879, p. x.

³ Ibid., 1880, p xv.

CHAPTER VII

THE EXPULSION OF GOLD

Treas. Rep., 1889, p. lxxxvi.

vance had been. Silver fell below 98 cents an ounce before Congress assembled again in December, 1890, and the President regretfully confessed the failure of the effort "to give to the market for silver bullion such support as the law contemplated." Mr. Windom's annual report, issued at the same time, insisted that in spite of the failure of the law to help the silver market, "its beneficial results will eventually commend it to general approval," since it had already been "the means of providing a healthy and much-needed addition to the circulating medium of the United States." This, it will be observed, was a somewhat altered theory of the purpose of the law, but it was also adopted by the President, who declared that "the increased circulation secured by the act has exerted and is continuing to exert a most beneficial influence on business and on general values."

Now it should be remarked, first, that this is precisely such an argument as might have been employed in 1872, for instance, in behalf of the increase and perpetuation of the older legal tenders. It is the familiar inflation argument. But, furthermore, it will not be difficult to show that Mr. Harrison's view of cause and effect in the trade movement of 1890 was quite unwarranted. The volume of American trade in 1890 was doubtless larger than in 1889, but profits were no greater, and the average

^1 Annual Message, Dec. 1, 1890. ³ Treas. Rep., 1890, p. xlix.

New York Financial Chronicle, January 10, 1801, p. 64

New York Chamber of Commerce, Annual Rep., 1890, pp. 81, 89, 98.

It is probable enough that this unexpected and violent enlargement of the bank reserves, though it had slight connection with the law to whose operation Mr. Harrison assigned it, did its part in fanning the flame of speculation. But the fundamental

¹ U. S. Senate, Report of 1892 on Prices and Wages, vol. i., p. 9.

^2 London Economist, December 20, 1890

^* Treas. Rep., 1891, pp. 15 and 95.

reasons for the summer advances of 1890 were quite independent of the American currency supplies. There were two such reasons. I have already described the feverish eagerness with which Great Britain had been engaged, since 1886, in developing the resources of young foreign communities, taking securities in payment. This movement reached its culmination in 1890. During the five months from February to August of that year, £100,000,000 in new securities were brought out on the London market. "Business," in the words of a contemporary London review, "was enormous, and the rise in all descriptions of prices was astonishing."

Along with the powerful reflex influence on our markets of this foreign speculation had come visible evidence that the world's supplies of grain were running into one of their intermittent periods of shortage. In 1889, every important foreign wheat-producing state, with two exceptions, yielded a deficient supply; the United States, meantime, producing the largest crop since 1884. These short foreign supplies of 1889, followed next season by another harvest only slightly larger for the entire producing world, gave an additional fillip to the upward rush of prices in the early autumn of 1890.

The Administration, then, was mistaken in ascribing the trade movement of 1890 to the Silver-Purchase Act. The truth was soon made manifest

^1 London Economist, February 21, 1891; Commercial Review of 1890.

^9 Liverpool Corn-Trade News, 1889; Annual Rep., U.S. Department of Agriculture, 1889.

when the chief sustaining influence under the fabric of speculation was suddenly removed. Into no foreign state had English capital rushed with such reckless eagerness as into the Argentine Republic. The resources of that state were overestimated; its climate was precarious for production, its currency depreciated, and its government untrustworthy. Nevertheless, English investors had taken its securities in constantly increasing quantities, and the powerful London house of Baring Brothers had underwritten loan after loan in Buenos Ayres, even as late as the spring of 1890. In 1889 the wheat crop of Argentina, whose increasing annual volume had chiefly inspired this investment movement, turned out a failure.

This industrial disaster was followed, first by a bloody political revolution, and then, in September, 1889, by a financial panic in Buenos Ayres. Demand for Argentine securities in London slackened immediately, and a certain timidity over all foreign investments became perceptible. This caution seemed to disappear in the final upward movement of prices early in 1890—a curious but perfectly familiar phenomenon on the eve of every speculative collapse. But the reviving speculation failed to disentangle the bankers from their imprudent South American engagements. Rumors of trouble began to circulate in the autumn. At length, on November 20th, Baring Brothers, unable either to sell or borrow with their Argentine securities, defaulted on £21,000,000 home liabilities. Only through the united efforts of the Bank of England

and the London financial institutions generally, who guaranteed the doubtful Baring assets, did Great Britain escape a repetition of the Overend-Gurney panic of 1866. So serious did the strain become, during one critical week of November, 1890, that the Bank of England adopted the extreme precaution of borrowing £4,500,000 gold from the Bank of France and the Imperial Bank of Russia.

¹ Treas. Rep., 1891, p. 327.

By the end of June the exports of gold had reached the unexampled figures of \$70,000,000 for the six months." 1

Now the facts alleged were all correct; but they did not in the least explain the enormous shipments.

¹ Treasurer Nebeker, Treas, Rep., 1801, p. 16.

⁹ U. S. Bureau of Statistics, Annual Rep., 1891, p. xxx

Director of the Mint, Treas. Rep., 1891, p, 146

⁴ Ibid., 1892, p. 154

^1 London correspondence of the Treasury, Specie Resumption, pp. 129, 133, 358, 365, 369.

^3 G. Von Mauthner, manager Austrian syndicate, Neue Freie Presse, May, 1893.

unwelcome conclusion began to force itself forward that the gold expulsion was an index, as truly as the gold expulsion of 1862, to a disordered and inflated currency.

^1 Treasurer Nebeker, Treas. Rep., 1891, p. 13.

^1 Ibid., p. 84. ¹ Treas. Rep., 1896, p. 137.

as such a movement continued, there was obviously no occasion or inducement for the presentation of legal-tender notes for redemption.

^1 Beerbohm's London Corn-Trade List, August, 1891; Bradstreet's, August, 1891.

Liverpool Corn-Trade News, 1891.

increased 255,000,000,¹ and exceeded by fully one hundred million bushels the largest American crop on record.¹ The market for this crop was as broad and eager as the market for the crop of twelve years before; the early demand especially was stimulated by the ukase prohibiting wheat exports from Russia and by the French decree removing the import duty. Export of breadstuffs from the United States, in the ensuing season, ran beyond the enormous outward trade of either 1879 or 1880.¹

This remarkable freak of nature changed for six months the whole complexion of affairs. Beginning with September, there was imported from Europe, within six months, very nearly fifty million dollars worth of gold. As in the autumn of 1880, so in the autumn of 1891, part of this gold went into the Treasury in exchange for silver and legal-tender notes, and the Government's gold reserves advanced again. But the movement ended as suddenly as it began. The season's export of grain was completed earlier than usual, because of the very urgent needs of foreign importers. For a few weeks during September and October, freight-room on out-bound grain ships was almost unobtainable, so great was the pressure of export supplies. But with this immediate demand satisfied, the harvest trade contracted, and the Western banks at once found their hands full of idle currency. In November this

U. S. Department of Agriculture, Annual Reports.

Ibid., corrected by commercial estimates

J. S. Bureau of Statistics, Annual Report for 1892, p. 1

⁴ Treas. Rep., 1892, p. 258.

currency began to move East in great quantities; it reached the city banks at the time when a movement of reaction was beginning on all the markets.

¹ Treas. Rep., 1892, p. 103.

^3 London Economist, December 20, 1890; December 26, 1891; February 20, and July 9, 1892.

after another unlocked; the true balance of international trade swung against us in the face of the heavy grain exports. In January, 1892, foreign exchange advanced sharply; in the six first months of 1892, \$41,500,000 gold was shipped, and the shipments during July and August averaged two to seven millions weekly.

To the Treasury, the situation was now very different from what it had been a year before. The autumn imports of gold in 1891 had partly replenished the Government's reserve, but they did not make good the enormous gold disbursements of the previous twelve months. With the January interest-payments in 1892, there was another heavy loss of gold from the Treasury, and by the close of May, 1892, the fund had fallen to \$114,000,000.

Now the sum of one hundred millions gold had long been fixed as the minimum reserve to be maintained against outstanding legal tenders. Secretary Sherman had argued that at least the \$95,500,000 gold received through sale of bonds under the Resumption Act "must, under the existing law, be maintained unimpaired for the purpose for which it was created." This view was formally accepted by subsequent Treasury administrations, but Congress took no action regarding the matter until 1882, when a law was passed suspending the issue of gold certifi-

^{. 1} Treas. Rep., 1892, p. 18.

² Letter to the President of the Senate, May 16, 1879.

Secretary Folger, Treas. Rep., 1881, p. x.; SecretaryMcCulloch, Treas. Rep., 1894, p. xxxi.; Treasurer Jordan, Treas. Rep., 1885, pp. 480 and 483; Secretary Foster, Treas. Rep., 1892, p. xxix.

Presidential election at hand, would undoubtedly mean the political ruin of the Administration and its party.

^1 New York weekly bank statements, July 5, 1890; July 3, 1891; July 2, 1892.

The first result of this displacement of gold with paper money was the increasing use of notes in settlements between the banks. In the twelve months ending with September, 1890, only one per cent. of the New York Clearing-House balances were paid in legal tenders; in 1891, the legal-tender percentage had risen to thirty-five per cent; in 1892, it was fifty-seven and a half. Under the conditions which we have noticed, it will hardly be contended that this change was abnormal. But if a decreased use of gold was logical in payments from bank to bank, it was equally logical in payments to the Government. In the first six months of 1890, as we have seen, nine tenths of the customs revenue at New York was received in gold; in the corresponding period of 1892, three fourths of it came in legal-tender notes.

Exactly the same embarrassment was arising as had developed in 1880 and 1884, before the silver currency had been absorbed into circulation. But in 1892, there was this important difference; that the notes of 1890, redeemable in gold and available for all banking uses, were not excluded from settlements at the New York Clearing-House. When, therefore, Secretary Foster, who had succeeded to the Treasury on the death of Mr. Windom, found himself confronted on the one hand with a fall in the Government's gold reserve to the danger-point, and on the other with a rapid shrink-

^1 New York Clearing-House annual statements, October 1, 1890, 1891, 1892.

³ Treas. Rep., 1892, p. 46.

age of gold receipts in revenue, he quickly concluded that the Government's own disbursement of gold must cease. The legal-tender surplus of the Treasury, it is true, was also small; but all Government notes received on revenue could promptly be used again for payments, and so long as receipts and expenditures were equal, the gold fund would apparently be protected. Accordingly, in the summer of 1891 and the spring of 1892, a steadily decreasing amount of gold was paid out in the Government's New York accounts. After the first week of July, 1892, gold payments by the Treasury into the Clearing-House were practically abandoned.

The circle of embarrassment was now complete. Gold was virtually hoarded, both by the banks and by the Government. The first step in the depreciation of the currency had been made; the others followed, some of them immediately, others only after a lapse of a year or more, but all in a sequence marked out by inexorable economic law. Neither the banks nor the Treasury were to blame. Both were victims of circumstances beyond their own control; both had taken the only action reasonably to be expected under the circumstances. We shall now, however, be able to understand the reason for the very remarkable and startling development which next arose.

We have seen that with the banks and the Treasury both guarding their gold reserves, payment of gold through the New York Clearing-House had practically ceased. Now the forty million gold

¹ Treas. Rep., 1892, p. 49; 1893, p. 41.

But we have seen already how this situation had been altered through the Law of 1890. On June 30, 1892, with foreign exchange at the normal shipping point, \$3,200,000 was ordered at New York for export.' The checks passed duly through the Clearing-House, but the credit balance thus created to the gold-exporter's bank was met in legal-tender

¹ U. S. Mint, Annual Rep., 1892, p. 43.

notes. These notes could not be used by the sterling bankers to meet their drafts on London, and the two or three deposit banks with which they kept accounts were unable, out of their own reserves, to provide the necessary gold. What was to be done?

In the thirteen years from 1879 to 1891 inclusive, only \$34,000,000 notes had been thus presented for redemption, and the largest redemptions of any year had been in 1879.' In fact, as we have seen in our review of previous autumn movements of currency, the tendency had been, not to present notes to the

¹ Treas. Rep., 1893, p. 13

Treasury for gold, but to offer gold in exchange for the Treasury's surplus legal tenders. The withdrawal of Treasury gold in quantity through presentation of legal tenders for redemption was therefore a decided and alarming novelty. But the reckoning for the wild performances of 1890 had now begun, and the spectacle soon became familiar enough. From June, 1892, throughout the whole series of troubled years which followed, almost every dollar of gold exported from the United States was obtained on note redemption from the Treasury. In his annual report of 1892, the Secretary of the Treasury despondently confessed that a heavy deficit in revenue was impending, and that the whole redemption machinery of the Government was in peril.²

Extraordinary interest was lent to this complicated situation by the Presidential election of 1892. Ever since the enactment of the two laws of 1890, the Administration party had been unfortunate at the polls. In November, 1890, it had been overwhelmed by the most sweeping political reverse since 1882. As in the earlier year, so in 1890, not only the doubtful States but the Administration strongholds went over by heavy majorities to the opposition. Massachusetts had cast its vote for Mr. Harrison, in 1888, by a plurality of 32,037; in 1890 it elected William E. Russell, Democratic candidate for governor, by 9053. Robert E. Pattison and the opposition carried Pennsylvania by 16,554, against

^1 Treas. Rep., p. 12; 1896, pp. 130 and 131.

^3 Secretary Foster, Treas. Rep., 1892, p. xxix

Mr. Harrison's 1888 plurality of 79,458. Nebraska went Democratic, for the first time in its history; Illinois and Michigan went over similarly to the opposition. The House of Representatives chosen in 1888 was Republican by twenty-one plurality; its successor contained the huge Democratic plurality of 149.

¹ Recollections, ii., 1189.

late, the Presidential canvass had begun, and eventually the silver bill was left to die through the adjournment of Congress.

The bills failed in the protectionist Senate, and probably no other outcome was expected by their authors. One recourse remained—a recourse which had been promised repeatedly in party platforms. It was possible, while still leaving revenue unchanged, to save the Treasury from actual deficit by

cutting down expenses. And in fact this Fifty-Second House of Representatives virtuously resolved at the very start, and by a vote of 164 to 95, that "in view of the present condition of the Treasury, . . . no money ought to be appropriated by Congress except such as is manifestly necessary to carry on the several departments, frugally, efficiently, and honestly administered." But economy is an easier watchword in resolutions for public edification than in close committees, besieged by greedy Congressional applicants. A few appropriation committees made a resolute effort at retrenchment; other committees quite as resolutely unloosed the purse-strings, and the Senate, as usual, loaded down the bills with its own particular objects of extravagance.

The net result was curious and extremely mischievous. In its two sessions, this Fifty-Second Congress cut down naval appropriations nine million dollars; a proper enough reduction, if made as part of a consistent scheme of economy. But against this saving, it ran up river and harbor appropriations eight millions, raising them to the largest total by far in the Government's history. It saved three millions in the allowance for new fortifications, only to increase by the respectable sum of eighty millions the pension appropriations of its predecessors. In short, the opprobrious title of "billion-dollar Congress," flung at the first Congress under Mr. Harrison because appropriations,

¹ Congressional Record, January 15, 1892

^* Treas. Rep., 1893, p. cxvi

annual and permanent, ran within thirteen millions of that handsome total, applied with literal truth to the Congress chosen in 1890, which had made economy its plea before the people.

These three States, it is true, were not fairly typical; for two of them were silver-producers, and in the third the Democratic party had surrendered to an agrarian movement based on currency inflation.

Now there was little absolutely new in this Populist manifesto. With the exception of the boycott clause, each of its declarations had seen service in previous third-party platforms. But the third-party episode of 1892 is a matter of great importance, in view of the influence which its supporters were to exercise in the next Congressional session and in the Presidential canvass four years afterwards. The movement was remarkable even in 1892. The largest popular vote ever before obtained by a third-party candidate was cast in 1880, when General

Weaver of Iowa, running on a fiat-money platform, polled 308,578 votes, scattered all over the Union. In 1892, the same candidate, nominated by the Peoples Party, received the remarkable vote of 1,042,631, which was more than one fifth the poll of Mr. Harrison. Never since the election of 1860 had a third party carried a single State. In 1892 the People's Party carried Kansas, Colorado, Idaho, and Nevada, and cast twenty-two votes in the Electoral College. They sent to the Fifty-third Congress four senators and eleven representatives, and in view of the known sympathy of many professing Democrats with the principles of the Populist party, it was certain that their ideas would get a hearing.

It will readily be seen, therefore, that Mr. Cleveland's popular plurality of 379,000—the largest obtained by any Presidential candidate since 1872—meant less than appeared on its face. Nor did the Democratic House plurality of ninety-one, and the party's possession of a majority in both branches of Congress, for the first time since Buchanan's Administration, point to a harmonious Administration. Every experienced politician knew at the close of 1892 that a stormy session was ahead for Congress. But even the confused political situation was now overshadowed by the approaching catastrophe in the national finances

CHAPTER VIII

THE PANIC OF 1893

Felft the Treasury, in our last chapter, confronted for the first time in its history with a heavy drain on its gold reserve to redeem outstanding notes. During the nine months after the beginning of this movement, Secretary Foster was engaged in a continuous struggle to save the redemption fund. The strain relaxed temporarily in the autumn of 1892, when interior trade was again very large. Practically no gold was imported, but, on the other hand, exports ceased almost entirely. Moreover, upwards of \$25,000,000 legal tenders were drawn from the New York banks to the West and South, and the Treasury obtained some gold from these institutions in exchange for notes delivered at interior points. But when the Eastward flow of currency began again, at the end of the harvest season, gold exports were resumed and with them the presentation of legal tenders for redemp-

¹ New York weekly bank statements, July 30 and November 19, 1892.

^3 Treas Rep., 1892, p. 13; N. Y. Financial Chronicle, July 9 and July 23, 1892.

tion. In December, 1892, and January, 1893, upwards of \$25,000,000 gold was withdrawn by noteholders from the Treasury to provide for export needs.'

By the close of January the Treasury's gold reserve had fallen to a figure barely eight millions over the legal minimum. With February's early withdrawals even larger, Secretary Foster so far lost hope of warding off the crisis that he gave orders to prepare the engraved plates for a bondissue under the Resumption Act. As a last resort, however, he bethought himself of Secretary Manning's gold-borrowing operation of 1885. In February Mr. Foster came in person to New York to urge the banks to give up gold voluntarily in exchange for the Treasury's legal-tender surplus.

From a strict commercial point of view, there was good reason why the banks should not make any such exchange. But the plea that a panic must at all hazards be averted, combined with the argument of patriotic support of the Government, at length prevailed. The New York banks turned over to the Treasury, in exchange for notes, six to eight million dollars gold. This, with some small amounts still paid through the customs revenue, was enough to keep the Treasury afloat until March 4th, when the

Treas. Rep., 1893, p. 12.

^3 Letter of instructions to chief of U. S. Bureau of Engraving and Printing, February 20, 1893.

⁴ New York Financial Chronicle, February 11 and February 18, 1803.

New York Tribune, February 9, 10, and 11, 1893; New York Financial Chronicle, February 11, 1893.

entire problem could be turned over to the new Executive. To his successor in the Treasury, Mr. Foster left exactly \$100,982,410 in the gold reserve, and barely \$25,000,000 in other forms of money.

^1 Treas. Rep., 1893, p. lxxii.

^* Ibid., p. 96.

^* Ibid., 1893, p. lxxii

astonishing spectacle was witnessed of some \$25,-000,000 legal tenders delivered to the Treasury for export gold, offset by an almost equal sum of bank gold turned over grudgingly for notes.

¹ Treas. Rep., 1896, p. 130.

Treasury, now that its gold reserve had actually fallen below the legal limit, would refuse further redemption of these notes in gold, and would tender only silver coin.

That the President was justified in this construction of the law, must be apparent from our examination, in a previous chapter, of the debate on the Silver-Purchase Bill. Even the free-coinage senators had declared in 1890, on the floor of Congress, that this was the actual meaning of the parity clause. It is, however, entirely probable that Mr. Carlisle wavered for a moment in the face of the emergency, and that moment's vacillation had done its mischief. The public mind was on the verge of panic. During a year or more, it had been continuously disturbed by the undermining of the Treasury, a process visible to all observers. The financial situation in itself was vulnerable. In all probability, the crash of 1893 would have come twelve months before, had it not been for the accident of 1891's great harvest, in the face of European famine.

But even this lucky accident served in the end to rouse again the spirit of speculation, extremely dangerous under existing conditions. Huge as this country's merchandise exports were, in the season after the harvest of 1891, the import trade increased with almost equal strides. A year later, the balance of foreign trade had actually turned, and in the nine months ending with March, 1893, imports exceeded exports by no less a sum than forty-seven millions—a record unprecedented since the days of irredeemable paper money.¹ Severe economy alone could have averted the approaching retribution, and instead of practicing economy the people, like the Government, were indulging

¹ U. S. Bureau of Statistics, Report for March, 1893.

in renewed extravagance. The bank returns were a striking witness to this tendency. Loans of the national banks had increased, during 1892, no less than \$165,000,000—an increase greater even than that of 1880—and of this sudden expansion, nearly one hundred millions came in States west of the Ohio and south of the Tennessee line.'

^1 Comptroller of the Currency, statements of December 2, 1891, and December 9, 1892.

later, it fell below ten dollars per share, and with it, during the opening week of May, the whole stock market collapsed.

Opinions differ considerably as to the wisdom of this policy. It is, however, practiced as regularly in Great Britain as in the United States, and its purpose is legitimate—to give the widest employment to the country's general money supply. The drain of currency from the cities to the interior in

^1 U. S. Revised Statutes, Sec. 5192.

^9 Annual Rep. Comptroller of the Currency, 1884, p. 57; 1893, p. 17; Comptroller Knox. Treas. Rep., 1873, p. 05.

Panic is in its nature unreasoning; therefore, although the financial fright of 1893 arose from fear of depreciation of the legal tenders, the first act of frightened bank depositors was to withdraw these very legal tenders from their banks. But the real motive lay back of any question between the various forms of currency. Experience had taught depositors that in a general collapse of credit the banks

Comptroller Eckels, Treas. Rep., 1893, p. 433.

³ Ibid., p. 431,

would probably be the first marks of disaster. Many of such depositors had lost their savings through bank failures in the panics of 1873 and 1884. Instinct led them, therefore, when the same financial weather-signs were visible in 1893, to get their money out of the banks and into their own possession with the least possible delay, and as a rule the legal tenders were the only form of money which they were in the habit of using. But when the depositors of interior banks demanded cash, and such banks had in immediate reserve a cash fund amounting to only six per cent. of their deposits,' it followed that the Eastern "reserve agents" would be drawn upon in enormous sums.

On the New York banks the strain was particularly violent. During the month of June, the cash reserves of banks in that city decreased nearly twenty millions; during July, they fell off twenty-one millions more. The deposits entrusted to them by interior institutions had been loaned, according to the banking practice, in the Eastern market; their sudden recall in quantity forced the Eastern banks to contract their loans immediately. But in a market already struggling to sustain itself from wreck, such wholesale impairment of resources was a disastrous blow. In the closing days of June, the New York money rate on call advanced to seventy-four per cent., time loans being wholly unobtainable. The cash reserves of the New York

¹ Comptroller Eckels, Annual Rep., 1893, p. 17.

New York weekly bank statements, April 29, July 1, and August 5, 1893.

banks, that week, fell below the proportion to liabilities required by the National Banking Law. The banks resorted then to the emergency device adopted in 1873 and 1884. They appointed a committee to appraise such assets as any bank in the Clearing-House should offer, and issued against such assets certificates receivable for balances at the Clearing-House. Enabled thus to dispense in part with cash settlements, the banks managed, during the summer strain, to help out customers who were in serious straits.

reserves were on their way to them from depository centres. Out of the total one hundred and fifty-eight national bank failures of the year, one hundred and fifty-three were in the West and South. How widespread the destruction was among other interior banking institutions may be judged from the fact that the season's record of suspensions comprised 172 State banks, 177 private banks, 47 savings banks, 13 loan and trust companies, and 16 mortgage companies. The ruin resulting in the seaboard cities from the panic of 1893 was undoubtedly less severe than that of twenty years before. But no such financial wreck had fallen upon the West since it became a factor in the financial world.

During the month of July, in the face of their own distress, the New York banks were shipping every week as much as \$11,000,000 cash to these Western institutions. Ordinarily, such an enormous drain would have found compensation in import of foreign gold, and, in fact, sterling exchange declined far below the normal gold-import point. But the blockade of credit was so complete that operations in exchange, even for the import of foreign specie, were impracticable. Banks with impaired reserves would not lend even on the collateral of drafts on London.

So large a part, indeed, of the Clearing-House debit balances were now discharged in loan certificates that a number of banks adopted the ex-

Comptroller Eckels, Annual Rep., 1893, p. 80.

^3 Ibid., p. 14.

⁸ New York Financial Chronicle, July 29, 1893, p. 164.

depositors who had, for instance, to provide large sums of cash for the weekly pay-rolls of their employees. Being unavailable for such purposes, the certified checks were really depreciated—like paper money irredeemable in gold. Through the moneybrokers, therefore, these depositors paid in checks the face value of such currency as was offered, plus an additional percentage.

This premium rose from one and a half to four per cent., and at the higher figures it attracted a mass of hoarded currency into the brokers' hands. The expedient was not entirely new; it had been tried under similar circumstances in the panic of 1873.' But in 1893 it was applied on an unusually large scale, and it had the good result of helping to keep the wheels of industry moving. Its bad result was that it caused suspension of cash payments in the majority of city banks; for, of course, when a premium of four per cent. was offered in Wall Street for any kind of currency, it was out of the question for the banks to respond unhesitatingly to demands for cash by speculative depositors. Most of the banks cashed freely the checks of depositors where it was shown that the cash was needed for personal or business uses; but other applications they refused.

As a permanent remedy, moreover, the currency premium was futile; for no sooner was the money thus obtained disbursed in wages than it was hoarded again for the anticipated profit. But occurring as it did at the moment when the banks had broken the

^1 Comptroller Knox, Treas. Rep., 1873, p. 90; New York Financial Chronicle, October 4 and October 11, 1873.

deadlock of the foreign exchange market, the currency operation had an immediate and extraordinary influence. With gold imports at last made possible through the emergency credit system of the banks, and with four per cent. premium offered for gold on delivery at New York, the floodgates of the foreign exchange market were flung wide open. A gold importer is necessarily a buyer of exchange, but in a normal market he cannot afford to pay more than say \$4.85 to the pound sterling. But with the New York premium offered for gold coin on delivery, as high a price as \$4.87½ was paid in August, 1893, for drafts on London, and the drafts thus purchased were used at once to draw gold from the Bank of England and ship it to New York.

There was much popular wonder at the time over the fact that the Wall Street premium was paid as readily for silver dollars or for Treasury notes of 1890 as for gold. But the need of the moment was simply for legal instruments of exchange, and of these the currency in small denominations was the kind that had most completely disappeared from sight. This fact was strikingly demonstrated when the imported gold arrived. The unusual sum of forty-one millions gold imported during August—the largest import of any single month in the Government's history—filled not only the depleted bank reserves but the channels of retail trade. People who had never before touched a gold piece found themselves making daily payments in eagles and double-eagles. With this relief, the acute spasm of 1893 ended.

¹ New York Financial Chronicle, August 19, 1893.

The result of this union of forces was interesting. In the House of Representatives the Repeal Bill was passed, within three weeks, by the large majority of 130. The free-silver Congressmen made an ineffectual struggle for a substitute, proposing successively bills for free coinage at the ratio of 16 to 1, of 17 to 1, of 18 to 1, of 19 to 1, and of 20 to 1. All these propositions were rejected, though a heavy Democratic vote supported each. A final substitute,

¹ Recollections, ii., 1189.

reviving the Silver-Coinage Act of 1878, was similarly defeated, with however more Democratic votes cast in favor of the substitute than were cast against it. In the end, although the Repeal Act was an Administration measure, one third of the Democratic representatives voted against it. On the other hand, although the Law of 1890 had been contrived, proposed, and for two subsequent years defended, by a Republican Administration, three fourths of the House Republicans of 1893 voted to revoke it.

As a matter of fact, this ample House majority, like many other similar majorities which we have had occasion to examine, was not partisan but sectional—the Eastern and Middle States voting solidly against the West and South. Such a division, of course, ensured majorities in the lower House, where representation was apportioned according to population. But we have already seen how different the situation was in the Senate. Not only did States such as Nevada, with its 45,700 population, have equal voice in the Senate with New York or Massachusetts, but the hasty conversion, during the four preceding years, of six frontier territories into States—Idaho, Montana, North Dakota, South Dakota, Washington, and Wyoming—had given to this thinly-settled agricultural constituency an actual numerical advantage in that body.

Party pressure had been powerfully applied to the Democratic silver senators, and enough of them had been won over or coerced to make a repeal majority possible. Perceiving this, the silver faction began to filibuster for delay, and five weeks were occupied

The Law of 1890, then, was at length revoked. Nothing was left of it on the statutes except the provisions for coinage and redemption, and the clauses affecting notes already in circulation. Repeal was followed by only a moderate decline in silver bullion, the market for that metal having in fact taken its downward plunge in June of the panic

year, when the price fell twenty-one cents per ounce within a fortnight, on the double news of the call of Congress and the suspension of free-silver coinage in India. On the other markets, the vote had little or no effect.

New York Financial Chronicle, November 18, November 25, and December 2, 1893.

The consequent return of depression and industrial stagnation happened almost immediately after the final vote on the Repeal Bill; it was therefore alleged triumphantly by the silver party that the law which stopped the arbitrary issue of new legal-tender currency had stopped also the trade recovery. Their opponents had declared that repeal was needed to check the industrial disorder. Repeal had been agreed to, and the trade situation, instead of growing better, was growing daily worse.

¹ Dun's Review, January 13, 1894.

It was the judgment of many experienced watchers of the national finances that the autumn of 1893 was the time to issue bonds for gold under the Resumption Act and restore the Treasury's impaired reserve. As a mere commercial question, there can

¹ Treas. Rep., 1894, p. 13.

³ Ibid., 1893, p. 18.

^* Ibid., 1894, p. 115

be little doubt that this judgment was correct. The hoarded currency was returning to circulation, the gold supply in the banks was exceptionally large, and gold exports had not yet begun. Mr. Carlisle, however, made no move or inquiry in that direction, and we shall presently see what other arguments in his view outweighed this reasoning. During the financial convulsion of 1893, the Treasury itself had been passing through a curious experience. In July, the "currency famine" and the check to gold exports stopped the drain on the Treasury's gold reserve. The banks had not notes enough for their retail uses, much less had they any to spare for redemption, and if they had possessed such notes, there was no demand for gold to remit against foreign exchange.

The situation of midsummer therefore put an end to the gold withdrawals. The situation of the early autumn did more. The first use made of the imported foreign gold was in revenue payments to the Government. In August, forty-seven per cent. of the New York customs payments to the Treasury were made with gold coin; in September, fifty-eight per cent., and in the last six months of 1893, not less than \$16,000,000 gold was received on revenue at the New York Custom House alone.¹ In other branches of the revenue, the Treasury must have received in revenue from fifty to sixty millions gold. If, then, the Government had used only legal tenders for its own disbursements—and at the time the notes would have been welcomed by the Treasury's

⁷ Treas. Rep., 1894, p. 121; 1893, p. 11.

creditors—its gold reserve would necessarily have risen, by the close of 1893, to at least \$170,000,000. Instead of this, the \$103,683,000 gold reserve of August 10th was actually the maximum of the season. "By October 19th," Mr. Carlisle remarked in his annual report, "it had been diminished by redemptions of currency and otherwise to \$81,551,385, which is the lowest point it has ever reached."

¹ Treas. Rep., 1893, p. lxxiii.

^3 Ibid., 1893, p. 26

^9 Ibid., 1894, p. 10.

⁴ Ibid., 1894, p. 22.

tract; for with the blockade of credit and the paralysis of domestic trade, import of foreign merchandise necessarily fell to the narrowest proportions. It is hardly necessary to debate the familiar argument that the decrease in importations was caused entirely by expectation of a lower tariff. Very possibly this expectation encouraged some hesitating merchants to hold off until the Administration's policy was defined; it would naturally have precisely that effect. But as compared with the deterrent influence exerted by the inability of importers to discount their notes for settlement of foreign purchases, and by the hopeless outlook for a domestic selling market, the influence of anticipated tariff changes was trivial.'

All branches of public income, in fact, fell off simultaneously in their yield, and the Treasury surplus continuously declined. The deficit was met from the legal-tender surplus as long as that surplus held out; when it was virtually exhausted, which happened very soon, there was nothing left to do but to stop payment on Government appropriations or to use the gold reserve. Mr. Sherman has denied the right of the Secretary to use this fund except in redemption of legal-tender notes, and there is something to say for that contention. But the Acts of 1875 and 1882 were obscure on this vital question, and the alternative involved some disquieting possibilities. Mr. Carlisle, at all events, rejected the

Sherman, Recollections, ii., 1206.

^3 New York Chamber of Commerce, Annual Rep. for 1893, Part II., pp. 86 and 87.

^{3 &}quot;Deficiency in Revenue," Forum for April, 1896, p. 141

expedient, and drew on the only surplus left in the Treasury. During the last six months of 1893 the sum of \$79,000,000 in gold coin was paid by the Treasury to meet its debit balances at the New York Clearing-House.

In the last month of 1893, then, there was presented the double situation of a heavy deficit in public revenue and a fall of the gold reserve twenty million dollars below the statutory limit. The monthly revenue statements showed a steady decrease in receipts, and a steady increase in the deficit. Not only was the gold reserve impaired, but the entire surplus in the Treasury, outside of fractional coin and unavailable bank notes, amounted to less than the proper minimum of that reserve alone. Foreign exchange was rising rapidly, and a fresh outflow of gold, with consequent renewed pressure of legal tenders for redemption, was impending. It was plain that action of some sort by the Treasury must be taken, and very soon. In the face of this situation, Congress reassembled.

Treas, Rep., 1894, p. 119.

^9 Ibid., p. 55.

CHAPTER IX

THE GOVERNMENT LOANS AND THE TARIFF
OF 1894

SECRETARY CARLISLE was undoubtedly embarrassed by the relations of himself and his party to the Resumption Act. He had voted against the Law in 1875, and in so voting he had acted with every member of his party then in Congress. A bold and aggressive finance minister would probably, in the autumn of 1893, have ignored the past, employed such powers as could be asserted under existing laws, and grappled at once with the dilemma of the Treasury. But Mr. Carlisle's temperament was cautious; he had been the strictest of strict constructionists in his interpretation of executive powers; and, reasoning on that basis, he distrusted the powers, which were undoubtedly very vague, under the Act of 1875. He waited, therefore, until he could formally lay his case before his party's majority in Congress.

In his annual report of December 19, 1893, the Secretary pointed out the heavy deficit in current revenue, and the fact that, except for the depleted gold reserve, the Treasury's accumulated surplus

Regarding the gold fund for the redemption of legal tenders, Mr. Carlisle's remarks were less judicious. They expressed distinctly his own misgiving over the Treasury's existing powers, which was not politic when a strong probability existed that he would be driven to use these very powers. What he asked of Congress was, "not only that he

¹ Treas. Rep., 1893, p. lxxi.

^3 "Deficiency in Revenue," John Sherman, Forum for April, 1896.

should be clothed with full authority to procure and maintain an ample reserve in coin, but that the purpose for which such reserve is to be held and used should be made as comprehensive as the duty imposed on him by law," and he expressed his own belief that even a reserve of one hundred millions gold, in the existing status of the currency, was insufficient.

¹ Treas. Rep., 1893, p. lxxii.

^2 Ibid., 1894, p. kviii.

Ibid., pp. 10, 119

"Congress alone," Mr. Carlisle said in his report, "has the power to adopt such measures as will relieve the present situation and enable the Treasury to continue the punctual payment of all legitimate demands upon it." Had this statement been strictly accurate, the outlook would have been dark indeed. For so indifferent was this extraordinary Congress to the Treasury's situation that the bills drawn up in accordance with the Secretary's views were repudiated by the very Congressmen who introduced them, were not even granted the courtesy of a preliminary discussion, but were referred with out debate to hostile committees, where they were buried. Nothing was ever heard of them again."

When it was evident that the Congressional majority would not even discuss the needs of the situation, the Secretary's hand was forced. In the middle of January, Mr. Carlisle formally notified the chairman of the Senate Finance Committee that in default of action by the legislative body, the Administration would be compelled, in order to avert public insolvency, to assume the right asserted by its predecessors, and issue bonds to restore the gold reserve. Congress again did nothing; on January 17th, therefore, bids were invited for an issue of fifty million five per cent. bonds, redeemable ten years after date. Subscriptions, the circular continued,

^1 Treas. Rep., 1893, p. lxxi.

^3 Remarks of D. W. Voorhees in U. S. Senate; Congressional Record, January 16, 1894,

^3 Index to Congressional Record, 53d Congress, 2d Session, p. 118.

⁴ Letter to Senator Voorhees, January 13, 1804.

"must be paid in United States gold coin," and "no proposal will be considered at a lower price than 117.223, which is the equivalent of a three per cent. bond at par."

Several interesting incidents at once developed. The action of Congress, to begin with, showed again how completely Mr. Carlisle had misjudged that body in his appeal to it a month before. Bill after bill, and resolution after resolution, was introduced and angrily debated, denying the Secretary's right to issue bonds, declaring the proposed bond issue illegal, prohibiting interest payment on the bonds, and otherwise endeavoring to obstruct or cripple the whole operation. It was now, indeed, that the Secretary's impolitic discussion of his powers, in his report of the previous December, had its logical result; the opposition rested its argument against the bond issue on Mr. Carlisle's own official language.

During the progress of this debate, the obstructionists received some characteristic aid from an unexpected quarter. The leaders of the workingmen's Knights of Labor organization, which at that time was controlled by an unusually blatant group of agitators, applied to the courts for an injunction against the bond issue. But the result of this performance proved that the agitators had made a blunder. The injunction suit was promptly thrown out by the Federal District Court, first on the ground that the complainants had no standing in the case, but second, and of much more import-

Index to Congressional Record, 53d Congress, 2d Session, p. 118.

W. V. Allen, Senate speech, January 25, 1804.

ance as a precedent, on the ground that the Secretary had an undoubted right to issue bonds for redemption purposes, and to elect in his discretion that the bonds should be payable in gold.' The Knights of Labor had unintentionally done the Administration a considerable service; the courts of law had now publicly taken their stand beside the Treasury. Meantime, also, the Congressional opposition proved to be more vociferous than dangerous; the silent legislators took care that none of its measures reached a vote. Beyond this mild and equivocal support of the public credit, however, the conservative element in Congress did nothing.

With the bond issue formally announced, the Secretary's next concern was with the markets. The outlook in that quarter was hardly more encouraging than in Congress. Not the slightest eagerness was anywhere displayed by investors or institutions to subscribe for the new five per cents; nor is this reluctance difficult to understand. Along with all other domestic markets, the investment market had relapsed into stagnation and despondency. Prices for all securities were very low and capital very timid. There had been for weeks no demand for Government bonds on the open market; the outstanding four per cents, which had longer to run than the proposed new issue, were selling at 112½, against the price of 117½ asked for the new fives. So far as concerned the prospect of European bids, it should be noticed that the minimum price stipu-

Decision of U. S. Judge Cox, District of Columbia, January 30, 1894.

lated for this ten-year bond was the equivalent of a three per-cent. bond at par, whereas the French three per cents, a perpetual issue, were then selling at 97 in Paris, while the 2½ per cent. British consols brought only 98½. It is true the recent redemption of its own debt at a premium had greatly enhanced the credit of the United States. But against this advantage must be set the fact that Congress, at the very time when Europe was invited to bid for the bonds of 1894, was publicly discussing measures to repudiate the entire issue.

Judged by Executive precedent and tradition, there was need, in the face of this dubious situation, of prompt negotiation with the larger financial interests. That such solicitation is not only prudent business policy, but the legitimate office of a national finance minister, has been attested in nearly all issues of public loans, here and abroad, during the century. Mr. Carlisle was, however, very reluctant to give in any way the appearance of affiliation with the bankers. This reluctance would perhaps have been excusable, if anything was still to be gained or lost according as Congressional prejudice should be suited. But the time was past when Congress needed to be reckoned in with the Secretary's judgment of his duties; all that could possibly result now from neglect to meet the large investment interests face to face, was danger of losing the advantage in a bargain.

Only two weeks had been allowed between the issue of the circular and the closing of subscrip-

¹ Circular of January 17, 1894.

The lack of any thorough understanding with sub-

Muhleman, Monetary Systems of the World, historical appendix, p. 221.

Muhleman, appendix.

Muhleman, appendix,

fact that the New York banks were reluctant and unwilling subscribers, and that they chose this course as a means of saving the loan from failure, while protecting their own gold holdings which they were not willing to surrender. Whether this unfortunate result could have been avoided by early and definite negotiation with the banks is, of course, an open question. The fact remains, however, that no effort had been made by the Treasury in that direction.

^1 Treas. Rep., 1894, p. 55.

³ Ibid., p. 119.

February loan, fifty-eight million dollars. But this withdrawal did not represent a sum one half as great as the additions to the circulating medium in the last six months of 1893, and the revenue deficit, moreover, was even now throwing back upon the money market four to nine millions monthly of the Treasury's increased surplus. There was no employment for this money in the depressed interior trade. Even as compared with the similar period of 1893, the country's aggregate bank exchanges, in the first half of 1894, decreased no less than twenty-eight per cent. In accordance with all precedent there could be but one result. Gold exports began in quantity during April; presentation of legal tenders for redemption followed; by August the gold reserve had fallen to a lower level than it reached even in January.

The movement of foreign exchange in 1894, with the heavy drain of gold, neither resulted from nor was attended by a balance of foreign merchandise trade against this country. It was, however, greatly emphasized by the recall of invested foreign capital. The total foreign investment fund in the United States had, to be sure, been substantially reduced by Europe's liquidation during the panic of 1893; the Treasury's estimate of the foreign capital then recalled was one hundred million dollars. But at the opening of 1894, there still remained an immense

¹ Treas. Rep., 1894, p. 22.

¹ New York Financial Chronicle, p. 3, July 7, 1894.

^2 W. C. Ford, U. S. Bureau of Statistics, Annual Rep., 1893, p. xxiv.

Investment fund subject to such withdrawal. One estimate, by an experienced dealer on international account, reckoned the aggregate of foreign investments in the United States as high as \$2,400,000,000,1 and the conjecture, though in all probability greatly exaggerated, gives some idea of the factors with which such a problem has to deal.

^{1 &}quot;Why do We Export Gold?" A. S. Heidelbach, Forum for February, 1895; New York Financial Chronicle, vol. lx., pp. 542, 585, 630.

New York Financial Chronicle, May 4, 1895.

^8 U. S. Inter-State Commerce Commission, Annual Rep., 1894, p. 69.

⁴ Report of the Philadelphia and Reading Railroad receivers, April, 1894.

were repeatedly shown up in the subsequent investigation, as with the Atchinson, Topeka & Santa Fé, whose \$100,000,000 shares were distributed throughout Europe, and which, when its books were overhauled, was shown to have officially overstated income seven million dollars within three years. Disclosures of this sort, a large number of which came to public knowledge during 1894, were certainly enough to start a movement of foreign liquidation. Nor was there any improvement during the year 1894 in the finances of the companies; all of them went from had to worse.

The prostrated transportation industry had perhaps the most immediate influence on the movement of foreign capital; but as reflecting the industrial situation, it was only an incidental symptom. Labor troubles inevitably follow financial collapse and industrial prostration; such demonstrations came on the heels of the panics of 1857, of 1873, and of 1884, as surely as they attended that of 1893. But in 1894 there were periods when industrial unrest seemed to assume the proportions of anarchy. In April began that extraordinary demonstration, of which it is hard to say whether the farcical or the tragic element predominated—the march of the so-called "Coxey's army"; a band of agitators and discouraged laborers, reinforced by such tramps as joined it on the way, which started eastward from the Mississippi, overrunning towns and seizing railway trains, with the avowed purpose of gathering

^1 Stephen Little, Report on the Atchison, Topeka, and Santa Fé Railroad accounts, August and November, 1894.

N. Y. Financial Chronicle, Feb. 23, 1805.

the Eastern proletariat to its number and appearing by thousands before the Capitol at Washington to demand relief.

Sometimes commercial and industrial distress, in a country of widely diversified resources, is mitigated by a fortunate harvest season. But 1894 was also a year of agricultural disaster. A considerable section of the United States gets its living from the annual corn harvest. So large is the aggregate market value of this crop, which has no competition of consequence elsewhere in the world, that even in the

famous "wheat year," 1891, the total estimated value of the country's corn product was half as large again as the value of its wheat. As late in 1894 as the middle of July, prospects for corn were notably favorable; the Department of Agriculture then estimated the condition of the growing crop as better than that of either 1892 or 1893. A week or two later one of those scorching siroccos, which at intervals devastate the plains of the farming West, swept over the Missouri Valley. It was long-continued; when rain came at last, the corn crop of Iowa, Kansas, and Nebraska was ruined. In 1893 these three States had produced 548,000,000 bushels; in 1894, their combined yield was only 137,000,000.

There still remained to the farmers their crop of wheat, and the wheat yield of 1894 was with three or four exceptions the largest in the country's history. But as if in a mockery of nature, the failure of the crop which commanded its own market was followed by a ruinous competitive market for the crop whose yield was ample. On top of the abundant supplies left over from the rich harvest of the year before, Europe increased its wheat production in 1894 by thirty million bushels. The whole world's product, outside of the United States, rose 160,000,000 bushels over even 1892. No crop approaching this in magnitude has been raised by the

^1 U. S. Department of Agriculture, Annual Rep., 1891.

^* Bulletin of July 10, 1894.

^3 Annual Reports, U. S. Department of Agriculture, 1893 and 1894.

Beerbohm's Corn-Trade List; Liverpool Corn-Trade News, 1894.

agricultural world before or since. With such competition, and with a slow domestic market for any merchandise, wheat sold on the farm in 1894 at an average price only a trifle over forty-nine cents a bushel; by far the lowest figure ever touched, before or since.'

^1 Annual Reports, U. S. Department of Agriculture,

³ Forum for April, 1896

Administration was not even introduced in Congress until December 19, 1893, whereas the revenue deficit had been continuous in every quarter since September, 1892, and had amounted in the five months ending with November, 1893, to nearly thirty million dollars.

¹ Treas. Rep., 1893, p. lxix.

When this prediction was made by the Secretary, in December, 1893, it had at least the excuse of echoing the hopes of the financial markets. But Congress, before it passed its revenue law, had six

¹ Treas. Rep., 1893, p. lxxxii. 1bid., p. lxix.

The House not only struck off the import taxes on coal, iron ore, and wool, which were exclusively protective duties, and therefore logical subjects for revision, but it refused to restore the sugar duties, which were a revenue tax of the most productive character. The Senate replaced a duty of forty cents per ton on coal and iron, which was an utterly

^1 Treas. Rep., 1893, p. lxix.; 1894, p. xxv.; Secretary Carlisle, letter to Senator Voorhees, January 13, 1894.

U. S. Statistical Abstract, 1896, p. 285.

Ibid.

^8 Letter to W. L. Wilson, July 2, 1894; Congressional Record

much show of indignation.' When, finally, after a long and stubborn struggle, the Senate tariff prevailed and passed both Houses, the President contemptuously refused to put his name to it, and left the emasculated bill to become a law without his signature.

^1 A. P. Gorman, Senate speech, July 23, 1894.

^3 Senate Finance Committee's Report, June 19, 1894; Treas. Rep., 1895, p. xix.

Freas. Rep., 1896, p. 5.

be included within this Union, according to their respective numbers," and it further and still more explicitly declares that "no capitation or other direct tax shall be laid, unless in proportion to the census or enumeration hereinbefore directed to be taken." The question then presented was, Is the income tax a direct tax within the meaning of the Constitution? If so, the fact that it was not apportioned by the Act of 1894 to the several States according to population, but was levied solely on citizens enjoying more than the stipulated \$4000, and was levied, moreover, in proportion to their income, must be fatal to the law.

On April 8, 1895, the Court ruled that taxes on real estate, or on rents derived from real estate, were direct laxes, and it therefore annulled the law so far as incomes of this nature were affected. At the same time, it pronounced unconstitutional the levy of Federal taxation on incomes derived from municipal securities, the Court's theory being that such a tax was a tax upon the borrowing power of a State or its instrumentality, and hence repugnant to the Constitution. On the broader question whether the whole Act imposing an income tax was void for want of uniformity, the Court divided equally in April. It heard argument on the case again in May, 1895, and on the 20th of that month at length decided that a tax upon a citizen's whole income was a tax upon the property whence such income was derived; that, as a tax on property, it was a direct tax within

^1 Article 1, section 2.

Article I, section 9.

^{3 39} U. S. Supreme Court Reports, p. 759.

⁴ Thid

the meaning of the Constitution, and was therefore void because of its unequal distribution.¹ This important ruling was sustained by five Supreme Court judges in a bench of nine, the majority vote including not only the Chief Justice, but the oldest and most experienced members of the Court—among them Justices Field and Gray. A change by one of the younger members, Justice Shiras, from a vote in favor of the law in April to an adverse vote in May was, however, the deciding influence in determining the Court's opinion.

The annulment of this income-tax provision, it was asserted then and afterwards, prevented the Act of 1894 from yielding a surplus revenue. The truth, however, is, that so incorrect were the forecasts of the legislators that a deficit would equally have occurred, even had the income tax remained in force. Congressional estimates of its yield were based on the supposition, unwarranted by all experience in taxation, that an income tax could be collected exactly as imposed. The delusive character of such expectations had been shown to the legislators long before they passed the Wilson Bill. The chief of the Government's statistical bureau had reported in April, as a result of careful investigation, that "the possible revenue under that income tax would range from \$12,000,000 at the lower average was predicted for the early operation of the law." Such a result

³⁹ U. S. Supreme Court Reports, p. 1108.

^9 W. C. Ford, Chief of U. S. Bureau of Statistics; letter to Senator Hill, April 3, 1894.

would have ensured a deficit only slightly less than those of 1805 and 1806.

^1 Classified Treasury statement of receipts and expenditures for August, 1894.

President Cleveland, veto message of March 29, 1804.

currency was forcibly displayed in the autumn of 1894, when the Treasury deficit once more threw into the money markets twenty-five millions of the public surplus, and when, as a consequence, the outward movement of gold again grew heavy. On August 7th redemption of legal-tender notes for export gold had reduced the Treasury's gold reserve to \$52,189,500, or less even than its minimum before the February loan.

¹ Treas. Rep., 1896, pp. 55, 125

¹ Ibid., 1894, p. lxix.

was believed to be at last protected, awoke the wildest dismay in the home and foreign investment community. "We have," the President remarked to Congress on the completion of the loan, "an endless chain in operation, constantly depleting the Treasury's gold, and never near a final rest."

^1 Annual Message, December 3, 1894.

^3 Treas. Rep., 1896, p. 131.

longer.' The crisis predicted in 1880 by Secretary Sherman and in 1884 by Secretary McCulloch, and foreshadowed with increasing distinctness ever since the enactment of the Law of 1890, was now so plainly imminent that the business community anticipated nothing else than suspension of gold payments.

Such was the situation in the closing week of January, 1895. Merchants and bankers now busied themselves putting their houses in order against the expected surrender of the Treasury. The falling markets during the first three days of that week, the half-suppressed excitement in business circles, and the discussion which began over the probable nature and immediate results of a lapse into depreciated currency, reflected the common feeling that a few days, and possibly a few hours, would settle the question finally. On Thursday, January 31st, a sudden change occurred. The markets rose rapidly, foreign exchange declined, gold-export engagements were cancelled, and the rumor ran through all business centres that the President had met the emergency.

¹ Assistant-Secretary Curtis, Associated Press interview of Febtuary 25, 1895.

CHAPTER X

THE BOND-SYNDICATE OPERATION

THE action taken by the Administration, in the Treasury crisis of 1895, involved one of the most remarkable experiments in the history of finance. It was the Treasury's double problem now to restore the gold reserve and to prevent the immediate withdrawal of the specie thus obtained, and this could not be done through another bond sale similar to that of December, 1894. It could not be done directly through the banks at all. There remained the large international banking houses which are commonly employed as agents for important Government operations in the money market, and which had been employed by Mr. Sherman in the resumption operations of 1878 and 1879.

What terms could have been made with these international interests, had they been approached in 1893 or 1894, is a matter of conjecture. Their terms as now submitted, in the crisis of January, 1895, were extremely harsh; they measured with little mercy the emergency of the Treasury. They unfolded what they believed to be a practicable plan

^1 Muhleman, Monetary Systems, appendix, pp. 224, 225; New York Financial Chronicle, February 9, 1895, p. 236.

Ibid.

signed a contract on the syndicate's own terms with Messrs. J. P. Morgan & Co. and Messrs. August Belmont & Co., the second of these firms representing the powerful foreign house of Rothschild. The bonds thus sold amounted to \$62,315,400, and they brought \$65,116,244.

The two considerations in the contract with the syndicate, which had not appeared in any previous bond sale, were contained in the following provisions: "At least one half of all coin deliverable hereunder shall be obtained in and shipped from Europe," and "the parties of the second part, and their associates

hereunder, . . . as far as lies in their power, will exert all financial influence and will make all legitimate efforts to protect the Treasury of the United States against the withdrawal of gold pending the complete performance of this contract." Since it was also stipulated that deliveries of gold from Europe "shall not be required to exceed 300,-000 ounces per month," and since 1,750,000 ounces in all were to be imported in order to fulfil the contract, it followed that this engagement in the Treasury's behalf would hold good during about six months.

Now there had been only two important sources of gold withdrawal from the Treasury: gold-exporters who were unable in any other way to meet their pbligations on an advancing foreign exchange market, and subscribers to the bond-issues who converted their notes into coin to make their payments. There had been practically no withdrawal for simple hoarding purposes; in his intimation to this effect, in his report of 1894, Secretary Carlisle was mistaken. The syndicate's engagement, then, was first a pledge to obtain all gold for their subscription elsewhere than at the Treasury, and second, it was a promise to stop, if humanly possible, the redemption of notes for export gold. The first of these pledges was simple enough; the second involved extraordinary difficulties.

We have seen in another chapter that withdrawal of Treasury gold for export purposes had become a measure of necessity, because the sterling bankers

¹ Treas. Rep., 1894, pp. lxix., 10,

had in the ordinary course of business contracted foreign obligations which they were forced to meet through gold remittances, while they could get no gold for the purpose except at the Treasury's redemption office. If, then, the syndicate was to "protect the Treasury against the withdrawal of gold" for export purposes, it must do one of two things—provide in this country, at its own expense, the necessary gold for export, or provide a credit fund in Europe which should make gold remittances unnecessary. The first it certainly could not do; the comptroller's compilation of the previous December had shown that all the national banks in the country held only \$146,000,000 gold, while the New York banks in February held only \$82,000,000. No banker or combination of bankers had the power, in case of repetition of 1894's exchangemarket conditions, to procure the \$100,000,000 gold which had gone out that year on export."

The second expedient was possible. A banker's draft on London, forwarded to a London creditor, must be redeemed in current English funds at a London institution. If the New York maker of the draft has shipped the necessary sum in gold, the draft will be honored on the arrival of the specie. But if the maker of the draft has borrowed the requisite sum in London on his individual credit, he possesses equally the means of foreign settlement. This was the principle on which the syndicate of 1895 undertook to act. They proposed to sell in New York whatever drafts on London should be needed by the

^1 U. S. Bureau of Statistics; foreign-trade statement for December, 1894.

banking and mercantile community, and to meet the drafts in London through the use of their own credit on the London money market.

The London critics instantly pronounced the undertaking impossible. They pointed out, cor-

¹ London Economist, 1895, February 23, June 15, July 6, August

On the basis of such contingent calculations, this remarkable experiment began. During many weeks,

Long before July, the syndicate's expectations had apparently been fulfilled by a decidedly favorable turn in all the markets, and by a complete reversal of attitude by European investors. In these regards, the events of 1895 were among the most remarkable in our history. It must be remembered

that the industrial paralysis of 1894 had alike affected import trade and home production; both had fallen to the lowest level in many years. It resulted that surplus stocks of merchandise were abnormally small. A sudden demand would exhaust them very quickly, and such a demand began almost within a month of the February bond negotiation. The buying power doubtless came in some degree from actual consumers; but it was chiefly speculative, originating in the growing belief that with the Government's finances out of danger, healthy industrial conditions would return. During this season, the commercial markets presented for a time a spectacle almost equal to that of 1879. Hardly an article of domestic produce or manufacture failed to rise in response to this increased demand.

The iron market led the movement. From a weekly record of 157,000 tons in February, the country's iron production rose by November to 217,000 tons per week, the largest in the country's history, and in spite of this heavy increase in the output, the stock of iron on hand for sale had been decreased through urgent purchases nearly half a million tons. The price of iron, meantime, had risen two to three dollars per ton. Along with this advance in iron came rapid recoveries in the grain markets; in cotton, provisions, oil; and notably in print cloths, the staple of the dry-goods market, whose price rose twenty-five per cent. between February and November. While these advances in commercial prices were in their beginning, during

¹ New York Iron Age, November 14, 1895.

the early spring, the market for securities moved up slowly and suspiciously, foreign scepticism over the bond operation still finding voice in speculative sales which offset the timid investment purchases at home. In May, however, came a sudden change. The month began with large purchases of new American securities by London banking houses. Bonds issued by several important railways, for improvement purposes, found a ready sale abroad, and brought unexpectedly good prices. This was apparently the only stimulus needed for real recovery of confidence. Almost simultaneously, a buying movement in "Americans" began on all the important European markets.

This sudden and enormously heavy foreign buying was in part explainable by the condition of the loreign investment markets. Since the Baring collapse of 1890, English capital had been timid and its investment and speculative ventures few. Against £189,436,000 new security issues taken by London investors during 1889, only £49,141,000 had been floated in 1893.¹ But now an important change was taking place. In 1885, gold had been discovered in the Kaffir country of South Africa; two years later, the gold production of that country had become considerable, and London capital began to seek investment in the Transvaal; by 1892, the annual output of the mines on the Witwatersrandt alone exceeded twenty million dollars.¹ Towards the middle of 1894, the incorporation of joint-stock

¹ London Economist, January 5, 1805.

^9 U. S. Mint Report, 1892, pp. 63, 65.

mining companies in London, enormously capitalized, was undertaken with unusual activity. The Rhodeses and Barnatos of the African domain began to cut an important figure on the London and Continental markets; with the opening of 1895, an old-fashioned popular craze of speculation broke forth throughout England.

So far the experiment appeared to be assured of complete success. Whether, in the event of a particularly large and profitable merchandise-export

Nor were results any more fortunate in the export trade. The syndicate's hopes in this direction were utterly disappointed—partly, no doubt, because the corn-crop failure of the previous season had left little of that commodity to sell, but chiefly because of the wild domestic speculation for the rise in wheat. The early American wheat crop was damaged by frost; the later crop was very large; but the speculators, acting on the basis of the first reports, actually ran up the price, between February

and June, thirty-three cents a bushel. As in the fall of 1879, this excessive movement brought the export trade to a halt. While speculation raged in Chicago, Russia was quietly supplying the needs of European consumers. In half a dozen staple markets, the course of events was similar. As against the heavy excess of merchandise exports during 1894, imports during the first nine months of 1895 actually exceeded exports by forty-three million dollars—decidedly the largest balance of merchandise trade against us since the climax of speculation in 1890.

What happened with wheat happened also with securities. Prices of stocks and bonds rose rapidly in May, in response to the foreign buying; but in the next two months American speculators for the rise carried prices so much higher that Europe, still more or less sceptical over the syndicate experiment, seized on the tempting opportunity to secure a profit, and sold back in quantity its holdings of American securities. Even the new four per cents, one half of which the syndicate had placed in London, taking all possible precautions to prevent their early return, were unloaded on the New York market almost as soon as they were released; the home speculators had forced up the price, within two months, from 110 to 124.

These various results followed the inexorable rule of commercial logic; but they doubled the strain upon the syndicate. Foreign exchange returned quickly to the normal gold-shipping point, after its sudden fall, and once more the bankers had to bor-

row heavily in London. Now, moreover, two radical defects in the syndicate's plan of operation began to betray themselves. The bankers had contracted to obtain one half the gold for the Treasury in Europe. Economically speaking, this was a mistake. It added precisely the sum of the gold importations to the syndicate's London debt, and it increased a domestic money supply already notoriously excessive.

high as to protect themselves from loss in such emergency.

On July 20th, this house presented \$1,000,000 legal tenders at the Treasury for redemption and shipped the gold to London against its sales of sterling in New York. During the next five months, \$65,000,000 gold was shipped, all of the specie being obtained from the Treasury. From its summer maximum of \$107,000,000, the gold reserve

declined again to \$63,000,000 on December 31st.¹ Recognizing that its undertaking to protect the Treasury had broken down, the syndicate did what it could to help out the Government through voluntary exchange of gold for notes. In August and September, it thus paid over some twenty millions gold, which was immediately engulfed in the specie exports; this being only the old and futile expedient of 1885, of 1893, and of 1894. In October the syndicate contract expired by limitation, and even the voluntary "reimbursement" ended. Apparently, the syndicate experiment had failed, and nothing was left for the United States but a repetition of the financial strain of 1894.

But the situation was not by any means as hopeless now as it had seemed to be a year before. The syndicate's partial mistakes of judgment and the plunge of domestic industry into speculation had done mischief, but they could not wholly offset the real recovery of trade during the interval of reassurance. There were other reasons why the outlook was less discouraging. The Fifty-third Congress, whose action or inaction on the question of the currency had alternately menaced the public credit, had gone to the people in November, 1894, and had been repudiated by an overwhelming vote. The Democratic House plurality of ninety-one under the elections of 1892 was turned by the vote of two years later into a Republican plurality of one hundred and forty. Little was expected in the way of constructive legislation, even with this radical change

of membership, and nothing was obtained. But it was at least anticipated, and correctly, that the Fifty-fourth Congress would take warning from the fate of its predecessor, and put a stop to the policy of financial agitation.

These were important changes; but they had not

New York Financial Chronicle, January 11, 1896, p. 62.

Statements of January 31, 1894, and December 31, 1895; Treas. Rep., 1896, p. 55.

^4 New York weekly bank statements, December 28, 1895; December 20, 1804; December 30, 1803.

yet undone the mischief. Trade at the close of 1895 was certainly no more active than at the close of 1891, and the outstanding supply of paper currency was as large or larger.' That the situation was still sufficiently precarious was shown not only by the gold withdrawals on the breaking of the deadlock in exchange, but by a sudden and violent outpour of gold in December, 1895, when the extraordinary Venezuela episode stirred the London investment community to its depths, and threw on the American market a load of liquidating foreign sales. But the nature of the problem was now much more plainly understood by both Government and people. The Administration acted promptly, and in a different way from any of its previous experiments. On January 6, 1896, the Treasury announced a new four per cent. loan for the very large sum of one hundred million dollars

Subscriptions for this loan were again required in gold, and the use of gold obtained from the Treasury through note redemption was again as generally practised as in 1894. But we have seen that the floating supply of Government notes available for such purposes was now materially reduced. Gold or legal tenders subscribers must obtain to cover their subscriptions, and the demand for both these forms of money was increased by the fact that the loan was offered at popular subscription to the highest bidders, and that the number of intending subscribers was known to be extremely large. The result was curious. Some of these subscribers made

¹ Treas. Rep., 1896, pp. 121, 122,

¹ New York Financial Chronicle, January 18, 1806.

^3 New York Evening Post, January 25, 1896; New York Tribune, January 26, 1896.

^8 New York Financial Chronicle, January 18 and February 8, 1806

solution of the problem; but Congress would not listen.

The resolution, unanimously adopted by the New York Chamber of Commerce on February 6th, the day following the opening of bids, to the effect that "the success of this loan should dispel every doubt as to the ability and intention of the United States Government to redeem all its obligations in the best money in the world," correctly enough reflected the inference of financial markets. So far as concerned the results in the Treasury's own finances, it remains

¹ New York Financial Chronicle, February 8, 1806,

"It shall be the duty of the Secretary of the Treasury to set apart in the Treasury a reserve fund of \$150,000,000 in gold coin and bullion, which fund shall be used for such redemption purposes only."

To this was added the definite instruction to future Secretaries of the Treasury, that this \$150,000,000 fund shall be maintained "by exchanging the notes so redeemed for any gold coin in the general fund of the Treasury" and "by accepting deposits of gold coin . . . in exchange for the United States notes so redeemed"; and that if, in spite of these pre-

Daily Treasury statements, February 10 and March 31, 1896.

^2 New York Financial Chronicle, July 25 and August 1, 1896.

cautions, "the gold coin and bullion in said fund shall at any time fall below \$100,000,000, then it shall be his duty to restore the same to the maximum sum of \$150,000,000 by borrowing money on the credit of the United States." As for reissue of Government notes redeemed from the gold reserve, the Act of 1900 established the further highly important rule that such notes "shall be held in the reserve fund until exchanged for gold."

See pp. 24, 167, 185, 186, 209, 210, 211; also minority report H. R. Judiciary Committee; Congressional Record, July 6, 1892.

^9 Treas. Rep., 1893, p. lxxi

³ See pp. 103 and 204

ously contested.' Fifth, through the holding back of notes once redeemed, until the gold reserve is made good again, provision is made for normal contraction of the outstanding supply of notes at such a juncture—the lack of which provision had repeatedly, in the preceding decade, aggravated the strain upon the Treasury, and deprived it of the self-protective power enjoyed by all great banks of issue.' In other words, the time was very near, even in the troubled year 1896, when the loose and unscientific fiscal statutes, on which had converged the doubts and around which had raged the political conflicts of a generation past, were to be replaced by a sound and unmistakable declaration of policy for the future.

I have anticipated the progress of our narrative by this glance ahead at the legislation of 1900, because it was in many ways the logical sequel to the events narrated in this chapter. It now remains to tell consecutively the very extraordinary story of American finance after 1896—a story which has no parallel for dramatic contrasts in the history of the United States, and few, if any, in the financial history of the world.

^r See p. 211.

² See pp. 49 and 50

CHAPTER XI

THE "INDUSTRIAL BOOM"

ruin to our European competitors; whose corporations, when properly capitalized and managed, had grown so profitable that the strongest financial interests of the world were struggling to buy possession of them; whose banking-houses subscribed in important sums to new English and German Government loans, not to mention the public bond issues—\$100,000,000 in all, within seven months—of Cuba, Japan, and Mexico. The startling ups and downs of fortune which have occurred in other communities are familiar. The story of alternating "booms" and panics is largely the story of modern industrial progress. It is, however, the fact of a complete revolution in this country's position, not only as regards its own enterprises, but in its relation to other industrial States, which challenges attention, and it is this which we shall now examine.

Two underlying phenomena of the day, of the first importance to finance, require notice before resuming the narrative of consecutive events. Their scope of influence was world-wide; they should, on the face of things, have operated as effectively in shaping European finance as in shaping our own. Yet the salient fact of the period is the expansion of American industrial activity out of all proportion to that in other countries, and it will be a part of our program to discover why. These two phenomena were the immense increase in the world's gold production, and the world-wide rise in prices of commodities. A moderately rapid increase in annual gold output had been in progress during the half-dozen years before 1896. The

gold product of 1896 itself was greater by 50 per cent. than that of 1892, and was very nearly double that of 1884. But the annual increase after 1896 was far more rapid. In 1893, the world's total output was \$157,494,800; in 1896, \$202,251,600; in 1899, \$306,724,100.¹ In 1898 alone, the increase in annual product over 1897 (whose own output broke all preceding records) was more than \$50,000,000²; this marked an increase greater than had been scored in any previous year but one of the world's history—that exception being the \$67,000,000 increase of 1852, when the miner's pick was dislodging the richest surface deposits of Australia and California.³

Now there can be no doubt that this increase had its effect on the financial movement of the period; how much effect, is a controverted question. Professor Cairnes showed fifty years ago, when the new gold was pouring in from Australia and California, that prices of commodities, the world over, were affected because, primarily, the new mining communities gave large orders for goods to the older manufacturing States, thus creating a new demand, which paid its price not in other merchandise, but in gold. It is difficult to trace this process in the gold production of to-day; for the world's great gold-fields are now owned, as a rule,

U. S. Mint, annual estimates.

^2 Ibid.

Report, Parliamentary Commission of 1876, on Depreciation of Silver, based on figures of Tooke, Newmarch, and the London Economist.

Essays in Political Economy, J. E. Cairnes.

is the low figure of the record. By the year 1900, the Dun's Review unit had risen from 72.445 to 95.295, and the Economist index number from 1885 to 2211. These figures are the embodiment, in the form of dry statistics, of a good deal that happened during the interval. Summed up, they show a recovery in staple prices, between the low level of 1897 and the high level of 1900, ranging, according to method of striking averages, from 17 to 31 per cent.

When specific prices are examined, it will be found that this general advance, especially in the period which we are reviewing, was most notable in products of the earth. Breadstuffs as a whole, for instance, rose in this country 40 per cent. between the middle of 1897 and the middle of 1900; the average price of cotton in 1900 was 32 per cent. above the average in 18972; in iron, the average was higher by 65 per cent. In agriculture particularly, the world's normal consumption was apparently increasing faster than production. Our yearly cotton exports increased scarcely half as rapidly in the decade after 1896 as in the decade before it. At one time, the permanent disappearance of the United States as a wheat exporter was seriously discussed. Whatever is to be assigned as the dominant cause for the persistent rise in prices, the result must clearly have been beneficial, most of all to agricultural

Dun's Review estimates.

Shepperson's annual compilations.

Reports of the American Iron and Steel Association.

⁴ Liverpool Corn Trade Year Book, 1905.

countries, such as the United States still is, and least of all to countries which import and consume the products of other States.

the high-pitched resentments and aspirations of the delegates that he was chosen for their candidate, almost by acclamation. As a matter of course, the platform demanded "free and unlimited coinage of both silver and gold at the present legal ratio of 16 to 1, without waiting for the aid or consent of any other nation," and it opposed "the policy and practice of surrendering to the holders of the obligations of the United States the option, reserved by law to the Government, of redeeming such obligations in either silver coin or gold coin." 1

A month before the selection of Mr. Bryan as the Democratic candidate, the Republican party nominated Mr. McKinley; and here the logic of events moved more potently than the purposes of men. McKinley's legislative record was that of a silver advocate. On November 5, 1877, his vote was cast in Congress for the Bland Bill "to authorize the free coinage of the standard silver dollar," and in the following February he voted to pass the amended free-coinage bill over the veto of a Republican President. He had voted with his party for the Silver-Purchase Act of 1890. But he had also been in 1890 the head of the Congressional committee which drafted the bill imposing the highest protective duties in our history, and he was avowedly made the party's candidate in 1896 on the theory that return to high protection, after the lower tariff of 1894, would be the campaign issue. The tariff, however, was not destined to cut any appreciable figure in the

National Democratic Convention, Chicago, July 9, 1896.

contest. Mr. McKinley's campaign began with speeches on protection; but it soon appeared that, on the tariff issue alone, the Republican party could not win. A great body of Democratic voters stood aloof from either party. They would not indorse the Bryan free-coinage candidacy, but were halting between the alternatives of supporting an independent Gold Democratic ticket, nominated by bolting Democrats, or voting for McKinley in the face of his tariff record, which was to most of them thoroughly objectionable. Ordinary common sense dictated the policy to be pursued under such circumstances. Mr. McKinley, in his successive speeches to visiting delegations at Canton, said less and less about the tariff, and more and more about the currency, until on July 30th he took ground flatly for the gold standard.

But the election was not won, and it probably could not have been won, by any speech of the candidate. A vigorous and effective "campaign of education," with unprecedented quantities of campaign literature on economic questions, distributed and eagerly read by the voting constituency, had perhaps most to do with the result; the naturally larger resources of the sound-money party for organizing and conducting the canvass played their part. But Nature herself eventually took a hand. A few months before the November vote was to be cast, the attention both of voters and of markets converged on something new. In August, wheat touched the extraordinarily low price of 53 cents a bushel on the Chicago market,—a figure nearly

unremunerative to all but the most favorably situated farmers. Two months later came news of partial failure of the crop in India, whose harvest turned out smaller by nearly 20 per cent. than in the preceding year. That country, which had sent 56,000,000 bushels to the outside world in the crop year 1891, was actually forced to import wheat in 1896. This happened when the consuming world had been using wheat, at the low prevailing prices, with the greatest freedom, and when, accordingly, supplies of wheat on the world's great markets had fallen to the lowest level since the famine year 1891. In September, 1896, the so-called "world's visible supply" was 126,000,000 bushels, against 152,000,000 a year before, and 190,-

The news of the crop failure in India, coming on such a situation, forced Liverpool to advance its bid for American wheat. As against the August price of 53 cents per bushel, wheat rose at Chicago to 70 cents in September, to 74% in October, and to 94% in election week. The moral effect of this movement was very great. What it meant, politically, was shown by the quick assertion of Mr. Bryan's party managers, that the "money power" was putting up wheat, over election day, to delude the agricultural voter. This explanation of the rise, in view of the facts which I have cited, was at least superfluous. The point which it

Liverpool Corn Trade Year Book for 1896, pp. 57, 58, and

² Ibid., p. 110.

tacitly recognized, however, was that the Western voter had been told that, under the gold standard and with the silver-coinage laws repealed, wheat could not rise again; and here, with the gold standard still in operation, was wheat at the highest price in nearly half a dozen years. The political result of this rise in wheat, notably in the doubtful Western States, was undoubtedly important. It largely accounted for McKinley's heavy majorities in farming States of the Middle West, such as Ohio, Michigan, and Minnesota, which in 1892 gave to the Democrats and Populists, combined, a plurality of 21,000, whereas in 1896 the Republican party's vote in the same three States ran 148,000 votes ahead of its two antagonists.

The election of 1896 settled the question of a gold standard. McKinley's large majority of 95 in the Electoral College, and his popular plurality of 602,555 in the country as a whole, where even the "landslide" of 1892 gave Cleveland only 380,961 plurality, set the seal of the voters effectively on the verdict. The Stock Exchange had witnessed a demoralizing midsummer break in prices, and had recovered only cautiously on the eve of election—when, indeed, gold went actually to a premium of 18 per cent., when New York bankers invested their surplus resources largely in drafts on London, when call money touched 125 per cent. in Wall Street, when a \$10,000,000 syndicate of bankers was organized for co-operation in a possible crisis, and when a long line of private individuals stood outside the United States Sub-treasury's redemption

window to exchange their legal tenders for gold coin. ¹ This state of affairs ended abruptly November 4th, when election results were known. Money rates fell in a week to 4 per cent.; within a day, gold coin was presented at the same Sub-treasury windows for conversion into legal tenders. ² This was the first response of the financial markets.

^1 New York Financial Chronicle, Oct. 31, 1896, pp. 768, 770, 782; Nov. 7, 1896, p. 814.

^2 Ibid.

^3 Ibid., Jan. 2, 1897, p. 16

The victorious party in the election of 1896 had won, as we have seen, on the issue of the currency, and it was destined in due time to embody the people's verdict in the statutes. But the Republican platform

New York Financial Chronicle, Jan. 2, 1897, p. 16, also Jan. 1, 1898, pp. 7, 8, and 9.

^2 Ibid., July 3, 1897.

^· Bradstreet's reports.

Iron Age figures.

In so far as the Dingley Tariff was designed to correct the deficit in the Government's finances—a matter of importance—it was not an effective measure. When imports are shut out by a higher tax rate, the tax is less productive. The deficit continued; customs revenue itself, during the twelve months after the law's enactment, was smaller than in either year under the Wilson Tariff.³ But it has long since ceased to

¹ U. S. Statistical Abstract for 1907, p. 505.

^2 Taussig, Tariff History of U. S., pp. 167 and 259.

J. V. S. Statistical Abstract for 1900, p. 29.

be the fashion to ascribe the subsequent "boom" in American prosperity to the Dingley Tariff. One reason is that the similar increase in duties by the Mc-Kinley Tariff of 1890 was followed, not by prosperity, but by disaster. The other is that our later industrial recovery found expression chiefly in an enormous export trade. If higher import duties had any influence on that, they must have checked it, because raw materials used in exported manufactures were now taxed more heavily, and because, all other things being equal, restriction of imports through such taxes normally curtails the movement of exports sent in exchange for them. All such considerations were soon dismissed from the public mind of 1897, by a turn of events which repeated, on a larger scale and in an equally extraordinary way, the story of 1879.

We have seen that, although the Indian wheat crop failure of 1896 made a great hole in the world's supplies and caused an immediate rise in the price of wheat, nevertheless Europe itself raised in that year a crop of good proportions. What happened in 1897 was, first, that a scorching drought in France cut down the season's wheat yield in that country 93,000,000 bushels from 1896; next, that a wet harvest reduced the Russian crop nearly 80,000,000 bushels; and, finally, that a season of storms flooded so disastrously the Danube Valley that Austria and the Balkan States gathered less wheat by 127,000,000 bushels than in the preceding year. The whole European crop fell short of 1896 by 350,000,000 bushels,—a loss of no less than

30 per cent. 1 Had the American harvest of 1897 remained at the figures of the year before, a great disaster would have befallen Europe. This country's fortune had, however, stood it in good stead. The high price of wheat in the autumn of 1896 had encouraged farmers, the country over, to plant more wheat in the ensuing spring. This increase amounted to nearly five million acres. Weather conditions in the United States were favorable throughout the season. The resultant crop ran 103,000,000 bushels ahead of 1896, and was, with one exception, larger than any previously harvested.

Under the circumstances, it was sold at extraordinarily good prices. By August "dollar wheat" was touched again on the Chicago Board of Trade, for the first time since 1891; and the price was maintained throughout the ensuing season. At this price, consuming Europe, with its supplies already depleted by the Indian failure of the year before, bought our wheat in quantities quite unprecedented. During the twelve months after the harvest of 1896 the United States exported, in grain and flour, 83,000,000 bushels of wheat. In the same period, after the 1897 harvest, the export was 150,000,000. The value of the season's exported grain increased no less than \$122,000,000. One result of this notable trade incident was the import, during the same twelve months, of \$120,000,000 gold,—the first natural movement of the kind in this

Year-book for 1898, U. S. Department of Agriculture, p. 686.

direction since the autumn of 1891. Directly, this inflow of gold, which was lodged with the Treasury in exchange for notes, caused a rise in the Government's gold reserve from the \$44,500,000 of February, 1896, and the \$137,000,000 at the end of 1897, to the handsome figure of \$245,000,000 in the middle of 1898.

We have seen how the export of our wheat to faminestricken Europe piled up our export trade and reversed our situation on the international market. The wheat was the primary influence; but scarcely less important was the revival in general trade, shown by the increase in bank exchanges, which amounted during the first half of 1898 to 30 per cent. over 1897. It was natural that this increase should have been greatest in the graingrowing West, to which accrued the first benefits of the successful harvest; and it was natural that, as domestic trade expanded, and with it the demand for money, capital should be drawn from abroad to keep the busy wheels in motion. Now, however, a more novel and dramatic episode of the American trade revival came in sight.

It was not until the close of 1897 that people began to hear, by way of Europe, of "the American invasion." This matter came to the front, as a topic of discussion, in a remarkable speech delivered at Vienna, that December, by the Austrian Minister of Foreign Affairs, Count Goluchowski. It was asserted in this speech that "the destructive competition with trans-oceanic countries requires prompt and thorough counteracting measures, if the vital interests of the European people are not to be gravely compromised." "European nations," the Austrian statesman concluded, "must close their ranks and fight, shoulder to shoulder, in order successfully to defend their existence."

Directed as it obviously was at the United States, what did this singular diatribe mean? Certainly, neither Austria nor Europe at large could have been protesting against the "American invasion" of Europe's grain market; for that, in 1897, was Europe's only alternative to famine. It did not require long to dis-

New York Financial Chronicle, Dec. 18, 1897, p. 1147.

Skilled laborers, chafing after their four-year period of partial idleness, could be had at once and in quite sufficient number, and orders from home consumers were so light that scarcely half the producing capacity of well-equipped mills was being used for the domestic trade. Our manufacturers took foreign orders for prompt delivery which the English and German mills were simply unable to accept. We sold our goods, not only in the so-called neutral markets, but in the markets of Continental Europe. The result was that, between 1893 and 1899, our export of manufactures actually doubled. They were \$158,000,000 in the one year, and \$339,000,000 in the other; and they increased a hundred millions more in the fiscal year 1900.

It is plain enough, from the facts which I have recalled, that there was nothing mysterious about this American invasion, and certainly nothing harmful. If we had so flooded Europe with cheap iron and steel that its own manufacturers lost their market, their case might have been different. But nothing of that sort happened. During the five years between 1894 and the stopping of Europe's industrial boom in 1899, by the Boer War and the German bank panic,—years in which we were enlarging our output and export of manufactured steel,—Great Britain's annual steel production rose from 3,210,000 tons to 5,000,000, Germany's from 3,641,000 to 6,300,000. Under all

American Iron and Steel Association, Report for 1808.

^2 Annual statistical reports, American Iron and Steel Association; especially Report for 1899, p. 77.

the circumstances, not only did the volume of our grain and cotton and manufactured exports increase, but their average value rose. It is easy to see why, under such conditions, our total export trade, crossing the billion-dollar mark in the fiscal year 1897, should have risen to \$1,200,000,000 in 1898, to nearly \$1,400,000,000 in 1900, and to not quite \$1,500,000,000 in 1901. Stimulated by this great outside demand, our trade activity and our industrial profits rose to extraordinary figures.

The first task of this era of returning prosperity was the task of financial reconstruction. We saw, in reviewing the events of 1894, in what state of wreck the panic of 1893 had left the country's railway finances. Not only was 61 per cent. of the outstanding shares of American railways receiving no dividend whatever, but one-fourth of that stock represented roads in the hands of bankruptcy courts. As late as the middle of 1895, receivers were operating 169 railways, with 37,855 miles of track—more than one-fifth of the country's total railway mileage, and represented on the markets by no less than \$2,400,000,000 stocks and bonds. 2

In the hard times of 1894, no rehabilitation of these wrecked corporations was possible; the achievement called for abundant confidence and abundant capital; and it was only with the returning signs of promise

^1 See p. 218.

² Interstate Commerce Commission, Report on Statistics of Railways for 1895, pp. 10, 12, and 107.

stock.¹ This was the company whose officers, ten years later, were using its accumulated resources, to the extent of \$131,000,000, to buy control of half a dozen other railways.

Reorganization plan of October 15, 1895; see Financial Chronicle, Oct. 19, 1895, p. 705.

^2 Reorganization plan of March 16, 1896; Financial Chronicle, March 21, 1896, p. 550.

Railway Age annual compilations; see U. S. Statistical Abstract for 1906, p. 590,

Ibid

ships in the middle of 1898 covered only 94 roads, with a mileage of 12,745 and a capital of \$661,500,000, and in 1900 only 52 roads, with mileage of 4178 and capital of \$351,000,000. By 1900, net earnings of all American railways had increased fifty per cent. over 1895, and actual dividends paid out were nearly doubled. 2

Interstate Commerce Commission, Reports on Statistics of Railways, 1898, p. 11; 1900, p. 11.

Poor's Manual, annual tables.

Secretary Gage, Annual Treasury Report for 1898.

of 6 per cent. within three months. In April, 1899, our Government paid Spain a \$20,000,000 indemnity for the Philippines, and the \$20,000,000 export of gold, caused by the operation in exchange, did not prevent a continuous increase in the Treasury's own gold reserve. 1

Partly in connection with the war, wheat went to a price—\$1.85 per bushel at Chicago, on May 10th—never but once exceeded in the thirty preceding years. This was a corner, which broke down as corners usually do; but it was unlike many corners, in that it occurred when the American farmer still had plenty of wheat to sell, and when he received the benefit of the corner prices. Our wheat crop of 1897 was the second largest ever harvested in this country. The crop of 1898 exceeded all precedent, and that of 1901 was 10 per cent. larger still. In the fiscal year 1893 our imports exceeded exports by \$18,700,000. In 1897 the excess of exports was \$286,000,000. The next year it was \$615,000,000.

This abnormal accumulation of foreign credits had some strange results. First, the pressure of domestic capital on our home investment markets raised prices to unexpected heights. As a result, foreign holders of our securities sold them back; and Europe was practically drained of American stocks and bonds. Then, for the first time in our history, we began to lend to Europe. President Krüger of the Transvaal Republic declared war on England in October, 1899.

¹ U. S. Treasurer's Report, 1899, p. 45.

In the face of this confusion of the markets, and of several defeats which foreshadowed a long campaign, England placed its war loans. Before the war was

^1 Monthly and annual reports, Johannesburg Chamber of Mines.

^2Annual report of British Board of Trade, 1899.

³ Monthly reports, Johannesburg Chamber of Mines; see London Economist, June 14, 1902, p. 931.

British Board of Trade Statement for 1900

London Economist, Berlin letter, Dec. 23, 1800, p. 1815.

^2 Budget speech, Charles T. Ritchie, Chancellor of the Exchequer, April 23, 1903; London Economist, May 9, 1903, p. 832.

^2 New York Financial Chronicle, Aug. 11, 1900, p. 258.

^* Ibid., May 4, 1901, p. 844.

⁴ Ibid., April 19, 1902, p. 802.

least \$200,000,000 outstanding on Europe's money markets.

It was a very common query at that time, in financial circles, what was to be the outcome of this unprecedented situation. Some people predicted that it would mean investment of our overflowing capital, on a rapidly increasing scale, in foreign enterprises. It was then that the prophecy was heard that New York was destined to displace London, if it had not already displaced it, as the financial centre of the world. On the other hand, the Wall Street community, which took the speculator's view, predicted that the price of outstanding American securities, under this pressure for investment, would rise to unheard-of heights. Neither of these things happened exactly as was predicted, but what did happen was, as we shall presently see, quite as startling as either of them.

CHAPTER XII

THE SPECULATIVE MANIA OF 1901

THE situation in which the American community found itself, in 1901, was one which arises at intervals in all prosperous modern states; but its characteristics were emphasized, on this occasion, by the unusual incidents of the period. Such a situation has invariably, on all previous occasions, resulted, first in readiness of people at large to embark in all sorts of enterprises the wealth whose extent they have suddenly come to realize, and next in a rush into speculation.

This is a very old story, familiar to every business man and student of economics. It describes the financial movement between 1899 and 1901, but it describes it no more accurately than it does Germany's "industrial boom" of 1897 or England's "Kaffir craze" of 1894 or the "railway mania" of 1844 or the great American land speculation of 1836, or, for that matter, a score of incidents in the financial history of every modern state. The tracing of this chapter of causes and consequences is, however, specially in-

teresting in the case of our recent financial history, because the magnitude of the forces behind the great speculation of 1901 was quite unparalleled.

one side faster than it could be drained into these various enterprises on the other. It was then that the scheme of recapitalizing American industry was conceived.

not accounted for, and said he did not know. 1 One might possibly imagine that this wholesale "watering" of capital would at least have led the investing public to bid a low price for the inflated stock; but it did not. Of the \$90,000,000 stock thus issued in the above-described "watering" process, \$40,000,000 was preferred as to dividend. It started out on the Stock Exchange at \$94 per share, rose in two months to \$106, and sold at \$112 a year or two afterwards. The \$50,000,000 common stock, all of which was virtually given away as a bonus in the "deal," started at \$45 per share, and in two months actually rose to \$92.2

This was a fairly typical case. How far this movement of incorporation went may be judged from the following figures. In the first three months of 1899 new industrial companies, with a total capitalization of no less than \$1,586,000,000, were incorporated in this country. During the full year 1899 the total rose to \$3,593,000,000, of which respectable sum \$2,354,000,000 was the common stock, which, by frank confession of promoters then and afterward, was simply "water." We have already seen, however, how seriously the investing public took even these

^1 Testimony of John W. Gates, in Parks vs. Gates, New York Supreme Court, March 18, 1902; New York Tribune, March 19th; New York Evening Post editorial, March 19th.

New York Financial Chronicle, Railway and Industrial Supplements, 1899, 1900, and 1901; Ibid., Annual Reviews of 1800 and 1000.

^* Ibid., April 8, 1899, pp. 645-647.

^* Ibid.; March 24, 1900, pp. 560-563

common shares. They did, in fact, show particular favor to them, for the reason that the relatively lower price of common shares roused the bargain-counter instinct. Furthermore, in the immense industrial expansion of the period, these very common stocks, representing the inflated capitalization of concerns which in not a few cases had been bankrupt four or five years before, were very generally receiving dividends. ¹

New York Financial Chronicle, Railway and Industrial Supplements, 1899 and 1900.

went on rising, after the readjustment of their financial status, their task was physical reconstruction of the properties. What they spent on this, as compared with three or four years before, may be judged from the new railway securities which were sold in the investment markets to procure the money. In 1898 they put out \$67,000,000 worth of stock and bonds, mostly for such purposes; in 1899, \$107,000,000; in 1900, \$199,000,000; in 1901, \$434,000,000; and, in 1902, \$527,000,000.1

¹ Poor's Manual figures; see U. S. Statistical Abstract for 1903, p. 399.

This last phenomenon, a familiar sign of trade reaction, came into view on the eve of another Presidential contest, when Mr. Bryan forced a reluctant Democratic convention to declare for the second time for free-silver coinage:

We reiterate the demand [the platform announced] for an American financial system made by the American people for themselves, which shall restore and maintain a bimetallic price level, and as part of such a system the immediate restoration of the free and unlimited coinage of silver and gold at the present legal ratio.

Hardly was this demand submitted, however, when it was seen how futile a political expedient it was. The gold standard was already embodied in law, as it had not been in 1896, and the victory of 1896, by the party proposing such enactment, had been followed by unprecedented prosperity—most conspicuous in the agricultural communities where, four years before, the demand for free-silver coinage had been intensified by the pressure of adversity. Among Mr. Bryan's campaign supporters, the argument began to be heard that "the silver question is settled." Bryan himself, as he set forth on his personal canvass of the country in the autumn of 1900, was constrained by visible demonstrations of opinion to abandon, after his first few speeches, the discussion of bimetallism, and to revert to denunciation of "imperialism," as exemplified in the

Democratic National Convention, Kansas City, July 5, 1900.

purchase and occupation of the Philippine Islands by the United States.

All this was futile. The Populists themselves could not hold their party in line. On the day when the fusion wing of their organization nominated Bryan at Sioux Falls, the Anti-Fusionists or "middle-of-theroad Populists" met at Cincinnati, declared for "a scientific and absolute paper money, based upon the

E. M. Shepard, statement of Aug. 15, 1900. Carl Schurz, letter to L. J. Gage, Sept. 3. Charles R. Codman, speech at Indianapolis Convention, Aug. 16.

That industry and finance should have halted, under the double influence of the collapse of the foreign market for our exports and the vicissitudes of the presidential campaign, was entirely natural. But the country's real prosperity, its accumulation of fresh capital, had not been arrested even momentarily. News

The climax of this great speculation came from a

But the public was wholly mistaken as to the nature of the movement. What actually was happening was this. People connected with one corporation would borrow large sums of money, and use that money to buy up shares of another subsidiary or competing corporation. They were buying, however, not for themselves, but for the company with which they were identified; and their purpose was, as soon as the property had been obtained, to hand it over, issue new stock

or bonds of their own corporation, sell such securities to the public, and use the proceeds to reimburse themselves, with a handsome bonus. There was the famous case, for instance, of the Chicago, Burlington & Quincy Railway. This company's stock, amounting to \$110,000,000, sold at the end of 1900 for \$144 per share, which was considered by most people rather high. People identified with the Northern Pacific Railway bought up the stock at a seemingly reckless rate, pushed up its price above \$180, and then announced that a bond would be issued by the Northern Pacific and Great Northern Companies to pay \$200 a share for the whole of the Burlington stock. These bonds were later sold on the open market, the result, of course, being that the supply of securities on the market was increased by some \$50,000,000.

The same process occurred in half a dozen other railways, the usual expedient being the issue of what was now called a "collateral trust bond." Stock of another company—sometimes all of it, sometimes a bare majority—was bought for a corporation. That corporation thereupon issued bonds for the cost of purchase; but those bonds, instead of being, like other mortgage issues, a lien on the franchise and road-bed of the issuing company, were merely secured by pledge of the stock which had been bought. When it was found that the public readily bought these bonds, the device was followed by another, not altogether new, but never before applied on such a scale. A company would be chartered for no definite purpose except to

hold the shares of other companies. Having bought up these shares or acquired them through exchange, it issued its own stock to foot the bill. The public bought this stock, as it had bought the collateral trust bonds, and there seemed no limit to the scope of the operation. It was then that Mr. Morgan, during March, 1901, formed his "billion-dollar steel trust."

Andrew Carnegie was a different proposition from the small manufacturers who had been bought out in the consolidations of 1899. He had, it is true, himself

Bridge, Inside History of the Carnegie Steel Company, pp. egg and 305.

² Ibid., p. 295.

^* Ibid., p. 356.

⁴ Ibid., p. 364

^* Ibid., pp. 363, 364

United States Steel Corporation was organized in February, 1901, with a capital stock of \$1,018,000,000 and bonds of \$301,000,000. The other combinations in the trade, whose individual capitalizations ranged from the \$33,000,000 of the Steel Hoop company to the \$99,000,000 of the Federal Steel, received the new shares on a basis running from equal exchange to 125 per cent. of their old outstanding capital, 1 and the "deal" was closed.

It remained to see how the new stock could be floated; for although in form the operation was nothing but substitution of new securities for old, in fact it was something very different. Displacement of capital on an enormous scale was certain to result. The beneficiaries of this remarkable operation could be counted on to turn a part of their new stock into cash, and a very substantial portion of the Steel Corporation's stock was to be used for procuring working capital. The promoters took no chances which they could avoid. A bankers' syndicate was formed to guarantee, up to \$200,000,000, the successful floating of the stock; it actually put up \$25,000,000 cash. Brokers, large and small, were engaged to urge the new stock upon investors throughout the United States. On the Stock Exchange, a celebrated manipulator of speculative values was employed, when the shares were listed,

Official Circular of J. P. Morgan & Co., March 2, 1901; New York Financial Chronicle, March 2, 1901, p. 441.

^3 Ibid., March 2, 1901, p. 441; March 9, p. 483,

The outburst of speculation during April, 1901, was something rarely paralleled in the history of speculative manias. Not only did the younger men who had sold out to the Steel Corporation, now made into many times millionaires almost overnight and bewildered by their extraordinary fortune, toss into stock market ventures the money which they saw no other way of using, but old and experienced capitalists lost their heads, asserted publicly that the old traditions of

Financial Chronicle, May 2, 1903, p. 977.

¹ New York Evening Post editorial, May 3, 1901; Financial Chronicle, May 11, p. 903.

London Economist, May 25, 1901, p. 779; Nov. 16, 1901, -p. 1701; April 26, 1902, pp. 645 and 653; May 3, 1902, p. 690; May 31, 1902, p. 856.

could foresee the time, not very distant even then, when the English interests which had sold out for cash to the Wall Street promoters would buy back control of the whole unwieldy combination for one-third or one-fourth of the price paid originally by the Americans. Yet even in the face of the popular clamor in England during 1901, the chairman, at the ensuing annual meeting of the Leyland Company, flatly told the shareholders that the offer made was so extravagant that no management had a right to refuse it. "The vendors," wrote a high authority in the British shipping trade, "made an exceptionally good bargain, which it is probable the purchasers will soon find out." 1

Both at home and abroad, cool-headed criticism of this nature, on the American amalgamations, was occasionally heard, and in fact, a process of this sort was merely riding for a fall—if for no other reason, then for the reason that, in the prodigious inflation of values which prevailed, the resources of capital and credit must eventually be exhausted. This had been the unvarying teaching of that economic law and experience which the great promoters of 1901 were repudiating. But their contempt of the warnings of the past was itself a familiar symptom of a great speculative mania. It usually happens, in such episodes, that the reckoning comes from an unexpected cause; also that it comes at the moment when the public and the speculators have reached the conclusion that it can

Annual Shipping Review for 1901, John White, London.

never come. Both turned an absolutely deaf ear in 1901 to financial warnings, and to the aspirations of the financiers themselves there seemed to be no limit. It was the very next move of the Wall Street promoters, however, which brought about the crash.

The resultant situation was finance run mad. It was too much for Europe, whose banking houses had

¹ Union Pacific Railroad Company's Fourth Annual Report, 1901, pp. 5 and 19.

London financial correspondence, New York Evening Post, May, 1901.

day's low prices for collateral pledged against stock exchange loans, a good part of Wall Street was for a couple of hours technically insolvent.

¹ A. Raffalovich, Marché Financier, Paris, 1902.

for that metal at an artificial price; in the autumn of 1901, it lost its market, copper fell from 16 cents a pound to 11, and the "holding company" had to cut its annual dividend from 8 per cent. to 2. At the height of the April speculation, Wall Street had dismissed warnings of possible agricultural disaster with the reply that the country no longer depended on agriculture. Nature's response was a summer of scorching drought in the corn-belt, similar to that of 1894, as a result of which, the corn crop of 1901 was cut down 28 per cent. from the year before, its yield being, except for 1894, very much the smallest in eleven years. Only the good fortune of a "bumper" wheat crop, in a year of partial European shortage, saved our export trade of 1901.

The reaction from the excesses of 1901 continued during the two ensuing years; for although speculation again grew rampant in 1902, with resumption of promoters' activities and stock-jobbing exploits, the signs of public abstention and over-strained credit were visible throughout the year. With the autumn, a severe money squeeze was the sequel to the activities of the speculators, and the year 1903 began with evidence that the "underwriting syndicates," which had guaranteed the numerous Wall Street promotions of the two preceding years, were caught in a trap. Banks which had loaned them money began to force a settlement. The stocks which they held had for some time been popularly known as "undigested securities," 1

Interview with J. P. Morgan, New York Times, March 31, 1903.

showing that the public understood the situation. A little later on it was James J. Hill, the author of the "Burlington deal," who suggested the term "indigestible securities." The syndicates began by selling their reserve investments of older high-grade stocks and bonds, and the market broke under their sales. Some of these syndicates, fairly forced to the wall, next threw on the market the underwritten securities, to get what they could get for them.

Interview at St. Paul, Minn., July 19, 1903.

more than one new "industrial" in 1903) open to grave suspicion. But, even had these new concerns been most unexceptionable borrowers, the banks, with the European repayments and the syndicate loans upon their hands, were in no condition to oblige them. Some of the combinations, like the New England Cotton Yarn, which had been paying 7 per cent. dividends, called a cash assessment from their shareholders. The great steel corporation stopped dividends on its common stock, which had been paid since the company was organized, and with the subsequent fall in prices of its shares, the market valuation of the stock, which had been \$785,000,000 in 1901, went actually in 1903 to \$350,000,000.

Other smaller combinations followed its example. The Consolidated Lake Superior, a \$100,000,000 iron trade combination, which had paid 7 per cent. dividends on its stock, up to the preceding December, went suddenly into bankruptcy. The United States Shipbuilding Company, which sold its bonds on the assurance that foreign investors were buying both them and its \$50,000,000 stock, was placed in the hands of receivers, with an exposure of humbug which was little less than farcical. Its promoters had never even approached great foreign bankers, but had been dealing with needy adventurers around the Bourse who had not the money to equip a mill. In the unsettlement of public confidence, there was even a run on financial institutions, and serious bank failures in two or three smaller cities.

CHAPTER XIII

WORLD-WIDE RISE IN PRICES

that view had two explanations to offer for the relapse of 1903 and the country's quick recovery from it. One was, that this was an after-effect of the European "Boer War crisis," to be ended when financial Europe got on its feet again, as it did in 1905. Another was, that a so-called "little panic" always comes midway between two-serious economic crises—as it did in 1884 and 1866—terminating definitely the period of easy money, but not so completely exhausting the community's economic power that it has to begin to build anew.

Whichever may be the more plausible theory, the fact is that, as in the sequel of 1884, the doubts and misgivings of this minor crisis were dismissed within a year and a half. By 1905, not only the United States, but Europe also, had resumed the "industrial boom" on a scale of substantial magnitude. To at least some extent, it is reasonable to suppose that resumption of full gold production in South Africa had an influence. Having reached, in English values, a high record of £15,500,000 in 1899, on the eve of the Transvaal War, this output sank, during the whole of the two-year period 1900 and 1901, to £1,014,000. It then recovered gradually; in May, 1905, it passed the high-water mark of previous monthly production; in the twelvemonth 1906, it had reached the sum of £24,500,000.

Partly because of the facilities for banking credits

^· Monthly Reports, Johannesburg Chamber of Mines.

thus provided, partly because of a new impulse to enterprise, more keen because of the halt that had been enforced by the three or four years of financial reaction, the exploits of 1901 now began to be repeated, not in America alone, but throughout the world. This last fact is important to keep in mind. It was European over-expansion which came to grief in 1899, and American over-expansion which met its reckoning in 1903. America, which had not yet overdone things, was in a position to help out financial Europe on the first occasion; Europe had plenty of idle capital to put at America's disposal on the second. To find a period when both Europe and America, and with them the rest of the financial world, were simultaneously engaged, as they were during 1905 and 1906, in the intensely eager task of exploitation, the student of history would possibly have to go back to the early seventies.

Circumstances conspired to stimulate this world-wide movement. Two years of exceptional agricultural prosperity occurred; of wheat in particular, the world produced in 1905 a crop larger by nearly 100,000,000 bushels than any ever before harvested, and in 1906, the yield was 100,000,000 bushels larger still. Prior to 1902, the world's largest wheat yield had been 2,900,000,000 bushels; the crop of 1906 was 3,400,000,000; yet such was the magnitude of consumption that English experts estimated the second of these figures to have been only 1,440,000 bushels beyond the world's actual requirements for the

season. In the United States, despite the signs of diminishing productive capacity in 1904, the wheat crops of 1905 and 1906 surpassed all precedent except the great "wheat year" 1901; the corn crop established a new maximum yield in each of these two years; the cotton yield of 1905 was the third largest in our agricultural history and that of 1906 was only a trifle below the largest.

That is to say, the average prices of commodities advanced nearly twice as far during the second period,

Estimate, Liverpool Corn Trade News. July, 1907.

Annual Reports, American Iron and Steel Association

² U. S. Statistical Abstract, 1906, p. 576.

³ Annual Report, New York Metal Exchange, for 1906

⁴ London Economist, April 18, 1908, p. 830.

Annual Report, New York Metal Exchange, for 1907.

yet the rise occurred in the face of an increase in copper production, between 1904 and 1906, of 103 per cent. in the world at large, and of 13 per cent. in the United States alone. 1

Annual Report, New York Metal Exchange, for 1907, p. 10

^2 Charleston correspondence, New York Evening Post, Jan. 20, 1906; Financial Section, p. 3.

their actual earning power was enormously enhanced; they doubled, trebled, and quadrupled in value. But town and city lots, throughout the country, followed suit. Speculation grew violent in a hundred widely separated localities, and one would see, fifty or sixty miles away from populous cities, unimproved meadowland staked out with street signs of avenues and boulevards, and in some cases dealt in through paper "options," the speculators not taking the trouble even to pass title. Sums wholly without precedent were invested in the erection of town and city dwellings. In New York City, capital expended on construction of new buildings had never, even in the excited years of 1899 and 1901, exceeded \$150,000,000; it was only \$139,000,000 in 1904. But in 1905, it rose to the extraordinary figure of \$230,000,000,1 and this was typical of dozens of cities throughout the United States.

Such was the story throughout the whole domain of industry, and one inevitable outcome was that, along with the speculative enthusiasm and the acclamations over the period's immense prosperity, bitter complaint arose from other quarters over the increased cost of living. There is, indeed, no doubt whatever that one large section of the community—including small-salaried employees and people with moderate fixed incomes—was being steadily forced back to a lower scale of living than had been its habit, and that another section, unwilling to economize and infected

New York Real Estate Record and Guide, Jan. 6, 1906, p. 2.

by the extravagance of the day, indulged without hesitation in living beyond its means. 1

But a quite inevitable outcome of this extraordinary rise in cost of materials and labor was the demand for increased amounts of capital for use in trade, and a rise in the price of money. Even among merchants, it was common complaint that nearly twice as much money had to be used to conduct the same volume

^1 M. E. Ingalls, Chairman "Big Four" Railway, speech to American Bankers' Convention, September 27, 1007.

^2 U. S. Bureau of Labor, Bulletin for July, 1908, pp. 4 and 5.

From the outbreak of the Manchurian war, it was plain that political affiliation would throw on France the burden of equipping Russia, and on England that of equipping Japan. The prospect was viewed with great uneasiness; for Russian bonds, in a sum total estimated between \$1,400,000,000 and \$1,700,000,000, were already in the hands of French investors, who might be frightened into panicky liquidation, and a very prevalent belief existed that Japan's

New York Evening Post, Feb. 27, 1904, Financial Section, p. 1.

economic resources were not strong enough to endure the prodigious strain ahead of them. On Europe's stock exchanges, a collapse at once occurred in the general investment market, especially on the Paris Bourse and in Russian bonds²; but it was promptly checked, and such was the confidence of the French rentier, that Russia raised in the Paris market, during 1904 and 1905, the great part of its \$500,000,000 loans of the period, and in 1906 easily raised \$400,000,000 more to settle the post-bellum expenses.

Japan, applying first to its treaty ally, Great Britain, now tried a highly interesting experiment—it asked the co-operation of American bankers and investors. Russia had made, some years before, a similar tentative application, and had failed. The American public showed no interest; no banker could be enlisted in an "underwriting"; and although one Russian bond issue was "listed" on the New York Stock Exchange, and a silver vase presented by the Czar to that institution as acknowledgment of the favor, not one of the bonds was ever dealt in. Japan now made, in May, 1904, its initial offer of \$50,000,000 bonds, allotted equally to England and the United States. The terms were inviting; Japan pledged its customs revenue to secure the bonds, offered them at 93½ cents on the dollar, and fixed an interest rate of 6 per cent. The loan was

Interview with Sergius Witte, Russian Finance Minister, November, 1904.

^2 Paris correspondence, New York Evening Post, March 5, 1904, Financial Section, p. 1; Paris correspondence, London Economist, Feb. 27, 1904, p. 353.

New York Financial Chronicle, April 1, 1905, p. 1202.

^2 Financial and Economic Annual of Japan, 1906, p. 12

belligerents together, it is safe to say that the Eastern War brought a requisition on the neutral markets, during 1904 and 1905, of not much less than one billion dollars.

London Economist, Dec. 30, 1905, p. 2110

^2 Ibid., Dec. 30, 1905, p. 2128; Jan. 6, 1900, p. 16.

New York Financial Chronicle, Jan. 12, 1907, p. 74.

excited "boom" and the previous high record in the country's history. That it was not alone financial activity, moreover, which was pulling at the market's purse-strings, may be shown by the fact that iron production, a fair measure of industrial conditions, increased in England from 8,500,000 tons in 1904 to 9,500,000 in 1905 and 10,000,000 in 1906—a 30 per cent. increase over 1901,—in Germany from 10,000,000 tons in 1904 to 12,200,000 in 1906, and in the United States from 16,400,000 tons in 1904 to 25,300,000 in 1906; the figures of the last-named year being in all three instances unprecedented. Everything is in motion," wrote a trained observer regarding 1906; "railways, steamers, factories, harbors, docks; it is evident that so gigantic a development of trade and industry could not fail to have a marked influence upon the position of the international money market."

That influence would have been less formidable, even with the engulfing of capital in the Eastern War loans, had not speculation, with its enhancement of values and its peremptory demand on bank resources, thrown its weight into the scale. Let it again be observed that, unlike our "boom" of 1901, the industrial expansion of 1905 and 1906, and the speculation which

¹ Frankfurter Zeitung estimates; see London Economist, Berlin correspondence, Jan. 13, 1906, p. 53, and Jan. 11, 1902, p. 49.

^2 Annual Reports, American Iron and Steel Association, for 1005, pp. 85 and 88; for 1006, pp. 51, 84, and 85.

^3 C. Rozenraad, Address to the London Institute of Bankers, March 6, 1907.

^1 Report by Dr. Koch, President of the Reichsbank, Oct. 3, 1905; London Economist's Berlin correspondence, Oct. 7 and Nov. 11, 1905.

^2 Chairman's address to shareholders' meeting, Bank of Egypt, March 6, 1908. See also report of Sir Vincent Corbett, financial adviser to the Khedive, London Economist, Dec. 30, 1905, p. 2108.

Financial and Economic Annual of Japan, 1907, p. 5.

marked that, by 1906, "men of judgment had already begun to look askance at this state of affairs." From South America, it was reported of 1905, by an observer on the spot, that in Chili, "the only apparent factor that restricts operations in all directions is the scarcity of labor; wages and salaries have risen greatly and continue to rise, as all employers are on the lookout for workers. As money became more plentiful, the price of provisions rose and money became more expensive."²

Here, then, were markets in four continents plunging simultaneously into speculation, at the very moment when trade demands were at a maximum, and when the Manchurian war had drawn in such prodigious sums on the world's capital reserves. The process was imitated in the surrounding states. It was not to be supposed that, with its appetite whetted by remembrance of 1901, and with its own interior commerce, foreign trade, railway revenue, grain harvests, metal and mineral production, iron and textile manufacture, at top notch in its history, 3 the United States, in yet another continent, would fail to follow suit. Of the American speculation in commodities and land I have already spoken; but the spectacular interest of the period attached to the Stock Exchange. During the

Annual Report Bank of Japan for 1907.

^2 Report of British Consul at Valparaiso; see London Economist, Dec. 14, 1907, p. 2171.

^3 U. S. Statistical Abstract for 1906, pp. 657, 676, 677, 678, 680, 685.

These exploits were carried out in the face of rapidly falling bank reserves and rapidly rising money rates. Even at the height of the speculative craze of 1901, mercantile discounts at New York had ranged around 5 per cent.; in the autumn of 1905, the full legal rate was charged, plus a "broker's commission," which brought the actual rate as high as 7 per cent.—a very abnormal figure, showing that general trade was feeling

New York correspondence, London Economist, Nov. 18, Nov. 25, Dec. 9, Dec. 16, 1905.

^2 London Economist, Nov. 18, 1905, p. 1834.

New York Financial Chronicle, Dec. 9, 1905, p. 1632.

^2 London correspondence, N. Y. Evening Post, Dec. 9, 1905, Financial Section, p. 3.

J. E. H. Holden, chairman London City & Midland Bank, interview in New York Herald, Sept. 20, 1906; interview in London Standard; reprinted in New York Evening Post, Nov. 17, 1906, Financial Section, p. 3. See Ibid., July 22, 1905, Financial Section, p. 6; Oct. 27, 1906, London Outlook, quoted in Evening Post, Sept. 15, 1906.

National Bank Act. Rates for demand loans on Wall Street went to 25 per cent. in November, and still the Stock Exchange speculation for the rise continued. On December 28th, the rate reached 125 per cent. Addressing a gathering of practical New York business men, a few days afterward, and referring to that money rate, an eminent financier declared:

"If the currency conditions of this country are not changed materially, I predict that you will have such a panic in this country as will make all previous panics look like child's play." 1

Just how far this prophecy was destined to be fulfilled, we are presently to see. But in the light of what we have now reviewed, it may reasonably be asked, whether the laying of responsibility on the currency touched the source of evil. A very different interpretation of the same events was made by an eminent European economist, who wrote, at the culmination of this strain on the money market of the world:

"The growing industrial states, particularly the new countries, are at this moment demanding more capital than the whole world has accumulated recently, or is accumulating to-day. The civilized world, so far as it can be reckoned up, provides \$2,400,000,000 in available capital annually for investment in securities; it is asked in 1906 to provide \$3,250,000,000; there was a demand, in America at any rate, for even more than its part of the above estimate to be provided during 1907. But the world has not got it; therefore it cannot provide it. Add to this the effect of catastrophes such as the San Francisco and Valparaiso

^1 Speech of Jacob H. Schiff to New York Chamber of Commerce, January 4, 1906.

earthquakes, which cost something like \$200,000,000, and you will have a perfectly clear explanation of the existing crisis, the rise in the interest rate and the fall of investment securities. The truth is, nations, quite as well as individuals, have reached the point where they must limit their undertakings to the possibilities of the case; that will be done, if not willingly, then by force of events."

Paul Leroy-Beaulieu: "La Crise est-elle en Vue?" Economiste Français, Jan. 5, 1907; "Les Marchés Financiers," lbid., June 22, 1907; "L' Insuffisance des Capitaux," Ibid., Aug. 31, 1907.

CHAPTER XIV

SOCIAL AND POLITICAL RESULTS

But step by step with the progress of this tendency, another and a very different kind of public sentiment was growing. Rise in the cost of living bore heavily on all classes of society whose incomes remained fixed or were not advanced in proportion to the higher prices.

This, it is true, was not a new tendency of the day, and had long been discussed as a factor in the growth of industrial efficiency. It was declared, even by many eminent economic scholars, that the day of unrestrained competition was past, and that it was best that it should be. Similar industrial tendencies, so far as regards great combinations, were visible in England and Germany as well as in this country.

But in America the manner in which the Captains of Industry acquired and exercised their powers put a different face on things. The Steel Corporation, in the face of remonstrance from its shareholders and almost unanimous protest from outside critics, undertook to turn \$200,000,000 of its stock into mortgage bonds, employed an enormously expensive syndicate for the purpose, and was eventually stopped only by revolt of some of its own directors. A \$52,000,000 company, controlling all the street car lines of New York City, was leased to a small suburban trolley company with four miles of track, and shareholders who, at the ratifying meeting, demanded investigation of the plan before approving it, were calmly told by the chairman to "vote for it first and discuss it afterwards." It was very much discussed a few years later, when the whole enterprise went into bankruptcy with evidence of "inside" trickery, mismanagement, and plunder.

The question was no longer merely that of the size of combinations, but of the purposes of the controlling interests. Mr. J. P. Morgan frankly and publicly avowed his belief in creating corporations with capital stock so large that existing managements could not be unseated.³ Mr. Harriman, who had won repute not only as a skilful railway manager but as a daring speculator, was authorized by the Union Pacific board,

Forum, January, 1904, pp. 367-371.

^2 See report of meeting in New York Evening Post, March 20, 1902.

³ Testimony in Peter Power vs. Northern Securities Co.; 'New York, March 26, 1902.

¹ Commissioner Lane; 12 Interstate Commerce Commission Reports, No. 943, p. 2.

^2 Ibid., p. 20.

^• Ibid., p. 5.

Northern railways, came before the court, and its counsel was setting forth the good influence of the merger, he was asked from the United States Supreme Bench if the same machinery might not be employed to buy up all the railways of the United States, and place control of the whole of them in the hands of three or four individuals. He answered that such use of it would be highly improbable, but that it might be so employed.¹

It was not alone, however, the possibilities arising from such power on which public interest was converged by the movement of events, but the manner of acquiring the power. On this question, what was deemed at the time an accident poured a sudden flood of light. It had long been suspected, by the general public, that the great promoters were somehow employing in their projects the funds of life-insurance companies. How convenient such recourse should have been, was manifest from the fact that three New York institutions of this class, at the end of 1904, reported investments in stocks and bonds footing up \$765,900,000.² In February, 1905, a quarrel broke out between the President and Vice-president of the Equitable Life, a joint-stock institution with \$413,000,000 total resources but a share capital of only \$100,000, of which \$51,000 was owned by one James

^1 Justice Brewer, concurring opinion Northern Securities vs. United States; U. S. Supreme Court, March 14, 1904.

^2 Reports of Equitable Life, New York Life, and Mutual Life, to New York Insurance Department.

First, the trustees appointed a committee of their own; this committee, three months later, submitted a report which threw the directors' meeting into disorder, and led to a searching inquiry by the New York Legislature. The Frick committee found that officers of the Equitable had used the company's funds as subscriptions to "underwritings" organized

^1 Report of Frick Committee to Equitable Trustees, May 31, 1905, pp. 16-17.

^2Statement of President James W. Alexander, Feb. 2,

³ Frick Report, p. 4.

When a committee of trustees had exposed such performances with the trust funds of the people, it was plain that the State would have to take a hand. The New York Legislature promptly named a committee of investigation. Under the leadership of its counsel,

^1 Frick Report, pp. 18, 19, 20. Statement of J. H. Hyde, April 15, 1905.

^2 Ibid., p. 22.

³ Ibid., p. 25.

^· Ibid., p. 30

^* Ibid., pp. 30, 31, 32.

Letter of James W. Alexander, Aug. 13, 1903; Frick Report, p. 32.

¹ Armstrong Committee's Report to New York Legislature, Feb. 22, 1906, pp. 35, 36, 140, 141, 142.

² Ibid., pp. 68-81, 111, 112, 136

³ Ibid., pp. 17-26, 50-64, 108-110

⁴ Ibid., pp. 12-15, 107

^* Ibid., p. 40

lanthropy and benevolence," establishing "a missionary enterprise, so to speak"; but that it "was n't the object to declare a dividend to a man," in order that a policy-holder, having paid his annual premium, should "then at the end of the year get seven dollars and go home and spend it for cigars." 1

^1 Testimony of R. A. McCurdy; Armstrong Report, ii., pp. 1840. 1841.

² President Roosevelt, speech of April 14, 1906.

corporation's hands stopped by providing that no company should thereafter accept more premiums when its total outstanding policies had reached \$150,-000,000. Yet the fact that, after all this series of exposures, a notorious promoter should have bought Mr. Hyde's controlling interest in the Equitable for \$2,500,000, and should have then engaged in an angry quarrel with another speculating capitalist, as to whether one of them, or both, should own it, did not throw an agreeable light even on the conclusion of the episode. Mr. Ryan did indeed place the Equitable stock in the hands of trustees of high reputation. But Mr. Harriman's proposition—"I will take half your stock; I don't know what it cost and I don't care"—even though rejected, left the public more than ever convinced of the determination of such capitalists to control our fiduciary institutions. 1

We have seen in what frame of mind the American public regarded these various episodes in high finance. It was a mixture of misgiving, exasperation, and help-lessness; for belief was general, in such periods of industrial consolidation as 1899 and 1901, that the interests behind the movement were as strongly intrenched in politics as in finance. What the outcome would have been in our political history, had the conditions which people then described as the "existing order of things" continued to prevail at Washington, is a question full of interest. We possess no means

^1 Testimony of Thomas F. Ryan and E. H. Harriman; Armstrong Report, pp. 4562 and 5144.

of judging confidently how far President McKinley's policies, after his second inauguration in 1901, might have been shaped or altered by the new industrial problems which came suddenly into view that year. All we can say is, that his traditions and temperament were not such as to have invoked a collision between the Executive and the corporations. The question was never tested; it was only five months after his second term began that he was shot by an anarchist at Buffalo, where he died on September 14, 1901.

his first message to Congress, two months later, he declared the "startling increase . . . in the number of very large individual, and especially of very large corporate, fortunes" to be due "to natural causes in the business world"—a process which "has aroused much antagonism, a great part of which is wholly without warrant." He advised "caution in dealing with corporations," because "to strike with ignorant violence at the interests of one set of men almost inevitably endangers the interests of all," and because "the mechanism of modern business is so delicate that extreme care must be taken not to interfere with it in a spirit of rashness or ignorance."

All this was reassuring to those capitalists whose plans had apparently been disconcerted by McKinley's death. They paid less attention, therefore, to the new President's further declarations that "there are real and grave evils, one of the chief being overcapitalization"; that "combination and concentration should be, not prohibited, but supervised and within reasonable limits controlled," and that "corporations engaged in interstate commerce should be regulated if they are found to exercise a license working to the public injury." It was out of these three declarations, however, that what are now known as the policies of the Roosevelt Administration grew.

These policies soon placed the Government in direct and formidable antagonism with the ambitious designs of capitalists which we have already had occasion to

Annual Message, Dec. 3, 1001

review. The case, in my opinion, was such that any and all available measures for protection of the public welfare would have been invoked by any government resolved on challenging the pretensions of the great promoters of the day. The instrument selected as the most serviceable on the statutes was the so-called "Sherman Anti-Trust Law" of 1890, and, since that law was largely made the basis of the Government's subsequent moves against over-ambitious corporations, under the Roosevelt régime, the law itself requires some careful examination.

The Anti-Trust Law was introduced by Senator John Sherman on March 21, 1890. It was drawn up in response to the very strong public feeling excited by the movement of that day, to which I have heretofore referred, for combination of manufacturing enterprises in this country into single powerful corporations. From the debates on the bill, it is evident that the legislators had in mind primarily such industrial undertakings, and not combinations of the railways. This was not strange, in view of the novelty of the phenomenon of industrial trusts, of the pledge of political convention platforms to restrain the powers of such amalgamations, and of the fact that railway combinations were not an incident of the period. With the railways of 1890, indeed, the problem was rather to make both ends meet in the finances of any given company, than to reach out for acquisition of com-

Senate speeches, John Sherman, W. B. Allison, George G. Vest, March 21, 1890.

petitors. 1 But on the other hand, the legislation of 1890 unquestionably did not exclude the railways—a point of much importance in its bearing on subsequent discussion. As originally proposed, the Act of 1890 declared illegal "all arrangements, contracts, agreements, trusts, or combinations... to prevent full and free competition," not only in the sale of articles of production and manufacture, but in their transportation. 2 As finally amended and enacted, the law made the very broad declaration that "every contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states or with foreign nations, is hereby declared to be illegal," and it declared it to be the duty of the federal attorney-general and the several district attorneys "to institute proceedings in equity to prevent and restrain such violations." 3

It was alleged, in the controversy during and after 1902, in the courts and in the press, that since Congress manifestly had the industrial trusts in mind in framing its legislation, the law of 1890 did not fairly apply to railways. But the United States Supreme Court, in upholding in 1897 a suit against the so-called Trans-Missouri Freight Association, whereby the railways of that section undertook to prescribe uniform rates, declared that "we see nothing either in contempo-

Jay Gould, interview in New York Tribune, March 13, 1889.

^2 Congressional Record, March 21, 1890, p. 2455.

Act of July 2, 1890.

raneous history, or in the legal situation at the time of the passage of the statute, in its legislative history, or in any general difference in the nature or kind of these trading and manufacturing companies from the railroad companies, which would lead us to the conclusion that it cannot be supposed the legislature . . . intended to include railroads within the purview of the Act." Out of five leading cases decided against the companies by the Supreme Court under the Law of 1890, up to 1902, two were directly concerned with railway agreements or combinations, and a third resulted in the declaration that the law covered "intercourse for all the purposes of trade, in any and all its forms, including the transportation, purchase, sale, and exchange of commodities between citizens of different states"

It was clear, then, that, in the opinion of the highest court, the Anti-Trust Law applied, not alone to industrial but to railway combinations. We have seen to what extent, under the auspices of the ambitious railway promoters of 1901 and 1906, this consolidation movement had gone forward, and to what results it seemed to point. In large measure, the subsequent moves of the Roosevelt Administration's law department were concerned with the industrial trusts or combinations; but it was not illogical that in 1902, its first challenge should have been directed against

¹ Justice Peckham, majority opinion, March 22, 1897.

^2 U. S. Supreme Court, majority opinion Northern Securities vs. the United States, March 14, 1904.

these railway projects. The note was sounded in February, 1902, when the Attorney-General, Mr. P. C. Knox, entered suit for the Government against the Northern Securities Company. This concern was an outgrowth of the famous "Northern Pacific corner" of May 9, 1901, when the disastrous contest between the Harriman and Morgan interests, for ownership of the Northern Pacific Railway, was compromised by deposit of their stock and that of the parallel Great Northern Railway Company in the hands of a holding corporation. This corporation had a stock of \$400,000,000, which it exchanged for shares in the two railways; its directors were selected from the rival boards.

Mr. Knox attacked the merger as "a virtual consolidation of two competing transcontinental lines," whereby not only would "monopoly of the interstate and foreign commerce, formerly carried on by them as competitors, be created," but whereby, through use of the same machinery, "the entire railway systems of the country may be absorbed, merged, and consolidated." A year after its introduction, on April 9, 1903, the Circuit Court before which the suit was brought decided for the Government, the essential part of its decision being the dictum that the merger "destroyed every motive for competition between the two roads engaged in interstate traffic, which were natural competitors for business." Appealing thence

^1 Petition of U. S. Government vs. Northern Securities Company et al., in Circuit Court for District of Minnesota, March 10, 1902.

² Opinion of Judge Thayer, 120 Federal Reports, 721, 725.

to the Federal Supreme Court, the company's counsel fought on the theory that the merger was no restraint of trade because the Northern Securities had committed no overt act in such direction, and because the combination had primarily been formed to protect and develop trade. The court, in its decision of March 14, 1904, found that, "necessarily, the constituent companies ceased, under such a combination, to be in active competition for trade and commerce," and that, independently of overt acts, "the mere existence of such a combination, and the power acquired by the holding company, . . . constitute a menace to, and a restraint upon, that freedom of commerce which Congress intended to recognize and protect." 2

In a bench of nine, four justices ruled on this ground against the appeal and four in favor of it. The ninth member, Justice Brewer, dissented from the larger application of the above-cited principles, on the ground that "the broad and sweeping language of the opinion of the court might tend to unsettle legitimate business enterprises, stifle or retard wholesome business activities," and he rejected the application of the Anti-Trust Law to "minor contracts in partial restraint of trade," already recognized by common law. But he held the Northern Securities device to be one which "might be extended until a single corporation whose stock was owned by three or four parties would be in practical control . . . of the whole transportation

Argument of John G. Johnson, Dec. 14, 1903.

² Opinion of Mr. Justice Harlan

system of the country," and on that ground concurred in dismissing the appeal. The order of the lower court, that the Northern Securities Company be dissolved, was therefore reaffirmed. In due course, though not until after another legal fight over methods of redistributing its holdings to owners of Northern Securities shares, the company surrendered its Northern Pacific and Great Northern stock, and practically went out of existence.

ling on a path of capital inflation which logically had no end except in eventual exhaustion of credit and general bankruptcy.

Judge Landis, sitting in the Federal District Court of Indiana, had to pass on the question how many separate offences were to be subject to such fine. The railway rebates had been granted during the period

In this matter, despite an overwhelming and not unfounded dislike to the methods of the Standard Oil Company, public sympathy was with the corporation. On the railway rate legislation, passed by Congress in response to the President's urgent messages, popular

The law was undoubtedly regarded with much misgiving by the railways; it was dissected and opposed, on grounds of constitutionality, of the rights of property, and of the dangerous public policy invoked through committing such powers to a board of commissioners; by some of the ablest Congressional lawyers. Yet it is not easy to doubt, conditions being what we have seen them to be in the great corporations of the country, that the good results of the Government's policy, taken as a whole, very far outweighed the incidental evils. In the case particularly of the great combinations, the dangers and abuses which existed were most formidable; it may be questioned whether a cautious and deliberate policy of restriction would have stopped them. Much was achieved for the general welfare by the mere assurance that the Government's hand would be laid instantly and heavily on the conspicuous offenders, and the people at large, who understood the gravity of the situation better than Wall Street understood it, had reason for their overwhelming support of Mr. Roosevelt's general plan of action.

As for the theory that the Rate Law caused financial disaster and collapse of credit, that theory may be readily tested by reviewing the actual response of the markets to the legislation. The Hepburn Act became law in July, 1906. Its enactment, on the theory supposed, should have been preceded and followed by immediate withdrawal of foreign capital from our railway industries, and by wholesale liquidation of such investments by American investors. What followed, on the contrary, was such excess of confidence in our investments, on the part of European money-lenders, that almost all traditional restraint was abandoned

Senate speeches: J. B. Foraker, Feb. 28, 1906; P. C. Knox, Mar. 28; J. C. Spooner, Apr. 27.

CHAPTER XV

THE PANIC OF 1907

WE have seen what warnings were finding utterance during 1906, both in the comments of experienced critics and in the action of the money markets, as to a possible approaching crisis. The powerful capitalists who were conducting the American speculation of the day paid no heed to them. Nor, apparently, did financial Europe, where it was stated on the highest banking authority, in the middle of 1906, that the United States, if it wished, "can borrow from Europe to a practically unlimited extent this season." This promise was made good. Serious estimates of the use of outside capital, in connection with Wall Street's undertakings of the season, name sums which bewilder the imagination. Credit for upwards of \$500,000,000 was asserted in conservative quarters to have been obtained from Europe,²

Berlin correspondence New York Evening Post, July 21, 1906, Financial Section, p. 1.

^2 Alexander Gilbert, President of New York Clearing House, speech to New York State Bankers' Association, Jan. 27, 1907. London correspondence New York Evening Post, Oct. 27, 1906, Financial Section, p. 1.

and a private investigation by the New York Clearing House Association showed that not less than \$300,000,000 in loans had been placed at New York by our own interior banks. 1

Gilbert speech.

Annual Report for 1906, Union Pacific Railroad Company.

Report of Commissioner Lane, Int. Com. Rep. No. 943, pp. 17, 19, 20.

Harriman, its chairman, between June 30, 1906, and February 28, 1907.

This was apparently a turn in events for which Europe had not looked, but which those European bankers, who, in the glamour of seemingly invincible

Report of Commissioner Lane, Int. Com. Rep. No. 943, p. 20. Annual Report for 1907, Union Pacific Railroad Company.

London cable to New York Evening Post, Oct. 20, 1906. Financial Section, p. 1. See article on same page.

^2 Ibid. See also London Economist, Oct. 20, 1906, pp. 1693 and 1694.

^3 London cable to New York Evening Post, Nov. 3, 1906. London Economist, Oct. 20, 1906, p. 1694; Berlin letter, Oct. 13, p. 1668; Commercial Review of 1906, Feb. 16, 1907, p. 6. London correspondence New York Financial Chronicle, Nov. 17, 1906, p. 1207; Nov. 24, p. 1268.

^1 James J. Hill, speech to Merchants' Club of Chicago, Nov. 10, 1906, New York Financial Chronicle, Nov. 17, 1906, p. 1108.

Poor's Manual of Railroads, 1907, p. XVI.

James J. Hill, interview in New York Tribune, June 14,

New York Financial Chronicle, Sept. 20, 1873, p. 382.

largest railway failures of 1893.¹ As their floating debt of 1906 approached maturity, the railways made vigorous efforts to avert the impending crisis from themselves, and the efforts were successful, but only through the placing of notes with one to three years to run, at interest rates which ranged from 5 to 7 per cent., plus a heavy bankers' commission. During the first half of 1907, no less than \$299,000,000 was raised on this insecure and temporary basis.² Meanwhile, in March, 1907, and again in August, there occurred on the Stock Exchange sales so enormous, and at such sacrifice of values, as to convince the experienced Wall Street man, despite official denials, that forced liquidation by the largest financiers was under way.³

We have learned, in another chapter, to what extent the conditions prevalent in America had prevailed in other communities. The money-market crisis at the end of 1906 had brought the reckoning in those markets also, and in 1907 their structure of inflated credit set the example of collapse. Egypt went first. In April, 1907, this was the course of events at Alexandria, as described by a competent observer on the spot:

"The financial crisis threatening Egypt since January culminated, at the beginning of the present week, in a deadlock from which it seemed impossible for the market to ex-

¹ See pp. 188 and 218.

^2 New York Evening Post, June 29, 1907, Financial Section,

New York Financial Chronicle, March 16, 1907, p. 610; New York Tribune, March 15, p. 1, March 16, p. 1; New York Evening Post, March 16, 1907, Financial Section, p. 1.

tricate itself. Piles of shares were waiting to be sold, though the market was so satiated with paper that the offer of threescore shares in any security sent down quotations whole points. It was equally difficult at one time to buy. It was well known that a number of small houses were tottering, and when the crisis became most acute, one of these firms suspended payments."¹

A "hoarding panic" followed, which was broken only by instantaneous shipment of \$3,000,000 gold from London.² "The consequences of the crisis," said the Chairman of the Bank of Egypt, at the shareholders' annual meeting later on, "were felt not only by the persons immediately concerned in the speculative business which had been going on, but by all other undertakings in Egypt." In May of 1907, runs of depositors at the Egyptian capital began, and one of the important banks was compelled to close its doors. The situation was epitomized by an important Egyptian financier in these words: "We have been working beyond our means, by using capital which was not ours."

At almost exactly the same time, and on the other side of the world, the Japanese market was similarly falling into panic. The review of the episode, by the Governor of the Bank of Japan, thus described what happened:

"From the second half of the preceding year (1906) when the fever of enterprise rose high and when various causes contrib-

London Economist, April 27, 1907, p. 720.

² Ibid., July 6, 1007, p. 1138.

Annual meeting, London, March 6, 1908.

Statement of Harari Pasha, July 4, 1907.

uted to aggravate it, men of judgment had already begun to look askance at this state of affairs. But as there were no means to check the trend of public feeling, it continued. To our deep regret, nevertheless, in May and June some banks were compelled to suspend payment because, the root of their trouble being deep-seated, no means of getting efficient succor were available."

On October 17, 1907, there occurred in Hamburg what a correspondent of the London Economist described as "the biggest financial disaster that had overtaken the city since 1857." A few weeks later the same correspondent continued the story:

"Since the first severe shock to credit was experienced here some weeks ago, in the downfall of Messrs. Haller, Soehle & Company, it was fully expected that many other firms would feel the strain of 8 per cent. and 10 per cent. money almost to breaking point, and, indeed, suspensions of important commercial and industrial firms have since then multiplied, both here and in other parts of Germany."

These three foreign panics occurred, it will be noticed, in Europe, in Asia, and in Africa,—a fairly worldwide distribution. It was left for the next, a very serious panic, to occur in yet another continent. Early in October, 1907, a panic of the first magnitude broke out in Chili. Beginning some months before the actual crisis, Chilian exchange on London had fallen from $13\frac{7}{8}$ pence per peso, which itself was far out of line with parity, to 12 in the early days of October and

Annual report for 1907, Bank of Japan, Tokio, Feb. 15,

^2 Hamburg correspondence, London Economist, Oct. 26, 1907, p. 1814.

^* Ibid., Nov. 30, p. 2083.

to $8\frac{1}{2}$ before the year was over. This amounted practically to depreciation of the currency. It was followed by a run on the Chilian banks and by complete disorder in business circles at Santiago and Valparaiso, by the failure of the large Mobiliario Bank of the first of these cities, and by a banking crisis which was reported to have inspired an effort at relief by the Chilian Government, through issue of short-dated Treasury bonds to the threatened institutions. Holland and Denmark similarly, before the year was over, passed through a formidable convulsion of their credit markets, with numerous banking failures. But the turn of New York came next.

It had for many years been a cardinal doctrine, in American banking circles, that a panic like those of 1893 and 1873 would never again be witnessed in this country. The ground for this belief lay in the phenomenal increase of our economic strength, the "coordination of American industry" since 1899, the establishment of the gold standard of currency, and, more particularly, the great and concentrated resources of our banks. We have possibly discovered, in our narrative, the weak point of this argument; the strain imposed on credit had as greatly exceeded precedent as did the strength of the organism subjected to it. But there were other reasons why the idea of an American commercial crisis in 1907 had not been entertained.

^1 London Economist, Dec. 14, 1907, p. 2171.

^2 "Commercial Panics, Past and Future," Atlantic Monthly, October, 1906; "A Year after the Panic of 1907," Quarterly Journal of Economics, February, 1909.

Even if not prepared, however, for another panic of the sort, the community found itself, as 1907 drew on, in a thickening amosphere of apprehension. In June, an \$8,000,000 iron-manufacturing house went down at New York City; in midsummer, two New York City

Burton, Financial Crises, p. 24.

^2 "The Cycle of Prosperity," Century Magazine, February 1908.

loans, offered for public subscription, failed to find a market¹; in the early autumn, the \$52,000,000 New York street railway combination went into receivers' hands, followed, a few weeks later, by the \$34,000,000 Westinghouse Electric Company; early in October, the storm broke with the utmost suddenness and violence on the New York banks.

One of the characteristic incidents of the era of speculation, watched by conservative financiers with much uneasiness, had been what was called "chain banking." In New York City, half a dozen banking institutions of the second rank had been bought up by a speculating financier. He had used his stock in one institution as collateral on which to borrow money; the proceeds he had used to buy stock in another bank, repeating the process with each new acquisition. Controlling his "chain of banks" on such a tenure, he had utilized the whole of them to promote his personal speculations. This had been going on during half a dozen years. On Wednesday, October 16, 1907, one of these institutions, the Mercantile National of New York City, a bank with \$11,500,000 deposits, applied to the other banks of the Clearing House for help.

While the Clearing House committee was investigating the Mercantile's condition, financial uneasiness

New York Financial Chronicle, June 29, 1907, p. 1514; Aug. 17, p. 371.

^2 Testimony in trial of Charles W. Morse, U. S. Circuit Court, New York, Oct. 21 and 22, 1008.

Nothing like this had been seen in New York City since 1873; even in 1884 and 1893, the New York bank runs were confined to one or two crippled institutions. The extraordinary phenomena which followed the Knickerbocker failure cannot be understood except by a glance at the nature and history of the institutions on which the panic of 1907 now converged. In New York State, both the original acts chartering

companies of this nature, and the general trust company law of 1887 and 1893, had in view merely banking organizations which should perform the duties of executor, administrator, or trustee. In these statutes there was therefore no provision looking either to performance of a general banking business or to acceptance of demand deposits from the general public. No cash reserve was required, as in the case of banks, to be maintained against deposits. Not only was no cash reserve required, but the companies were empowered to invest their deposit funds in real estate, to buy and sell stocks, to lend money on realty—powers which, as a result of long experience, were either denied outright to deposit banks by law, or were most scrupulously restricted. ²

It was not until the great financial revival after 1896 that the companies began to invade, on an extensive scale, the field of deposit banking. They found their authority in a section of the Trust Company Act, probably not intended for this application, but which provided for their acceptance of "any and all such trusts and powers, of whatever nature and description, as may be conferred upon or intrusted or committed to it by any person or persons." The language, broadly interpreted, covered acceptance and solicitation of demand deposits, and on the basis of such interpreta-

Banking Law of New York State, Article IV., Section 156. Kilburn's "New York's State Banking Institutions." "The Trust Companies," Political Science Quarterly, June, 1901.

² Political Science Quarterly, June, 1901, p. 257.

tion the greater number of the trust companies engaged, without the restraints imposed by law and experience on deposit banks, in general deposit banking.

Now it is true that the companies supplemented this meagre cash reserve by keeping large credits with

Annual Reports, New York Banking Superintendent on savings Banks, Trust Companies, etc.

A controversy of much warmth broke out. During the discussion, such contemptuous terms were used, in public statements, as "the foolish fetich of a cash reserve." Banks were accused of trying to cripple trade competitors who had got ahead of them; in the end, nearly all the trust companies broke off their clearing-house connections, merely maintaining their balances in bank. Let it be observed that this action not only left the companies with the same inadequate

^1New York Financial Chronicle, Feb. 14, 1903, p. 358. Speech of J. Edward Simmons to Clearing-house Association, Feb. 11, 1903.

¹ Statements of Aug. 22, 1907; New York Banking Superintendent's Report on Savings Banks, Trust Companies, etc., p. 672.

^2 Ibid., p. 667.

Secretary Cortelyou, report in response to U. S. Senate resolution of inquiry, Jan. 29, 1908.

⁴ Statement of Oakleigh Thorne, president Trust Company of America, Nov. 6, 1907.

their places in line by night to get a chance to withdraw their funds next day. Ten million dollars cash provided by other institutions went with the rest; the run was not stopped until, on November 6th, the older trust companies had organized in committee to assume responsibility for the two hard-pressed institutions. In the meantime, during the panic week itself, six banks in Greater New York and three trust companies other than the Knickerbocker—mostly small institutions, but with deposits aggregating \$57,000,000—closed their doors, and a general run upon the savings banks caused application of the "sixty-day notice rule" for withdrawal of deposits. 1

On Thursday, October 24th, panic swept over the Stock Exchange. The bank position being then in its most critical phase, restriction of credit occurred on a scale which, if continued, would probably have reduced the Stock Exchange community to general insolvency.² This day of suspense—an unvarying incident of formidable credit panics—brought the rate for Stock Exchange demand loans up to 125 per cent.; before the day was over, however, personal intervention of the president of the Stock Exchange and of Mr. J. P. Morgan with the banks caused release of \$25,000,000 which, in accordance with sound rule, was loaned out at high rates, but in such manner as to meet pressing exigencies. This averted the formidable aspect

Annual Report on Banks, New York State Banking Department, Dec. 31, 1907.

^2 New York Evening Post, Oct. 26, 1907, Financial Section, p. 1.

¹ Reports to U. S. Comptroller of the Currency, Aug. 22,

² See pp. 189 and 190

two weeks, as against only nineteen weeks' duration in the earlier panic.¹ Two days after New York had set the example, practically every clearing-house in the country took similar action—a wholly unprecedented event, which resulted in issue, throughout the whole United States, of \$238,000,000 of such certificates, as against \$69,000,000 during 1893.² Notwithstanding this recourse, reserves of the New York banks, which had stood at a surplus of \$11,182,000 in the week before the panic, fell to a deficit of \$54,103,000 on November 3d, very much the largest shortage of the kind in our banking history, the maximum deficit of 1893 having been \$16,545,000.

This formidable shrinkage was occasioned by an actual loss of \$51,000,000 cash in the five intervening weeks, and the position thus created brought suddenly into view two other phenomena of 1893. Hoarding of cash by individuals set in; it was estimated in high quarters that, in the country as a whole, no less a sum than \$296,000,000 actually disappeared from sight. This hoarding partly caused, and was partly caused by, the policy of banks in limiting the amount of cash which they would pay out to depositors, and one immediate result of such restriction being the issue of emergency currency by the banks of cities like Pitts-

^1 Reports of Clearing-house Loan Committees, Apr. 7, 1908, and Oct. 31, 1803.

^2A. P. Andrew, "Substitutes for Cash in the Panic of 1907," Quarterly Journal of Economics, August, 1908.

See pp. 194, 195, 196.

Secretary Cortelyou, report to U. S. Senate, Jan. 29, 1908.

Pittsburgh correspondence New York Journal of Commerce, Nov. 14, 1907; Pittsburgh correspondence New York Evening Post, Nov. 16, Financial Section, p. 3.

A. P. Andrew.

^* See p. 105

New York Financial Chronicle, Nov. 9, 1907, p. 1175

⁵ British Board of Trade reports.

London Economist, Nov. 9, 1907, p. 1901.

There were left the larger after-effects, of which the panic itself was only a premonitory symptom, and which came only gradually into sight, along with assertions that they would not come at all, on this occasion

London Economist, Nov. 9, 1907, p. 1902.

^2 Secretary Cortelyou, response to Senate inquiry.

³ Ibid

¹ Bradstreet's figures

Statement of President Corey of the U. S. Steel Corporation, Feb. 7, 1908.

Marican Iron and Steel Association, semi-annual report.

railways¹; the shrinkage of nearly 17 per cent. in checks drawn on American banks²; the reduction in March, 1908, of 25 per cent. in output, 10 per cent. in wages, and 25 to 50 per cent. in prices in the textile trade, and the great increase in number of unemployed.

New York Financial Chronicle, Feb. 13, 1909, p. 411,

^2 Ibid., Nov. 7, 1908, p. 1199.

The end of this singular demonstration came with the opening of 1909, when facts were suddenly recognized, when prices for steel and other commodities came down, and when the Stock Exchange demonstrations ended. With the closing of the year 1908, this history may properly close; for it marked the ending of a chapter. What shape the next distinct episode of American finance will take, is a question to be determined by other influences. In the future, as in

¹ Statement of E. H. Gary, Apr. 9, 1908

the past, the trend of the country's financial history will be fixed by the interplay of its natural resources, its capacity for production, the industry, inventiveness, and versatility of its people, and their disposition towards rash exploitation of such resources and towards venturesome experiments with capital.

INDEX

Agricultural Department of United States government, declares 1884 wheat prices unremunerative, 102; underestimates wheat crop in 1891, 165; early predictions of good corn crop

in 1894, 221

Agriculture, extension in the United States after 1865, 3; in Europe, 4; its influence on politics, 5; depressed condition of, early in 1879, 52; foreign reverses in, 53–55; great prosperity in, for the United States, 56, 59, 60; influence on resumption, Sherman's opinion regarding, 67; foreign competition in, after 1881, 86, 114; depression in, during 1885, 117; severe depression in, during 1894, 221; recovery in, during 1896, 253; prosperity of, after 1897, 261; world-wide productiveness in 1905 and 1906, 314

Aldrich, N. W., U. S. Senator, his overestimate of revenue under McKinley

Alexander, James W., president Equitable Life Assurance Company, his action starting investigation 337; his letter regarding Equitable's bank deposits,

Allen, W. V., U. S. Senator, attacks bond-issue of 1894,

Allison, W. B., U.S. Senator, speech on \$100,000,000 gold reserve, 167; on Anti-Trust Bill. 244

Amalgamated Copper Company, breakdown of effort to control 1901 copper market, 307; cuts its dividend, 308; activities during 1906, 316; public attitude regarding its control of prices. 222

America, Trust Company of, its depositors and reserves, 371; run of 1907 on, 371; enormous withdrawal of

American Railway Union,

American Steel and Wire Company, extravagant capitalization of 287

Anti-Trust Law of 1890, invoked by Roosevelt Administration in 1902 against railway mergers, 344; its legislative history, 344, 345; primarily designed for manufacturing combinations. 344; railways

Anti-Trust Law—Continued not excluded from scope of, 345; applied to railways in 1897 by Supreme Court, 345, 346; used by Roosevelt Administration in attack on Northern Securities, 347; held to apply by U. S. Circuit Court, 347; by U. S. Supreme Court, 348, 249.

Appropriations of Congress, vicious methods employed in, 133. See also Expenditures of U. S. government

in wheat exports from, after 1887, 122; investment of British capital in, 122; crop failure and financial panic in, during 1889, 157; English demand for its securities slackens, 157; foreign capital withdraws from 188

Arthur, Chester A., President of the United States, urges reduction of import tariff, 88; vetoes River and Harbor Bill, 90; Republican approval of his veto, 91; his opinion regarding methods of appropriation, 134

Atchison, Topeka, and Santa FéRailway, escapes Gould's domination in 1880, 64; its deceptive reports of earnings, 210; reorganized out of bankruptcy in 1895, 277; shares of, bought in 1906 by Union Pacific, 356

Austria, railway extension in, prior to 1878, 4; crop failure of 1879 in, 55; accumulates gold for resumption purposes, 160; crop failure of 1897 in, 270

Baltimore, banks of, issue

loan certificates in 1893,

Baltimore and Ohio Railroad, stock of, bought in 1906 by Union Pacific, 356

Bank of Egypt, report on Egyptian speculation of 1906, 325; report on Egyptian panic of 1907, 261

Sank of England, high interest rate in Overend-Gurney panic, 15; opposes gold withdrawals for U. S. Treasury, 26; its relations with British Exchequer, 33, 124; its practice regarding note redemption, 48, 49; security for its note circulation, 109; action of, in panic of 1890, 158; increases its gold reserve in 1891, 160; gold withdrawn from, in 1893, for New York, 196; raises rate to 6 per cent. in Transvaal War, 281; warns London bankers against lending to Wall Street in 1901, 306; weak position of, in 1906, 358; warns other European banks against New York, 358; heavy withdrawals of gold from, for New York, during 1907 panic, 375; rate goes to 7 per cent., 375; higher rate threatened, 376

Bank of France, lends gold in 1890 to Bank of England, 158; attracts gold in 1891, 160, 161

Bank of Germany, rate goes to 7 per cent, in Transvaal War, 281; puts rate from 5 to 6 per cent, in 1905, to check speculative mania, 325

Bank of Japan, report on Japanese boom of 1906,

Bank of Japan—Continued 326; on Japanese panic of

Bank of Russia, lends gold to Bank of England, 158; attracts gold in 1891, 160

Bank checks, tax on, repealed in 1883, 95; sold at a discount for cash in 1893 panic, 194; in 1907, 375

Bank deposits by U. S. Treasury, Secretary Sherman's methods in, 32, 33; reasons and authority for, 33; heavy increase in, during 1888, 124; difficulties in the way of, 125

Bank deposits, recall of, by interior institutions, 189; heavy withdrawal of, in 1893, 190, 191; suspension of cash payment on, 194,

Bank notes, national, designed as permanent currency by authors of Legal Tender Act, 8; large circulation of, in 1884, 108; volume of, dependent on government bonds, 109; rapid retirement of, between 1883 and 1891, 109—111; contraction of, comes to a stop in 1891, 159; large issue of, during 1893 panic, 202

Banks of the United States (see also Banks of New York City), their policy regarding money holdings, 75; heavy retirement of their circulation, 109-112; government deposits with, in 1888, 124, 125; cash withdrawals from, in panic of 1893, 189; their re-deposit of reserves, 189, 190; run of interior depositors on, 190; recall of their

merous failures among, in interior, 192, 193; demand for gold by, to equip new institutions, 272; loans for Wall Street speculation of 1906, 356; special holidays declared for, in 1907 panic, 373; panicky recall of New York deposits by, 373; amount of cash withdrawn from, 373; partial suspension of payments by, 374; issue of emergency currency by, 374, 375; estimated amount of such issues, 375; premium on currency caused, 375; reluctance to take government note issues in panic, 376; after-panic shrinkage in checks drawn upon, 378 anks of New York City, re-

luctant to subscribe to the resumption bonds, 29; abolish gold deposits, 46; specie and legal-tender holdings of, in 1879, 48, 58; oppose payment of balances in silver, 76-80; pay gold for Treasury silver, 81-83; failures among, in 1884, 99, 100; issue loan certificates in panic of 1884, 100; lend five millions gold to the Treasury, 104; issue loan certificates in panic of 1890, 158; legal-tender holdings of, increase rapidly, 168; gold payments of, to one another, suspended, 169; to the Treasury, 169; provide export gold prior to 1892, 171; present legal tenders for redemption, 172, 173; ship legal tenders to interior, in 1892, 182; lend

Banks of New York City-

Banks of European cities, bid for gold in Transvaal War, 281; recall loans in 1901 from Wall Street, 306; heavy loans of 1905 to New York on finance bills, 328; warned against Wall Street by Bank of England, 358; American loans recalled in 1906, 358 Baring Brothers, their Argentine operations, 157; their suspension in 1890, 157

Belmont, August, complains of Secretary Sherman's terms with bond-subscrib-

ers, 30

Belmont-Morgan syndicate of 1895, its contract with the Treasury, 235, 236; its arduous undertaking, 238; its apparent success, 242-244; its mistakes, 247; breakdown of its undertaking, 248. See also Preface.

Blaine, James G., candidate for presidential nomination in 1880, 70; nominated in 1884 and defeated. 102

Bland, Richard P., U. S. Congressman, introduces freesilver coinage bill, 1877, 37; threatens paper inflation, 38; proposes free-coinage substitute for Silver-Purchase Bill, 148

Bland silver-coinage bill, debated in Congress, 35-38; sectional character of vote on, 40; modified by Senate compromise, 41; vetoed by President Hayes, 41; passed

over veto, 41

ment, power to issue for note redemption, granted in 1866, 10, 11; Democratic party declares for their payment in legal tenders, 16; power of issue, conferred by Resumption Act, 21, 23, 24, 29; sales of, by Secretary Sherman, 30, 31; the long term of the 4 per cents., 31; bill to revoke Treasury's power of issue,

Boutwell, George S., U. S. Congressman, opposes contraction of legal tenders, Boycott, principle of, approved by Populist National Convention, 180

Bradley, Joseph P., Justice U. S. Supreme Court, believes the legal tenders to have been created as a temporary currency, 8

Brewer, David J., Associate Justice U. S. Supreme Court, his question put to Northern Securities counsel, 336; his attitude on Northern Securities decision. 348

Bristow, Benjamin H., Secretary of the Treasury, his scepticism over obtaining foreign gold for resump-

Bryan, W. J., his speech at the Democratic convention of 1896, 262; nominated for President, 263; defeated by McKinley, 266; renominated in 1900, 291; shifts issue from bimetallism to imperialism, 291; defeated, 293; defeated for third time in 1908, 378

Butler, Benjamin F., elected Governor of Massachusetts in 1882.02

Cairnes, J. E., on relation of increasing gold production to prices. 250

California, its Congressmen vote solidly for Bland Silver Bill, 40; carried in 1882 by Democrats, 92

Call, Wilkinson, U. S. Senator, predicts gold redemption under Silver-Purchase Act 150

Cannon, Joseph G., U. S. Congressman, his opinion on Congressional methods of appropriation, 133 Carlisle, John G., Congressman and Secretary of the Treasury, votes in 1877 for repeal of Resumption Act, 41; borrows gold in 1893 from New York banks, 184; suspends issue of gold certificates, 185; his interview regarding gold redemption, 186; his attitude in the emergency, 187; pays out the gold reserve for regular expenses, 204, 206; his embarrassing position, 207; proposes exchequer bills, 208; expresses doubt over Treasury's bond-issue powers, 208; asks Congress for plainer authority, 209; decides to issue bonds, 210; Congressional attacks on, 211; his policy with the bankers, 213; its unfortunate results, 214, 215; urges thorough reform of U. S. currency, 252

Carnegie, Andrew, threatens aggressive combination in 1900 against new steel trusts, 297; former negotiations to sell out, 298; his price to Morgan, 298; bought out by Steel Trust,

208

Cattell, A. G., U. S. Senator, blames McCulloch policy for hard times of 1866, 15 Cattle, large exports of, in

Cervera, Admiral, defeated by American fleet in 1898,

270

"Chain banking," in New York, its part in 1907

Chamber of Commerce, New York, declaration of 1896 on the public credit, 253; prediction to, in 1906, of

Chaplin, Henry, member British Parliament, opposes free right of entry to American grain, 55

Chase, Salmon P., Secretary U. S. Treasury, regards the legal tenders as a tempo-

rary currency, 8

Chicago, railway strike at

Chicago, Burlington, and Quincy Railway, its large earnings in resumption period, 65; strike on, in 1888, 116; bought up in 1901 by Northern Pacific and Great Northern companies, 296; Morgan-Harriman contest over, 304

Chicago, Rock Island, and Pacific Railway, doubles its stock in 1880, 64; its heavy earnings in resump-

tion period, 65

Chili, industrial boom of 1905 in, 326; earthquake losses of 1906 in, 329; panic of 1907 in, 362; currency depreciation and bank failures in, 363

China, its import of silver de-

creases, 78

Civil War, the, in U. S., its effect on industrial condi-

tions, 2

Clearing-house, at New York, abolishes gold deposits, 46; admits Sub-Treasury to membership, 47; excludes silver from its balances, 76; denounced by Congress, 77; revokes its silver rule, 80; issues loan certificates in 1884 panic, 100; in 1890, 158; its use of gold in balances between banks, 162; legal tenders displace

Clearing-house—Continued gold in payments of, during 1892, 169, 170; its function in gold export operations, 171, 172; issues loan certificates in 1893 panic, 192, 194; assists embarrassed Mercantile Bank, 366; refuses in 1903 to exchange trust company checks unless reserves are increased, 369; suspension of cash payments at, in 1907, 373; issues loan certificates, 373; amount of, outstanding, 373, 374

refuses to sign it, 228; vetoes seigniorage bill, 230; his remark on the "endless chain," 232; defends the bond contract of 1895, 236; his final and successful currents operation.

Cockrell, F. M., U. S. Senator, denounces foreign bondinvestors, 39; declares Silver-Purchase Act an abandonment of bimetallism,

Codman, Charles R., opposes McKinley on imperialism issue, 202

Coinage of silver dollars, see Silver

Collateral trust bonds, use of, in 1901 promoting craze, 296

Colorado, carried by Democrats in 1882, 92; its Senators vote against Silver-Purchase Bill, 147; its Democratic Convention of 1892 demands free coinage, 179; repudiates national convention's currency platform, 179; carried in 1892 by Populist party, 181

Commercial failures, see Failures in business

Congress of U. S., pledges in 1865 retirement of the legal tenders, 11; passes contraction bill, 11; its debate on contraction, 12; revokes contraction power, 15; condemns Johnson's repudiation plan, 17; passes Public Credit Act of 1869, 17; scandals of, during inflation period, 18; passes Inflation Act of 1874, 20; Republicans lose control of, 20; passes Resumption Act, 21; undertakes

Connecticut, goes Democratic in 1877 and Republican in Connecticut—Continued 1878, 44; Democrats carry, in 1882, 02

Consolidated Lake Superior Company, failure of, in 1903, 310

Consols, British, low price of

ın 1894, 213

control market for, 308; violent rise of 1906 in, 316

Corn, large crop of, in 1879, 56; failure of crop in 1894, 221; influence of failure on syndicate operations, 245; failure of crop in 1901, 308; maximum yields of 1905 and 1906, 315

Cornell, Alonzo B., elected Governor of New York in

1879, 68, 9

"Corners," in wheat, during 1879, 60; in wheat and coffee during 1887, 114; in wheat during 1888, 115; in wheat during 1898, 280; of 1901, in Northern Pacific stock, 306

Cost of living, great rise in, during 1905 and 1906, 318; hardship caused by,

332

Cotton, depressed market for, after resumption, 51; revival of market for, in 1879, 57; speculation in, during 1882, 85; overproduction of, in 1882, 87; large American consumption of, in 1889, 120; rise in price of, during 1895, 242; rise in price of, between 1897 and 1900, 261; export of, after 1896, 261; its low record price in 1895, 262; large yield of, in 1905, 315; high price of, in 1906, 317; effort of planter to fix price, 317

"Coxey's Army," march of, in 1894, 219

Crossman, W. H., & Co., break through bond syndicate's plans in 1895 gold market, 248

Cuba, loans to, by American

capital, 258

currency—Continued\nest volume in 1894, 230
syndicate operations in
crease supply of, 247; re
duction of, through bond\nissues, 250, 251, 252, 253
hoarding of, in 1907 panic
374; makeshift issues of
by banks, 374; premium

Customs revenue, requirement of payment in coin revoked, 47; large increase in, after resumption,87; not materially affected by Tariff Act of 1883, 96; heavy expansion of, after 1886, 113; causes for rise in, 114, 115, 121, 122; decrease in, under McKinley Act, 134, 135; effect of 1893 panic on, 205; insufficient, under Act of 1894, 226, 227; effect of Dingley Tariff of 1897 on, 269

Daniel, John W., U. S. Senator, his opinion of Silver-Purchase Act, 150

gressman, his opinion of the legal tenders, 13; of

Deficit of revenue in U. S. government finances, begins in 1891, 138; Congress of 1892 fails to remedy, 175, 176; met out of the gold reserve, 204; Sherman's theory regarding, 222; mistaken views of, in Congress, 224; amount of, under Tariff Act of 1894, 227; influence of income-tax annulment on, 229; effect of Dingley Tariff of 1897 on, 269

Democratic party, adopts repudiation issue in 1868, 16;

Democratic party—Continued 1904 against, 311; defeated again in 1908, 379 Denmark, panic of 1907 in, 363

Dewey, Admiral George, defeats Spanish fleet, 279 Dingley Tariff Law, see

Dry-goods industry, depression at resumption of specie payments, 51; prosperity in, at close of 1879, 58; profitable trade in, during 1888 and 1889, 114; improvement of, in 1895, 242; heavy cut in prices and wages in, during 1908, 378

Dun's Review, its index number of prices after 1897,

260

Comptroller of the Currency, his opinion of interest payment on deposits of interior banks, 189

Economist, London, its view of agricultural conditions in 1879, 55; of the U. S. gold exports in 1891, 165; of the syndicate undertaking of 1895, 239; of the American shipping combination, 302; of copper manipulation in the U. S., 316; of London's loans to New York in 1906, 358; its index number of prices, 260, 315, 316

Senator, draws up Specie Resumption Bill, 21

Egypt, land and stock speculation in, between 1905 and 1907, 325; panic of 1907 in, 360; crisis described by Egyptian bank

Elections, of 1868, 16; of 1874, 20; of 1876, 34; of 1878, 44; of 1879, 65, 68; of 1880, 71; of 1882, 91, 92; of 1884, 102; of 1888, 130; of 1890, 173; of 1892, 180, 181; of 1894, 249; of 1896, 253, 262; of 1900, 291; of 1904, 311; of 1908, 370

Elkins Anti-Rebate Law of 1903, used as basis of suit of 1907 against Standard

Oil Company, 350

England—Continued imports of 1907 from, by New York, 375; advises government intervention in

our panic, 376

Equitable Life Assurance Company (see also Life Insurance), quarrel in its management in 1905, 336; its resources and capital stock, 336; committee of trustees investigates, 337, 338; legislative committee investigates, 338, 339; sold to Thomas F. Ryan, 341

Erie Railway, failure of, in 1893, 194; reorganization

305; extinction of American credit balance in, 307; loans of 1905 to Wall Street speculators, 328; not disturbed over Railway Rate Law of 1906, 353; enormous advances of 1906 to Wall Street, 355; money troubles arise in, 358; stops loans to New York, 358; panic on markets of, in 1907, 362, 363; raid of New York market on its gold reserves, 375

Ewing, Thomas, nominated by Democrats in 1879 for Governor of Ohio, 66; his

Expenditure of U. S. government, extravagance of, in 1882, 89; Republican Convention of 1888 recommends increase in, 129; President Harrison suggests increase in, 132; Congressional recklessness in, during 1890, 136; Congress of 1892 promises to reduce, 176; instead, it increases, 176

Export trade, in wheat, rise of, after the Civil War, 4; increase of, in all commodities, after the panic of 1873, 19; decrease early in 1879, 51; in wheat, heavy increase later in 1879, 56; in other commodities, increase of, 56; of 1879, checked by speculation, 60; of 1881, reduced by the crop failure,84; decrease in, after 1885, 121; checked in 1895 by speculation, 245; in wheat, large increase of 1897 in, 271; of steel and iron, 275; extraordinary increase, between 1897 and 1901, 276;

Export trade—Continued enormous excess over imports in 1898, 280; shipments of 1900 to Europe checked, 290

Export, of gold, see Gold; of

Failures in business in the United States, in 1877 and 1878, 34; in 1880, 65; in 1886 and 1883, 119; in 1893, 201; large numbers of in 1807, 268; record of

Fairchild, Charles S., Secretary U. S. Treasury, his operations with the Treasury surplus, 123-125; his opinion of bond-buying at a premium, 122

Felton, W. H., U. S. Senator, denounces foreign bond investors 20

Fessenden, W. P., Secretary U. S. Treasury, regards the legal tenders as a tempo-

Field, Stephen J., Associate Justice U. S. Supreme Court, pronounces income tax of 1894 unconstitutional 220

"Finance bills," Wall Street borrows from Europe on, 328; used again in 1906,

Florida, Democrats of, demand free coinage, 179

Folger, Charles J., Secretary U. S. Treasury, urges reduction of tariff duties, 88; warns Congress of dangers in silver comage, o6

Foraker, J. B., Senate speech of 1906 on Railway Rate Bill. 153

Ford, W. C., Chief U. S. Bureau of Statistics, his estimate of revenue under income tax, 229

fincome tax, 229
Foreign exchange, high rates of, after resumption, 48, 52; fall in, during 1879, 57; relation to the currency, 78, 79; rise in, during 1881, 85; during 1891, 159, 161; nature of New York operations in, 161; rise in, during 1892, 166, 171; during 1893, 186; sharp decline in, during 1893 panic, 193; forced up by New York premium on currency, 196; renewed rise in, at close of 1893, 206; in 1894, 216–218; bond syndicate's operations in, 238–240; fall in, during 1895, 244; quick recovery in, 246; high rates for, 248

Foster, Charles, Secretary U. S. Treasury, stops gold disbursements by Treasury in 1892, 170; prepares for a bond-issue, 183; borrows gold from New York

_ banks, 183

France, accumulates gold during Sherman's preparations for resumption, 26; crop failures of 1879 in, 55; ships gold to U. S., 58; gold shipped to, in 1891, from U. S., 160, 161; crop failure of 1891 in, 163; its short crop of wheat in 1897, 270; its holdings of Russian bonds, 320; finances Russia in Manchurian war, 321

Franco-Prussian War, influence of, on the price of

wheat, 4

Frick committee, investigate Equitable Life Assurance Company, 327, 338

Fuller, M. W., Chief Justice U. S. Supreme Court, proFuller, M. W.—Continued nounces income tax of 1894 unconstitutional, 229

Garfield, James A., nominated for President in 1880 by Republican party, 70; his electoral majorities, 71; effect of his death on the markets, 83; declares in 1872 that proper maximum of pension expenditure had been reached. 80

Gary, E. H., chairman U. S. Steel Corporation, his argument for maintaining steel prices after panic of

Gates, John W., his testi mony about his industria

George, Henry, runs for Mayor of New York in 1886 on labor ticket, 117

Georgia, Democratic Convention of 1892 demands

Germany, accumulates gold during this country's resumption operations, 26; adopts gold standard of currency, 36; sells its old silver coin, 36, 37; crop failure of 1879 in, 55; exports gold to U. S., 58; borrows from American bankers in 1900, 282; its steamship lines withdraw from Shipping Trust negotiations, 302; large issue of new securities in, during 1905, 323; iron output of 1906 in, 324; speculative mania of 1905 in, 325; panic of 1907 in, 362

Gilbert, Alexander, president N. Y. Clearing-house Association, on Wall Street's

Gold—Continued

world's production after 1896, 259; New York premium on, during free coinage campaign, 266; drawn from Treasury on eve of 1896 election, 266; returned after Bryan's defeat, 267; large import of, after 1897 harvest, 271; flow of, into Treasury, 272; export in 1899, to pay for Philippines, 280; unseasonable shipment of, in 1901 to Europe, 307; increase in Transvaal output after Boer War, 313; import of, from Europe facilitated in 1906 by U. S. Treasury, 357; large amounts bought at a premium in London by New York, during 1907 panic, 375; imports of, 375; loss of, by Bank of England,

Gold Democracy opposes Bryan in 1896 and 1900,

203

Gold Standard Act of 1900, 254; its provisions, 254; how its success was as-

ured, 272

Goluchowski, Count Agenor, Austrian Minister of Foreign Affairs, his prediction at Vienna about the American industrial invasion, 273; basis for it. 274

Gorman, Arthur P., United States Senator, defends the Senate's protectionist legislation of 1804, 227

Gould, Jay, his railway operations in 1880, 63; his methods, 63, 64; his great power, 64; his exhibit of his security holdings, 86; his statement of 1880 regarding railway conditions

Government bonds, see Bonds of the United States.

Grain trade, American (see also Agriculture, Corn, and Wheat), its expansion after the Civil War, 3; increase after 1873 panic, 19; great activity of, during 1879 and 1880, 56, 59; affected by foreign competition after 1885, 121; activity in, during 1891, 164; depression of 1894 in, 221; checked in 1895 by speculation, 245; great prosperity of, in 1897, 271; world-wide activity of 1905 in, 314

Grant, Ulysses S., elected President of the United States in 1868, 16; his Administration and the scandals of inflation period, 18; vetoes inflation act, 20; candidate in 1880 for Republican nomination, 70

nanic of ree

Gray, Horace, Associate Justice U. S. Supreme Court, pronounces income tax of 1894 unconstitutional 220

Great Northern Railway Company shares in purchase of Chicago, Burlington, and Quincy, 296

Haller, Soehle & Company, failure of, in Hamburg panic of 1907, 362

Hamburg, panic of 1907 in,

362

Hancock, Winfield S., nominated for President in 1880 by the Democrats, 71; defeated in the election, 71 Harriman, Edward H., president Union Pacific Railway, fight with Morgan for control of Northern Pacific, 304; his supporters, 305; his use of Union Pacific's credit in 1901, 305; extraordinary borrowing powers granted to, 334, 335; describes his purposes of railway acquisition, 335; demands half of Equitable Life stock purchased by Ryan, 341

Iarrison, Benjamin, President of the United States, his electoral majority, 130; his views on tariff revision, 131; on public expenditure, 132, 133; on pensions, 132; interferes in the pension extravagance, 138; his curious remarks on Windom silver plan, 140; approves enlarged use of silver in currency, 143; disapproves free-coinage legislation, 148; defends Silver-Purchase Act, 154; his misjudgment of the trade situation, 154-156

dent of Tariff Commission of 1882, 92; his view of tariff-reduction policy, 93 layes, Rutherford B., President of the United States, favors maintaining silver as a precious metal, 7; elected Governor of Ohio, 27; elected President, 27; troubles of his Administration, 33; his disputed title, 34; vetoes Bland Silver Bill, 41; his negative influence on Congress, 41; refuses renomination for Presidency, 69; advises retirement of legal tenders,

72; his opinion as to results of compulsory coinage, 74 Heidelbach, A. S., his estimate of foreign investments in the United States, 218

Hepburn Act, see Railway Rate Law of 1006.

Hill, Benjamin H., U. S. Senator, his view of the Matthews Resolution, 38

Hill, James J., president Great Northern Railway, associated with Morgan in Northern Pacific contest, 304; remark on "indigestible securities," 309; statement regarding railways, needs for capital in 1906, 359

Hoarding of currency in American financial panics: in 1803, 101; in 1007, 374

Holden, E. H., chairman London City and Midland Bank, on Wall Street's borrowings of 1905 from London, 325; on "finance bills" of 1906, 328

'Holding companies," used for industrial amalgamations of 1901, 296; principle adopted in Steel Trust, 299; Supreme Court on possible scope of the

Holland, panic of 1907 in

Hooper, Samuel, U. S. Congressman, regards legal tenders as a temporary currency, 8

House of Representatives, see Congress.

Howe, T. O., U. S. Senator opposes Hayes Administration's policy, 43

Hughes, Charles E., counsel for legislative committee

Iowa—Continued

Bill, 40; Democratic Convention in, during 1878 opposes resumption, 42; carried easily by Republicans in 1879, 68; Democrats of, favor free coinage

in 1892, 179

ron, depression in market for, after resumption, 51; violent advance in, during 1879, 57; speculation in, during 1880, 60, 61; overproduction of, in 1882, 87; large consumption of, after 1885, 115, 120; rise in price of, 115; active market for, in 1895, 242; rise in price of, between 1897 and 1900, 261; depression in trade during 1897, 268; rapid advance in price during 1899, 289; decline of 1900 in, 290; advance between 1904 and 1906, 316; unprecedented world's output in 1906, 324; severe depression in, after 1907 panic, 377

Japan, begins war with Russia, 320; raises loans in England and United States, 321; victories over Russia, 322; cost of war, 322; excited speculation in, after the peace, 325; financial misgivings of 1906 over, 326; outbreak of panic in, during 1907, 361

Johnson, Andrew, President of the United States, proposes to repudiate interest on the government debt, 17; his proposition con-

Johnson, John G., admission regarding Northern Securities combination, 336; argument for company before U. S. Supreme Court, 348 Jones, John P., U. S. Senator, believes that Silver-Purchase Act would raise price of silver, 151

Jordan, C. N., U. S. Treas urer, his plans for circulat ing Treasury silver, 110

Kaffir gold mines, discovery of, 243; speculative craze in London over, 244

Kansas, its Congressmen vote solidly for Bland Silver Bill, 40; goes Democratic in 1882, 92; Democrats of, demand free coinage, 179; chooses Populist electors in 1892, 181

Kansas Pacific Railway, its dishonest amalgamation with the Union Pacific, 63,

Kelley, W. D., U. S. Congressman, his opinion on contraction of the legal tenders, 12; on protection, 13; opposes Hayes Administration's policy, 43

Knickerbocker Trust Company of New York, run of 1907 on, 366; suspension of, 370; results on other trust companies, 270, 271

Knights of Labor, their strikes in 1886 and 1888, 116; apply for injunction against bond-issue of 1894,

Knox, John J., Comptroller U. S. Currency, approves government bond deposits, 33; disapproves interest payment on interior bank deposits. 180

Knox, P. C., Attorney-General of U.S., attacks Northern Securities merger, 347;

Knox, P. C.—Continued his argument in court, 347; wins suit, 349; speech in Senate on Railway Rate Bill, 353

Koch, Dr., President Bank of Germany, report on German speculative mania of 1905, 325

Krüger, Paul, President Transvaal Republic, declares war on England, 280

Labor, high cost of, in 1906,

319
Labor troubles (see also
Strikes), in 1877, 34; in
1886, 116; their influence
on the politics of 1886 and
1888, 117; in 1894, 219, 220
Land, speculation of 1904 and

1905 in, 317 Landis, K. M., Iu

\$29,240,000 fine on Standard Oil Company, 350, 351 Legal tenders, amount of, outstanding at the close of Civil War, 7; purpose of their founders, 8; regarded as a temporary currency, 8; their effect on prices, 9; McCulloch proposes contraction of, 10; Congress promises contraction of, 11; contest over bill to contract, 11-13; contraction of, begun, 11; act of 1866 ineffectual, 13; contraction power revoked, 15; plan to pay part of government debt in, 16; redemption in coin promised by Congress, 17; increase in issues of, 17; effect of the inflation policy of, 18; Supreme Court declares them constitutional,

clearing-house exchanges, 169; in payments by Treasury, 170; amount redeemed in gold up to 1891, 172; presented in 1892 for redemption in gold, 172, 182; in 1893, 183; used to obtain bank gold by Secretary Foster, 183; by Secretary Carlisle, 184, 185; rumors of silver redemption for, 185; Cleveland pledges redemption of, in gold, 186; hoarding of, in panic of 1893, 190, 196; premium on, 194; return of, to circulation, 200; use of, by bond-subscribers of 1894, to obtain gold, 215; exchanged by Treasury for gold, 231; premium on, for bond-subscription purposes, 252

Leroy-Beaulieu, Paul, on world's increasing gold output and gold reserves in bank, 260; on the exhaustion of world's capital in 1906, 329; prediction of coming reaction, 330

Leyland Steamship Line, bought by American Shipping Trust, 302; its chairman's comment on pur-

chase, 303
Life insurance companies, their use by Wall Street promoters in 1901, 336; their enormous resources, 336; Equitable Life scandal, 337, 338; investigation of, by New York legislature, 338, 339, 340; abuses in management of, 339; reform law for, 340, 241

Lincoln, Abraham, President of the United States, declares the legal tenders to be a temporary currency, 8 Lincoln Trust Company, run of depositors on, in 1907, 370, 371

James 1970, 371
Loan certificates, Clearing house (see also Clearing house), issued in 1884
100; in 1890, 158; in 1893
192, 194; in 1907, 373
relative magnitude of is-

Loans of the U.S. government, see Bonds of U.S.

government

Loans of foreign governments: of England, for Transvaal War, 282; of Japan, for Manchurian War, 320; of Russia, 321

War, 326, of Russia, 321.
London, panic of 1896 in, 163; "Kaffir boom" of 1895 in, 243; "Venezuela scare" in, 251; drafts on, bought by frightened New York bankers in 1896, 266; its bankers caught in Northern Pacific corner, 306; heavy issues of new securities in, during 1904, 323; money crisis of 1906 in, 358; sends gold to Egypt during 1907 panic, 361; gold bought in, by New York during 1907, 375 Louisville and Nashville Railway, its large earnings in

Maine, Democratic Conventions of, in 1879, declare for free coinage, 66; Republican majority in, increased 68

Marine Bank, failure of, in

Massachusetts, carried by Democratic party in 1882, 92; in 1890, 174 Matthews, Stanley, U. S. Senator, his resolution declaring government bonds payable in silver, 38; his remark on foreign customers of the United States, 39; Sherman's peculiar letter to, 42

Matthews resolution, proposed, 38; curious debate on, 39; sustained by many Republicans, 40; has no effect on administrative

action, 41

McClellan, George B., Democratic nominee for President in 1864, 16

AcCulloch, Hugh, appointed Secretary of the Treasury by Lincoln, 10; his views on currency contraction, 10; declares the contraction law of 1866 ineffective, 12; his opinion as to the necessary conditions for resumption, 13, 28; his unfavorable view of conditions in resumption year, 51; reappointed Secretary of Treasury by Arthur, 103; his pessimistic view of the silver question, 103 fcCurdy, R. A., president

Mutual Life Insurance Company, his remarkable testimony about policyholders and dividends, 330 [Kinley William II S

congressman and President of the United States, proposes tariff bill of 1890, 134; his record on free-silver coinage, 263; nominated President in 1896, 263; adopts gold standard issue, 264; elected President, 266; opposed by anti-imperialists in 1900, 292; re-elected President,

293; his probable attitude towards offending corporations, 342; assassinated in 1901 at Buffalo,

McKinley Tariff Law, see

McPherson, John R., U. S Senator, asserts gold redemption under Silver

Mercantile National Bank of New York, its troubles precipitate crisis in 1907, 265

305 letropolitan Banl rassment of in

rassment of, in 1884, 100 Metropolitan Street Railway of New York, forces shareholders into a tricky lease, 334; goes into bankruptcy in panic of 1907, 365

Mexico, loans to, by American investors, 258

Michigan, Republican victory of 1879 in, 68; Republicans hold, in 1881, 90; carried by Democrats in 1882, 92; in 1890, 174; Democrats of, favor free coinage in 1892, 179; reason for vote against Bryan in 1806, 266

Mills Tariff Bill, see Tariff. Milwaukee Bank, failure of, in

1893, 194

Mining market, of Nevada and California, in 1874, 36; of London, in 1895, 244

Minnesota, its Congressmen vote solidly for Bland Silver Bill, 40; Republican Convention of 1888 in, hints at tariff reduction, 131; reason for vote against Bryan in 1896, 266

Missouri Pacific Railway, Gould's influence on, 63; strike on, in 1886, 116 Ioney market, of London, high rates in, during 1866, 15; during 1878, 30; of New York, advance in, during 1870, 58; excessively high rates, during panic of 1884, 100; unsettled in 1887 by interior land speculation, 115; excessive advance in rates on, in 1890, 158; disturbances in, early in 1893, 185, 186; panic in, 191, 192; Wall Street rate goes in 1896 to 125 per cent., 266; fall in rates after election, 267; call rate at 186 per cent. in Boer War panic, 282; high rates caused in 1905 by German speculation, 325; squeeze of 1905 at New York, 327; Wall Street rate at 125 per cent., 328; very severe strain of 1906 on, in New York, 357; in Europe, 358; crisis on, during panic of 1907, 372; currency goes to a premium, 375

lorgan, J. Pierpont, plans billion-dollar Steel Trust, 297; negotiates with Carnegie, 298; organizes Shipping Trust, 302; contest for control of Northern Pacific, 304; interview on "undigested securities," 308; defends enormously capitalized corporations, 334; induces banks to lend on Stock Exchange during

nor panic, 372

Morgan, J. P., & Co., contract with U. S. government in 1805, 226

Morse, Charles W., his exploits in "chain banking,"

Morton, Levi P., Vice-Pre-

sident of the United States, his opinion on tariff revision 131

VISIOII, 131

Morton, O. P., U. S. Senator, blames McCulloch plan for financial troubles of 1866,

"Muck-raking," President Roosevelt on, 340

Napoleonic wars, influence of, on European industry,

National Banks, see Banks of

U. S.

failure of, in 1893, 188
Navy, U. S., appropriations
for, recommended by Republican Convention, 129;\nurged by President Harrison, 132; reduced by

Nebeker, E. H., U. S. Treasurer, his correct explanation of the gold outflow

Nebraska, carried by Democrats in 1890, 174; corn-

Nevada, rich silver discoveries in, during 1873, 36; carried by Populists in

New England, its Congressmen vote solidly against the Bland Silver Bill, 40

New England Cotton Yarn Company, troubles of, in

New Jersey, carried by Republicans in 1881, oo

New York Central Railroad, shares of, bought by Union Pacific in 1996, 256

New York City, protest of merchants against gold accumulations in the national Treasury, 1866, 14;

Oil—Continued vance in price of, during

Oregon Short Line Railway used by Union Pacific to buy Northern Pacific stock, 305

Overend, Gurney & Co., failure of, in 1866, 14

Panic of 1866, in London, 14; its influence on the American markets, 15

Panic of 1873 in New York, events which led up to, 18 good and bad results of, 18, 10

Panic of 1884 in New York, its cause, 98; its character, 98; its peculiar incidents, 99; protective measures adopted in. 100

Panic of 1890 in London, 157; how allayed, 158; its influence on New York,

Panic of 1893 in the United States, outbreak of, 188; corporation failures in, 188; effect of, on interior institutions, 189, 190, 193; on the city banks, 190-194; on the currency, 195; on foreign exchange, 193, 196; on Congress, 197; on trade, 201; on the Treasury, 203

Panic of 1907, predicted nearly two years before, 329, 330; in Egypt, 360, 361; in Japan, 361, 362; in Hamburg, 362; in Chili, 362, 363; belief that another crisis could not occur at New York, 363; reasons for recurrence in 1907, 363; twenty-year interval in recurrence of, 364; early signs of, at

New York, 365; breaks out in run on trust companies, 366; strikes the Stock Exchange, 372; spreads throughout the country, 373, 374; phases of, 375; allayed by import of gold, 376; resemblance to 1873 panic, 377; immediate after-effects of, 376, 377; sequel in 1908, 378

Panics, minor: "Northern Pacific," in May, 1901, 306; "rich men's panic" of

Paris Exposition of 1889, its alleged influence on American gold exports, 160

Pattison, Robert E., elected Governor of Pennsylvania in 1882, 02: in 1800, 173

Pennsylvania, Democratic Convention in, during 1879, its equivocal stand on the currency, 66; carried by the Democrats in 1882,

Pensions, Garfield declares in 1872 that maximum expenditure for, has been reached, 89; enormous increase in appropriations for, during 1882, 89; Republican Convention of 1888 advises increase in, 129; President Harrison suggests enlargement of, 132; political inducement for, 134; extravagant appropriations of 1890 for, 136; President Harrison alarmed at increase in, 138; heavy increase in appropriations for, by 52d Congress, 176

Philadelphia, its banks issue loan certificates in 1893,

192

Philadelphia and Reading Railway Company, its failure in 1893, 188; its reckless financiering, 218; reorganization of, in 1896,

Philippine Islands, purchased from Spain after war of 1898, 280; made an issue in 1000 election, 201

Pittsburg, railway riots at, in 1877, 34; its banks issue loan certificates in 1893,

Populist party, organized in 1892, 180; its radical platform, 180; its popular vote for President, 181; \nits showing in Congress and in the Electoral College, 181; fuses with Democrats in 1896 election, 262; divided on Bryan nomination of 1900, 292; platforms of two factions, 292, 293

Price, Hiram, U. S. Congressman, his skepticism over

resumption, 12

Prices of commodities (see also Cotton, Dry-goods Iron, Silver, Stock market Wheat), high level of, during war inflation, 9, 10; obstacles presented by, to resumption, 13; fall in after panic of 1873, 19; decline in, early in 1879, 51, 52; violent advance of later in the year, 53, 56-60; continued strength in, during 1880, 61; high level of, in 1882, 85; reaction in, 86; renewed advances in, during 1887 and 1889, 115; during 1890, 154-156; decline in, during 1893, 200; recovery in, during 1893, 200; recovery in, reached during 1897, 260; general rise in, between 1897 and 1899, 260; violently rapid advance in, after 1904, 315; manipulated in 1906 by Trusts, 333; fall in, after 1907 panic, 378, 379

Promoters, their activity during 1899 in American industry, 287; reckless projects of, during 1901, 302; caught in a trap by falling market, 308; the "undigested securities" episode of 1903, 309

"Prosperity League," its singular campaign of 1908,

378

Protection, see Tariff.
Public Credit Act of 1869, 17
Public lands, enormous sales
of, in 1888, 115

Railway Rate Law of 1906, passage urged by President Roosevelt, 351; passed in Congress, 352; overwhelming majority for, 352; terms of and penalties prescribed by, 352; constitutional arguments regarding, 353; theory that it caused the panic of 1907,

of their extension on world's wheat product, 4, 122; active construction of, before 1878, in Russia, 4; in Austria, 5; extension prior to 1888, in India, 122; in Argentine Republic, 122 Republican party, opposes repudiation issue in 1868, 16; wins the Presidential election, 16; defeated in the Congressional elections of 1874, 20; its condition after the panic, 20; unanimum until of its Congression.

Resumption of specie payments, planned by Hugh McCulloch, 10; pledged

Revenue, public, see Customs revenue, Internal revenue, and Surplus

revenue

River and harbor expenditure, heavy increase in, during 1882, 89; bill for, vetoed by President Arthur, 90; passed over veto, 90; effect of, on 1882 elections, 91; Republican Convention of 1888 reRiverand Harbor—Continued commends, 129; President Harrison approves, 132; dangers of, 133; increase of,

Roosevelt, Theodore, President of the United States, his Presidential plurality in 1904, 311; his remarks on "muck-raking," 340; his political antecedents, 342; succeeds to Presidency on McKinley's death, 342; his first declaration of policy, 342, 343; warning regarding corporations, 343;

pany, 350; urges Railway Rate Law of 1906, 351; effects of his activity against corporations, 353; the argument that his policies caused the panic of 1907, 353, 354; popular

Rothschilds, expect gold exports from U. S. in 1879, 52; contract of, with Treas-

Rozenraad, Cornelis, on trade of 1906 and strain on world's money market, 324 Russell, William E., elected Governor of Massachusetts

in 1890, 173

Russia, extension of its railway system, before 1878, 4; crop failure of 1879 in, 55; crops of 1891 in, failure of, 164; takes wheat market of 1895 away from U. S., 246; crop failure of 1897 in, 270; war with Japan, 320; raises war loans in Paris, 320, 321; its outstanding loans, 320 Ryan, Thomas F., buys Equitable Life control from James H. Hyde, 341; quarrel with Harriman, 341

San Francisco, earthquake of 1906 at, financial effect,

Schiff, Jacob H., prediction of 1906 regarding coming panic, 329

Schurz, Carl, opposes Mc-Kinley on imperialism is-

sue, 292

Securities, issue by industrial companies, in boom of 1901,285; by railways, 290; forced sales of new industrials in, 1903, 308; very large issues of 1906 in Europe, 323

Seigniorage on silver coinage, bill of 1894 to coin, 230

Seymour, Horatio, Democratic nominee for President in 1868, 16; rejects repudiation platform, 16

Shaw, Leslie M., Secretary U. S. Treasury, action of 1906 to assist New York

bánks, 357

Shepard, Edward M., opposes McKinley in 1900 on imperialism issue, 292 Sherman, John, Congressman and Secretary of the Treasury, his opposition to McCulloch contraction plan, 12; his belief in automatic resumption, 12; his judgment that money supply of 1866 was not excessive, 13; defers to public opinion on the legal tenders, 15; draws up Resumption Act 21; defines

Bill, 149; his mistaken predictions regarding revenue and legal tenders. 152; introduces bill to repeal Silver-Purchase Act, 174; denies right of Treasury to use gold reserve for ordinary payments, 205; his unfounded assertion that deficit was wholly caused by Wilson Tarification of Anti-Trust Law of 1890, 344; his view of its application, 344. See also Preface

Shipping Trust, organized in 1901, 302; alarm of England over purchase of steamship lines, 302; comment on its extravagant purchases, 303; Englishmen get control of it, 303; use of life insurance funds to finance, 330

Shiras, George, Associate Justice U. S. Supreme Court, his vote on the income-

ax decision aan

stat decision, 229
Silver, question of, prior to
1865, 6; increase in American production of, 7; President Hayes favors maintaining, as precious metal, 7; free coinage of, voted by House of Representatives, in 1877, 35; its demonetization, 35; Bonanza discoveries of, in Nevada, 36, 37; debate on bill for free coinage of, 37, 38; government bonds declared payable in, by Congress, 38, 39; Western conventions demand free coinage of, 42; not favored in national conventions of 1880, 69; opinions of Hayes and Sherman on, 73; dollars not

Silver—Continued

advance in price of, 153; renewed decline in, 154; gold paid to Treasury for, in 1891, 164; free coinage of, voted in 1882 by Senate, 174; blockaded in House, 174; party declarations on, in 1892, 177-180; rumor of its intended use to redeem legal tenders, 185, 186; heavy decline in, on suspension of Indian free coinage, 200; Congress votes to coin "seigniorage" of, 230; President vetoes bill, 230; Democratic party declares for free coinage of, in 1896,

Silver-Purchase Law of 1890, proposed by Secretary Windom, 139; political origin of, 141, 148; confusion of ideas regarding, 142-145; modified by Congress, 147; altered in conference committee, 149; Congressional opinion on, 150; fails to keep up price of silver, 153, 154; President Harrison defends, 154; Secretary Windom defends, 154; its influence on currency in 1890, 155, 159; party declarations regarding, in 1892, 177, 178; Cleveland Administration proposes repeal of, 184, 197; its provisions tested, 185, 186; Republicans favor repeal of, 197; struggle over bill to repeal, 197-199; Congress repeals, 199; effect of repeal of, on markets, 190, 200

Simmons, J. Edward, speech to Clearing-house on trust company reserves, 369 Sinking fund against U. S. Sinking Fund—Continued public debt, annual requirement for, 125, 137; payments on, abandoned by Harrison Administration 127.

South Africa, see Transvaal. South Carolina, Democratic Convention of 1892 denounces Cleveland, 179; demands free coinage, 170

Spain, United States declares war on, 279; how money for conflict raised, 279; payment of indemnity to, 280

Spaulding, E. G., U. S. Congressman, regards the legal tenders as a tempo-

rary currency, 8

Specie payments, see Legal tenders and Resumption. Speculation, of 1870 and 1880, 61; of 1890, 153, 155; of 1895, 244; of 1901, 294, 300; of 1905, in Europe and America, 325, 326; various forms of, in 1906, 332; not checked by Railway. Rate Law, 354; in Union Pacific stock, during 1906, 357; weakened by withdrawal of foreign capital, 358; collapse of, in 1907, 360; resumed in 1908 on New York Stock Exchange, 370

Spooner, John C., Senate speech of 1006 on Railway

Rate Bill. 353

Standard Oil, capitalists identified with, their part in Northern Pacific corner, 305; suit against company by Roosevelt Administration, 350; jury finds against, 350; \$29,240,000 fine imposed on, 351; judg-

ment and fine set aside by higher court, 351

during 1899, 287; artificial maintenance of prices in, after 1907 panic, 378, 379 Steel Trust, organized by J. P. Morgan in 1901, 297; its constituent companies, 298; scheme for floating its securities, 299; initial price of its stock, 300; reduces its dividends, 310; value on market cut in two, 310; tries to turn \$200,000,000 stock into bonds, 334; life insurance funds used for financing, 339; opposes reduction of steel

Stevens, Thaddeus, U. S. Congressman, his opinion on contraction of the legal

tenders, 12

stock Exchange, New York,\nexcitement on, during 1884,
100; arranges for silver
speculation in 1890, 153;
closing of, during panic
of 1893, discussed, 194;
manipulation of new steel
shares of 1901 on, 299;\nunprecedented trading on,
301; declares holiday to
give a rest to brokers,
301; technical insolvency\nin, during Northern Pacific panic, 307; Russia lists its bonds on, 321;\nenormous sums raised
abroad for speculation of
1906 on, 356; panic of
1906 on, 372; appeal to
banks for relief, 372

Stock market, of 1879, 61; of 1880, 61; used by Jay Gould, 63, 64; demoraliza-

Taft, William H., elected President in 1008, 370

Tanner, James A., Commissioner of Pensions, his remark about the surplus, 137; induced to resign

office, 138

sufficient revenue, 227; failure of Republicans in 1896 to make campaign is sue of, 263; Dingley act raises duties in 1897, 269; failure to remove deficit, 269; its relation to subsequent trade recovery,

Tariff commission of 1882, its protectionist membership, 92; recommends lower duties, 93; its plan altered by Congress, 93

Teller, Henry M., U. S. Senator, declares that freecoinage bill could not have passed in 1800, 148

Tilden, Samuel J., claim that he was elected President in 1876, 34; his plurality on the popular vote, 71

Trade, American, expansion after the Civil War, 2, 3; depression in 1877, 34; unfavorable outlook for, at resumption, 51; great recovery in, 57; its good condition during 1880, 60, 83; reaction in, after 1881, 84, 85, 96,97; depression in, during 1884, 98; renewed activity of, after 1885, 114, 115; in 1890, 154, 158; stagnation of, after panic of 1803, 201; its discouraging condition in 1896, 262; its brief recovery after election, 267; returning depression, 268; revival in 1898, 272; great prosperity of 1901 in, 285; reaction of 1900 in, 290; depression in 1903, 398; extreme depression in, after 1907 panic, 377, 378; wages and prices reduced, 378, 379; illusions of 1908 in, 378

Trade, foreign, see Export trade and Import trade

Transvaal, gold discoveries in, 243; large gold production in, after 1897, 260; declares war on England, 280; shuts off gold exports, 281; shrinkage in gold production during war, 313; resumption in 1905 of full output, 313

Trusts—Continued
1903 in, 309; influence of,
on prices in 1906, 333;\neconomic apology for, 333

"Underwritings," see Syndicates.

'Undigested securities,'' 308
Jnion Pacific Railway,
Gould's influence on, 63;
dishonest amalgamation of,
with the Kansas Pacific,
63, 64; reorganized in
1897, 277; refused participation in Burlington and
Quincy purchase, 304; uses\nits credit to buy Northern
Pacific stock, 305; its enormous purchases of other
railway shares, 335, 356;
how purchase-money was
obtained, 356; dividend\nincreased to 10 per cent.,
357; violent speculation of
1906 in stock of, 357

United States Steel Corporation, see Steel Trust.

Valparaiso, speculation of 1905 in, 326; earthquake of 1906, 329

Vanderbilt, William H., his prediction of high prices in 1882, 86

"Venezuela message" of 1895,

Vest, George G., U.S. Senator, speech on Anti-Trust

Veto of Inflation Bill, by President Grant, 20; of 31 per cent. Refunding Bill, by President Hayes, 32; of Bland Silver-Coinage Bill, by President Hayes, 41; of River and Harbor Bill, by President Arthur, 90; of Seigniorage Bill, by President Cleveland

Von Mauthner, manager Austrian bond syndicate of 1892, describes Austrian gold operations, 161

Voorhees, Daniel W., U. S. Senator, denounces foreign bond investors, 39; his indifference to Treasury's situation in 1894, 210; notified by Carlisle of bondissue 210.

Wabash railway system, Jay Gould's influence on, 63 Wages, great rise of 1906 and

Wallace, W. A., U. S. Senator, opposes Hayes Administra-

War, Civil, in United States, 2; between United States and Spain, 279; between England and Transvaal Republic, 280; cost of, 282; between Russia and Japan,

Warner, A. J., Cleveland's letter to, on silver, 103

Weaver, James B., thirdparty candidate for President in 1880 and 1892, 181; his vote in 1892, 181

Western Union Telegraph Company, Gould's operations with, in 1880, 63

Westinghouse Electric Company goes into bankruptcy in panic of 1907, 265

Wheat, its high price in 1867, 3; increase in European production of, 4; world's crops in 1875 and 1878, 5; decline in price of, 5; failure of crop of 1879, in England, 54, 55; on the European continent, 55;

its low price of 1896, 262, 264; failure of Indian crop, 265; sudden rise in price, 265; political effect, 266; failure of 1897 crops in Europe, 270; large American crop and high prices, 271; heavy export of, in 1897, 271; the Leiter corner of 1898 in, 280; great world's crop in 1906,

White Star Line, bought by Shipping Trust in 1902,

Wilson Tariff Act, see Tariff. Windom, William, Secretary of U. S. Treasury, under Garfield, 140; under Harrision, 140; his limitations as a financier, 140; proposes the Silver-Purchase Law, 142; his motives, 141, 142; nature of his plan, 142, 143; his confused views on currency questions, 144–145, 146; defends Silver-Purchase Law, 154

Wisconsin, its Congressmen vote solidly for Bland Silver Bill, 40; carried by Republicans in 1880 and

Witte, Sergius, Russian finance minister in 1904, predicts financial collapse of Iapan 202

or Japan, 321