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The Expulsion of Gold

THE EXPULSION OF GOLD So far as the Silver-Purchase Act was designed to help the silver market—and this we have seen to be its almost single purpose—it was an early and complete failure. Mr. Windom's report and the subsequent Congressional moves were immediately reflected, it is true, by a violent advance in silver. The speculators promptly put their machinery in order, and by way of affording every possible facil ity to a speculative craze, the New York Stock Ex change arranged for the deposit of silver bullion and the issue, against such deposits, of negotiable certifi cates which could be bought, sold, and delivered on the Exchange like any other security. In 1889, the average price of silver in New York was 931 cents per ounce.' By July, 189o, it had risen to $1.04, and the enactment of the Silver-Purchase Law carried the price with a wild rush to $1.21 on Sep tember 3d. But the speculative movement ended, as such movements usually do, as soon as the earlier and shrewder speculators began to take their profits, and the reaction was even more rapid than the ad vance had been. Silver fell below 98 cents an ounce before Congress assembled again in December, 189o, and the President regretfully confessed the failure of the effort " to give to the market for silver bul lion 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 event ually 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, further more, it will not be difficult to show that Mr. Harri son'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 of commercial prices not so high '—which sufficiently refutes the argument that the new legal-tender issues under the Act of t890 were the cause. It is true that the rampant speculation which broke out for a time in the American market, especially in that for securities, was ascribed by many good authorities to the paper-money issues.' This would have been no illogical result, judged by the precedent of the infla tion period. But even in this regard, the influence of the Silver-Purchase Act could have been only slight. About five million dollars monthly in the new currency were coming upon the market. But in the one month of September, 189o, the circulat ing medium outside the Treasury was expanded by no less a sum than sixty-two million dollars '—the most rapid increase in the country's history, not ex cepting the period of legal-tender issues during the war. Clearly, this unparalleled expansion did not result from the Silver-Purchase Act. Its true cause is easy to discover. The appropriation laws of the Fifty-First Congress were then doing their most effective work, and in that single month fifty-five million dollars, or nearly one fourth of the Treasury's total surplus, were emptied into the money market.' It is probable enough that this unexpected and violent enlargement of the bank reserves, though it had slight connection with the law to whose opera tion Mr. Harrison assigned it, did its part in fanning the flame of speculation. But the reasons for the summer advances of 1890 were quite independent of the American currency supplies. There were two such reasons. I have already de scribed 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, £10o,00o,00oin new securities were brought out on the London market. " Business," in the words of a contempo rary 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 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 up ward rush of prices in the early autumn of 189o.

The Administration, then, was mistaken in as cribing the trade movement of 1890 to the Silver Purchase Act. The truth was soon made manifest 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 securi ties 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 im mediately, and a certain timidity over all foreign investments became perceptible. This caution seemed to disappear in the final upward movement of prices early in 189o—a curious but perfectly familiar phenomenon on the eve of every specula tive 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 loth, Baring Brothers, unable either to sell or borrow with their Argentine securities, de faulted 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, 189o, that the Bank of England adopted the extreme precau tion of borrowing £4, 500,000 gold from the Bank of France and the Imperial Bank of Russia.

This London episode was of serious significance to the United States. In a previous chapter we found that our abnormal import of European mer chandise, from 1886 to 189o, represented largely capital invested by Great Britain in negotiable American securities. It followed that in 189o, when London's foreign investment bubble had been pricked, recall of British capital thus invested must en sue. The " Baring panic " was reflected promptly, not only by collapse at Buenos Ayres, but by a disturb ance in the American money market so severe as to force the New York banks to repeat their emergency operation of 1884 and 1873, and issue $15,000,000 Clearing-House loan certificates.' At one time, loan ing rates on call in New York City rose as high as 186 per cent., and there were numerous banking failures. Recovery, however, was rather unusually prompt, because the season's heavy export of Amer ican agricultural products, and our active interior trade, offset for the time the movement of English liquidation. In December, notwithstanding the condition of Europe's money markets, the United States imported gold. But with the ending of the harvest movement came a swift and ominous change in the situation.

Between July 1, 189o, and January 1, 1891, the money circulating in the United States outside the Treasury was increased, in all, one hundred million dollars.' The revenue and appropriation laws of 1890 prevented the recall of any portion of this sum into the Treasury. The Silver-Purchase Law guar anteed an increase in the circulation of something like fifty millions annually. Even contraction in the bank-note issues had been suddenly arrested; for, as early as April, 1891, the impending deficit in revenue had forced the Treasury to abandon all Government-bond redemptions at a premium,' and with the abandonment of this policy the retirement of the bank notes ceased.' During the active harv est trade of 189o, employment had been found for these enormous additions to the money supply. But with the close of the year the harvest trade was ended; the dull interior season began, and it is in variably such a season which tests, as it did even in 188o, the character of a currency. By January, 1891—to quote the words of the United States Treasu rer " the people who had demanded this hundred million of ready cash had made their use of it, and were willing to part with it. But the Treasury, which had found the means of paying it out, was not in a position to call it back. Money began to find its way into the great commercial centres, foreign exchange began to rise, and gold bars began to be taken from the Treasury for shipment abroad. . . .

By the end of June the exports of gold had reached the unexampled figures of 4170,000,000 for the six months." 1 Unexampled such an outflow of gold might very properly be called; for in six months of 1891 the shipments had exceeded the total gold exports of any twelve months since the currency inflation of the war.' But in 1891, as usually happens when an inflated currency begins its work of mischief, any explanation of the gold expulsion was received ex cept the most plain and obvious. The Government reports explained that the national banks of Eng land, France, Germany, and Russia had reasons for wishing to increase their gold reserves; that these institutions were encouraging gold imports by pay ment of commissions; that American tourists had been spending more gold abroad than usual because of the Paris Exposition.' When these particular influences disappeared, and still the heavy outflow of gold continued, it was further pointed that the Austrian Government, then laying its plans for resumption of specie payments, had been making strenuous exertions to obtain gold for the purpose.' Particular stress was laid on the fact that many ex port gold consignments, during 1891 and 1892, went out with sterling exchange a small fraction below the usual gold-shipping point.

Now the facts alleged were all correct; but they did not in the least explain the enormous The inducements offered occasionally by the Euro pean banks were contrived simply to draw imported gold into their own reserves rather than the open specie market; but they could not cause the import. If foreign exchange had declined at New York, not a dollar in American gold could have been obtained by any European importer. The European banks, especially the Bank of France, were making a similar strenuous effort to get gold during our own resumption operations of 1878 and 1879; nevertheless, as we saw in a preceding chap ter, France itself was forced by the downward move ment of American exchange to send $30,000,000 gold to New York, and our total gold import of the resumption year was eighty millions. The alarming phenomenon of 1891 and 1892 was the persistence of sterling rates so high as to force continuous gold exports from the United States. At a fixed rate of foreign exchange, gold must be shipped from any market in settlement of foreign liabilities. But the gold-exporters did not cause this high exchange. On the contrary, a gold-shipper must sell in New York his draft on London before he can obtain the gold, and therefore each successive shipment of the kind tends to depress exchange. What the foreign importers did was merely to avail themselves of gold already in motion from the United States '; and back of all the superficial reasoning of the day the unwelcome conclusion began to force itself forward that the gold expulsion was an index, as truly as the expulsion of 1862, to a disordered and inflated currency.' The obvious danger from this heavy drain of gold was the possibility of a " run " on the Treasury gold reserve by holders of the redeemable legal-tender notes. The Treasury had been placed in the situa tion of a bank of issue which has dissipated its re sources while increasing largely its demand liabilities. Nothing is more certain in banking than the fact that unless such an institution has the power of con tracting its circulation, the first considerable export demand for specie will exhaust its coin reserves. The power of such contraction at its own discretion had been denied the Treasury by the Act of May, 1878, and the power of automatic contraction had been flung away by the revenue act of 1890. There was no immediate danger from that quarter, because this very dissipation of the Treasury's surplus had provided the banks with gold to meet the heavy ex port drain. Of the sixty-million outpour from the surplus during September, 1890, thirty-eight millions had beep in the form of gold, and thirty millions more of Treasury gold had been paid out on balance before the close of the ensuing June.' At the New York Clearing-House, during this period, gold had been used for eighty per cent. of the payments made by the Treasury,' and the aggregate payments were the largest in the history of the Government. So long as such a movement continued, there was obviously no occasion or inducement for the presentation of legal-tender notes for redemption.

But no such avalanche of specie could move out indefinitely. Already, in June, 1891, the gold re serve against the legal tenders had fallen below the low record of 1884, when Hugh McCulloch had warned Congress of a possible suspension of gold payments, and below even that of 1885, when Daniel Manning borrowed gold from the New York banks on the collateral of fractional silver. For tune favored the Treasury, however, as it had often done before in the checkered financial history of the United States. An event was at hand, an accident of nature, which with the country's finances in a sound condition would have opened a chapter similar to that of the resumption period. We have seen that the short wheat crops of 1889 and 1890 had already drawn heavily on the world's supplies. In i89i, the stock of wheat in American and foreign storehouses was still extremely low, and on top of this came a total failure of the South Russian wheat crop, the second largest source of supply for the consumers of Europe, followed in France by the most serious harvest shortage since 1879.' In the face of this foreign catastrophe, the United States produced in 1891 the largest grain crop in its history, up to that date. While Europe's total wheat yield decreased 56,600,000 bushels from that of 1889, our own crops increased 255,000,000,' and exceeded by fully one hundred million bushels the largest American crop on record.' 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.' 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 Sep tember and October, freight-room on out-bound grain ships was almost unobtainable, so great was the pressure of export supplies. But with this im mediate demand satisfied, the harvest trade con tracted, and the Western banks at once found their hands full of idle currency. In November this 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.

If prices and trade activity were dependent, as the fiat-money advocates contend, on the volume of money circulation, no such reaction would have been reasonable; for at the close of 1891 the circulating medium of this country, outside the idle Treasury holdings, was larger by $157,000,000 than it was when Congress passed the Silver-Purchase Bill.' But no theory has been more repeatedly disproved by ordinary experience. Wheat, for instance, had advanced some thirteen cents a bushel during the urgent foreign buying in August, but it declined again, after this demand subsided, simply because commercial experts discovered that the Agricultural Department had underestimated the season's Amer ican wheat crop by fully seventy million bushels. What concerned the East equally was the fall in security prices, under the heavy foreign liquidation. The recall of invested capital by London to meet its own necessities had long since ceased. But the shock of 1890 had discouraged new ventures in foreign fields, and the alarming condition of the United States Treasury and currency, which Europe perceived more clearly than the American people themselves,' had started a fresh movement to get rid of American investments. The strong-boxes of the English investors of 1887 and 1888 were one after another unlocked; the true balance of inter national trade swung against us in the face of the heavy grain exports. In January, 1892, foreign ex change advanced sharply; in the six first months of 1892, $41,500,000 gold was shipped, and the ship ments 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 re plenished the Government's reserve, but they did not make good the enormous gold disbursements of the previous twelve months. With the January in terest-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 Sher man had argued that at least the 5,5oo,000 gold received through sale of bonds under the Resump tion Act " must, under the existing law, be main tained 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 cates—the natural form in which the Treasury would pay out gold on balance—" whenever the amount of gold coin and gold bullion in the Treasury re served for the redemption of United States notes falls below one hundred millions of dollars." ' It was clearly declared and understood, in the progress of the debate in 1882, that the purpose of this pro viso was to ensure a reserve against the legal tenders at least as large as the amount prescribed.' All subsequent Treasury administrations accordingly set that sum apart in their accounts; and in this very year 1892, when the question was referred by the House of Representatives to its judiciary committee, the majority report of this committee declared " that it was the intention of Congress to fix the minimum amount of this reserve fund at $loo,000,000 gold and gold bullion, and that it should be maintained at that sum." ' The significance of this proviso, in view of the situation of the Treasury and of the foreign exchange market in 1892, is plain. During April and May, the Treasury's gold balance had been falling at the rate of five to six million dollars monthly. Three months more of such depletion would bring the fund below the hundred-million mark. Six months more, if the Treasury's monthly deficit in revenue con tinued, would bring the gold fund to a level where the bond-issue power of the Resumption Act would be the only recourse left, and a bond-issue, with a Presidential election at hand, would undoubtedly mean the political ruin of the Administration and its party.

What added to the embarrassment of the Treasury was the fact that less and less of its revenue was now received in gold. During the first half of 189o, ninety per cent. of the New York customs payments had been made in this form of money. Gold had in fact been used at that time in discharge of nearly all mutual balances between Eastern institutions. The

obvious reason for these gold disbursements by the banks to the Government and to one another, prior to the Act of July 14, 189o, was that their legal tender holdings had been rarely much in excess of the retail needs of customers. It is easy to see what had now altered this normal trade adjustment. After each succeeding harvest season, a larger volume of new paper currency moved from the interior to the East; the paper currency was increasing vastly more rapidly than the needs of trade. In the sum mer of 189o, the New York Associated Banks held in their reserves less than $31,000,000 legal tenders, which was near the average of the season in preced ing years. In 1891 they reported fifty millions; in 1892, sixty millions,' and the bankers had to recog nize, in providing for future needs of depositors, that under the Silver-Purchase Law there was no limit to this increase in legal-tender holdings, whereas the limit to the gold reserve in the vaults of city banks might possibly be reached in a single season.

The first result of this displacement of gold with paper money was the increasing use of notes in set tlements 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 Govern ment. 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 188o 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 avail able for all banking uses, were not excluded from settlements at the New York Clearing-House. When, therefore, Secretary Foster, who had suc ceeded to the Treasury on the death of Mr. Win dom, 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 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 Treas ury, 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 ap parently 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 Clear ing-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 deprecia tion 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 ex pected 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 Treas ury both guarding their gold reserves, payment of gold through the New York Clearing-House had practically ceased. Now the forty million gold exports, necessitated in the first six months of 1892 in settlement of European debit balances, had hitherto been provided through these Clearing House gold payments. A sterling banker sold his bill of exchange on London, when rates were at the shipping point, to merchandise importers with for eign debts to pay. He took in settlement the checks of the importers, deposited the checks at his own bank, and asked for gold against them. This is the normal modus operandi of international exchange. Few banks, even then, carried an indi vidual gold balance large enough to meet more than one or two large export orders; but with a normal currency, the matter was automatically adjusted. The checks of the merchandise impor ters went through the Clearing-House next day, the banks on which the checks were drawn settled their balances in gold, and the resultant credit bal ance passed into the gold-exporter's bank in that form of money. The sterling banker had in effect drawn on the aggregate gold reserve of the New York associated banks, and these banks, up to the middle of 1892, had provided all gold required for export.

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 ship ping point, $3,200,000 was ordered at New York for export.' The checks passed duly through the Clear ing-House, but the credit balance thus created to the gold-exporter's bank was met in legal-tender notes. These notes could not be used by the ster ling 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 ? There were only two alternatives left to the ster ling bankers: to bid an open premium for gold, or to present their legal-tender notes for redemption in gold at the Treasury. But the bid of a premium on gold, under such circumstances, would have been public witness to depreciation of the currency, and it was expressly to prevent such depreciation that the gold reserve in the Treasury had been established. The entire credit of the United States had been pledged, in the words of the Resumption Act, " to enable the Secretary of the Treasury to prepare and provide " against exactly such contingencies. There was no other object in the accumulation of a specified gold reserve in the Treasury. Therefore the bank ers were not only not in duty bound to bid an open market premium for export gold, but such an act would have been a deliberate assault on the public credit. They made no such bid in July, 1892, but carried their notes to the Treasury to be redeemed in gold.

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 re view of previous autumn movements of currency, the tendency had been, not to present notes to the Treasury for gold, but to offer gold in exchange for the Treasury's surplus legal tenders. The with drawal of Treasury gold in quantity through pres entation 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, al most every dollar of gold exported from the United States was obtained on note redemption from the Treasury.' In his annual report of 1892, the Secre tary or the Treasury despondently confessed that a heavy deficit in revenue was impending, and that the whole redemption machinery of the Government was in peril.' Extraordinary interest was lent to this compli cated situation by the Presidential election of 1892. Ever since the enactment of the two laws of 189o, the Administration party had been unfortunate at the polls. In November, 1890, it had been over whelmed 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 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.

The influence of this electoral result, so far as con cerned the legislation of the next two years, was of the slightest. The Senate was still Republican; no law of a radical or partisan character was therefore likely to pass both Houses. Mr. Sherman himself made a perfunctory move in the direction of revoking the worst, part of the Silver-Purchase Act,' but his proposal was not taken seriously. Instead, both houses instantly set to work constructing free coinage bills. The struggle over these measures in the new Democratic House of Representatives continued up to the eve of the Presidential campaign of 1892. Opponents of the bill were so fearful of results that they devoted all their energies to pre venting a vote on the measure. Twice the House divided equally on the question of laying the bill upon the table, party lines on both occasions being absolutely broken. The Senate, meantime, taking the bit in its teeth, passed a free-coinage law on July 1, 1892, by a majority of four, both parties again disintegrating on the vote. What the result of this Senate vote would have been in the House of Representatives, under ordinary circumstances, is a matter of conjecture. But the season was very late, the Presidential canvass had begun, and event ually the silver bill was left to die through the ad journment of Congress.

It might perhaps have been supposed that in view of the serious condition of the Treasury's finances, at least an effort would be made to readjust the revenue. But once more the mischievous entangle ment of the revenue question with party prejudice obstructed any reasonable action. The House, with which, under the Constitution, revenue laws must originate, passed in the spring of 1892 by very large majorities a series of bills removing all import duties from wool and woollen goods, from cotton-bagging, and from binder-twine. This action was no doubt consistent with the platform of the House majority, and the plan of dealing with separate articles in separate bills was admirable. But for all this, the House measures did not in the least meet the real emergency. If enacted without supplementary legislation, they would merely have made a bad matter worse. Whether right or wrong in principle, the duties on these various commodities were raising revenue, and in 1892 no revenue could be spared. To cut off even these receipts in the Treasury's exist ing situation, without substituting some other source of income, would simply have been a piece of folly.

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 un changed, to save the Treasury from actual deficit by cutting down expenses. And in fact this Fifty Second House of Representatives virtuously re solved 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 appro priated by Congress except such as is manifestly necessary to carry on the several departments, fru gally, 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 appro priation committees made a resolute effort at re trenchment; 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 mis chievous. In its two sessions, this Fifty-Second Congress cut down naval appropriations nine mil lion 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 ap propriations 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, annual and permanent, ran within thirteen millions of that handsome total, applied with literal truth to the Congress chosen in 189o, which had made econ omy its plea before the people.

With this rather complicated record, the two parties went to the people in the campaign of 1892, and the result was another sweeping Democratic victory. But it was not easy, when the campaign throughout the country was surveyed, to say ex actly what the victory meant. High protection and tariff reform had locked horns again, and on these questions the verdict of 1892 was unequivocal. But as to where either party, and in particular the success ful party, stood in the vital matter of the currency, no one could confidently assert. The Republican convention at Minneapolis on June 7th had neglected to say a word about the unlucky Silver-Purchase Act, and in view of the incidents already considered in this chapter, the omission was not surprising. But the attitude of the Democratic party, in its conven tion at Chicago two weeks later, was more singular. They " denounced " the Law of 189o, not as un sound finance, but as a " cowardly makeshift "—a phrase which certainly suggested deference to free coinage sentiment. Nor did they even promise to repeal it. Strange as it may seem, all that the Democratic convention of 1892 distinctly did in this matter was to advise the Republicans to revoke the law. The possibility of danger in this " makeshift," so the Chicago platform calmly announced, " should make all of its supporters, as well as its author, anxious for it speedy repeal." IS This declaration is a curiosity even among the oddities of American platform literature; it may almost be described as a political joke; for the final votes on the Silver-Purchase Bill in 1890 had disclosed on the affirmative side not one Democratic Congressman. But if this manifesto was ambiguous, the convention's general declara tion on the coinage was a master-stroke at Delphic utterance. Every shade of conflicting economic and political opinion had its turn in the paragraph. The party believed in " the coinage of both gold and silver without discrimination." Yet it pledged " the equal power of every dollar at all times in the markets and in the payment of debts," which was,of course, entirely incompatible with the other declaration. The gold and silver dollars must, moreover, " be of equal intrinsic and exchangeable value," and this equality was to be attained, either " through international agreement," or " by such safeguards of legislation as shall insure the mainte nance of parity of the two metals." As to what these legislative safeguards ought to be, the plat form had nothing to say. The final declaration, " that all paper currency shall be kept at par with and redeemable in coin," was fortunately less am biguous, and was useful for appeal in subsequent legislation. On the whole, it was safe to say that the interpretation of this currency plank depended wholly on the interpreter. The advocate of any policy could invoke some part of it in behalf of his own purposes, and the convention's choice of Mr. Cleveland as its candidate made conservative inter pretation certain.

The business communities of the East, which gave Mr. Cleveland a good share of his support, were guided wholly by their confidence in the ex-Presi dent's conservatism, by their objection to the cur rency experiments of the Harrison Administration, and by their willingness to try a lower tariff. But the character of the canvass in the West and South was ominous. At least eight of the Democratic State conventions early in 1892—in Colorado, Flor ida, Georgia, Idaho, Kansas, Nevada, South Caro lina, and Texas—had submitted flat and unqualified demands for a free-silver coinage law. Others in the more conservative Middle States, among them Illinois, Iowa, and Michigan, had framed somewhat more cautious declarations whose actual purport was the same. Three of them openly repudiated the coinage plank of the national platform. The South Carolina Democrats, on May i8th, within a month of the national convention, entered their " solemn protest against the nomination of Grover Cleve land " because of his well-known principles on the currency. After the nomination had been made, the Colorado Democrats, on September 13th, en dorsed the national platform " with the exception of that part of it relating to silver and coinage," while the Nevada Democrats had already declared themselves " absolved from all obligation to support the nominees " of the party unless such nominees expressly declared themselves for free coinage.

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

But the spirit animating these unusual party mani festoes broke out at intervals throughout the country. It focussed in the so-called People's Party, organized at Omaha on July 4, 1892, into whose ranks flocked the financial and social agitators of every sort, and whose members first applied to themselves the politi cal term of Populists. This third party's platform described the maintenance of the gold standard as " a vast conspiracy against mankind, organized on two continents," and " rapidly taking possession of the world." The party proposed free and unlimited coinage of silver, and demanded that the circulating medium " be speedily increased to not less than fifty dollars per capita." Since the per capita circulation at the time, by the Treasury estimate, was less than twenty-five dollars, this was a distinct demand for the doubling of the Government's money issues. In addition to its currency plank, the Omaha conven tion declared for Government ownership of railroads, for a graduated income tax, and approved the appli cation of the boycott in labor disputes.

Now there was little absolutely new in this Popu list 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 188o, 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 Elec toral College. They sent to the Fifty-third Con gress 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. Cleve land'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 Ad ministration, 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.

treasury, currency, foreign, banks and party