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The Government Loans and the Tariff of

THE GOVERNMENT LOANS AND THE TARIFF OF 1894.

Secretary Carlisle was undoubtedly em barrassed 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 Con gress. 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 tem perament was cautious; he had been the strictest of strict constructionists in his interpretation of execu tive powers; and, reasoning on that basis, he dis trusted 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 was almost exhausted. He asked Congress to authorize a bond issue, proceeds of which the Treas ury might draw upon to supply future deficiencies in revenue. As an alternative to a large issue, he proposed a plan modelled on the English system of exchequer bills; the proposition being to " execute from time to time, as may be necessary," Govern ment obligations bearing three per cent. interest, redeemable one year from date, " and that he be permitted to sell them at not less than par, or use them, at not less than par, in payment of public expenses to such creditors as may be willing to re ceive them." ' This was a rational proposition; it was vastly better than the general plan of a three per cent. five-year bond issue proposed in the last days of the preceding Congress.' The plan, in fact, embodied a principle adopted by almost every well managed Government in a temporary revenue short age, and it did not raise the vexed question of the gold reserve. This was the Secretary's first sug gestion; it never received the slightest notice on the part of Congress.

Regarding the gold fund for the redemption of legal tenders, Mr. Carlisle's remarks were less judi cious. They expressed distinctly his own misgiv ing 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 should be clothed with full authority to procure and maintain an ample reserve in coin, but that the pur pose for which such reserve is to be held and used should be made as comprehensive as the duty im posed 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.' Having thus made his formal appeal to Congress, the Secretary again, and necessarily, waited. Un fortunately, the financial situation could not wait. December and January are always months of heavy drain on the Treasury, even in normal years, and in January, 1894, the Government approached nearer to actual bankruptcy than at any time in the present generation. Outside of the gold reserve and un available funds such as bank notes under redemp tion and fractional silver coin, the Treasury held at the close of January barely twelve million dol lars. As for the gold reserve itself, this fund had fallen, by the middle of the month, below $68,000, coo.' As in the summer of 1893, it was now de pleted, not by presentation of legal tenders for redemption—for little gold was going out as yet on export—but through its use for ordinary Government expenditures.' Beginning with October, the revenue deficit had exceeded seven million dollars monthly. A few months more of such deficiency would use up every dollar that was left in the Treasury, including the gold reserve.

" Congress alone," Mr. Carlisle said in his report, '' has the power to adopt such measures as will re lieve 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 in troduced 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 major ity 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 in solvency, to assume the right asserted by its prede cessors, 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, '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 re sult; the opposition rested its argument against the bond issue on Mr. Carlisle's own official language.' During the progress of this debate, the obstruc tionists received some characteristic aid from an un expected 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 ance as a precedent, on the ground that the Sec retary 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 Ad ministration a considerable service; the courts of law had now publicly taken their stand beside the Treasury. Meantime, also, the Congressional oppo sition 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 Sec retary'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 telapsed 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 out standing four per cents, which had longer to run than the proposed new issue, were selling at 112.5, against the price of 117.5 asked for the new fives. So far as concerned the prospect of European bids, it should be noticed that the minimum price stipu 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 2.5 per cent. British consols brought only 98g. 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 in terests. 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 bank ers. 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 judg ment of his duties; all that could possibly result now from neglect to meet the large investment in terests face to face, was danger of losing the advan tage in a bargain.

Only two weeks had been allowed between the issue of the circular and the closing of subscrip tions, and during three fourths of this period the Secretary did nothing whatever. Four or five days before the final date, it became evident, from the slow receipt of bids, that as matters stood, the loan would not be taken. This was too grave a possibility to be lightly contemplated; the Secretary, therefore, laying aside his scruples by virtue of ne cessity, came on in person to New York. He found the situation really critical in this eleventh hour. Most of the banks honestly did not wish to buy the bonds; all of them looked on the investment as a questionable business move. But the arguments employed in 1893, when the banks were urged to give up gold for legal-tender notes, were again in voked; the press again spurred on the reluctant banking interests; above all, the plea that another panic must at all hazards be averted was forced into consideration. It might' have been imagined, from the extraordinary nature of the episode, that it was Turkey or China which was standing hat in hand in the money market. The outcome of this humiliating incident was, however, that the fifty million bonds were taken, eighty per cent. of them going to the New York banks at the upset price. If the " syndi cate bid " from the New York banks were to be elim inated from the reckoning, the actual bids received for the bond issue of February 1, 1894, would cover less than ten millions out of the fifty millions offered.' The lack of any thorough understanding with sub scribers had another very embarrassing result. The bonds, under the terms of the Resumption Act, were to be sold for " not less than par, in coin," and the circular to subscribers required payment in gold. Subscriptions were made in the form required, and $58,66o,000 gold coin was duly delivered by sub scribers to the Treasury. But before making these payments, subscribers first withdrew $24,003,000 gold from the Treasury through redemption of legal tenderi, and then turned in this same gold again to pay for bonds. In effect, therefore, nearly half of the subscriptions were paid, not in gold, but merely in legal tenders.' That this was a proper move I do not believe. It was not, of course, illegal, because any holder of the notes had a statutory right to present them for redemption, and technically, the bond subscribers were as much entitled to such use of legal tenders as were the gold exporters. But there was this decided difference between the two operations: the gold-exporters had been forced by the Government to take the notes instead of stand ard money, and were therefore fully justified, in a trade emergency, in demanding gold redemption. The bond-subscribers, on the other hand, had con sented to a contract under which they received a full consideration, while they knew the tacit con sideration in the Government's behalf to be the adding of fifty-eight million dollars to its actual gold reserve. The use of coin obtained on note redemp tion was therefore an undoubted subterfuge. Its justification, if it can be justified at all, lies in the 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 un fortunate 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.

If the bond subscriptions had all been paid in gold obtained from outside sources, the Treasury's gold reserve would have risen by the second week of February to something like $13o,00o,000. As it was, the highest point touched by the fund was $1o7,00o,000, on the 6th of March, 1894. In other words, the margin over the traditional hundred million limit, after the February bonds had been sold and paid for, was as narrow as it had been a year before, and it soon appeared that such a reserve was as inadequate as it had been in 1893. It is true, the presentation of legal tenders for redemption by subscribers to the bonds had increased considerably the Treasury's surplus in that form of money,' so that after January, 1894, the gold reserve was no longer drawn upon to meet the monthly deficit.' But we have seen that foreign exchange was by this time moving steadily against the United States, and we have also seen why the movement was com mercially inevitable. The Treasury had indeed taken from outside domestic circulation, through its 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 em ployment 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 28 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 re called was one hundred million dollars.' But at the opening of 1894, there still remained an immense investment fund subject to such withdrawal. One estimate, by an experienced dealer on international account, reckoned the aggregate of foreign invest ments in the United States as high as $2,4°0,000, coo,' and the conjecture, though in all probability greatly exaggerated, gives some idea of the factors with which such a problem has to That liquidating sales for this account in 1894 were extremely large is a matter of public evidence;' nor, when the situation at the time is soberly reviewed, will it be found that the action of the foreign in vestors was unreasonable. A good share of this European capital had been placed, as we saw in our review of the period prior to 1890, in American rail way shares and bonds. So great had been the strain of the panic on these largely over-capitalized enter prises, that within two years nearly one fourth of the total railway capitalization of the United States had passed through the bankruptcy courts.' Some of these failures had been of such a character as com pletely to shatter confidence in the methods of American corporations. Examination in one of the largest of these insolvencies proved that the com pany's officers, within two years, had sunk upwards of four million dollars in reckless speculation in the shares of other railways.' Deceptive balance-sheets were repeatedly shown up in the subsequent inves tigation, as with the Atchinson, Topeka & Santa Fe, whose $zoo,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 bad to worse.' The prostrated transportation industry had per haps 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 in dustrial 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 rail way trains, with the avowed purpose of gathering the Eastern proletariat to its number and appearing by thousands before the Capitol at Washington to demand relief.

United States troops had to be summoned to disperse this rapidly increasing mob. Revolts of laborers against wage reductions followed in quick succession. Two hundred thousand coal-miners rose in the Middle States, and at the close of June the labor demonstration culminated in the Chicago Railway Union strike—an episode in many ways more serious even than the Pittsburg riots of 1877. In July of 1894 the labor organizations literally took possession of the railway system converging on Chicago. The Governor of Illinois refused to sum mon the State militia to protect the railways, and for ten days the country's interior trade seemed to be wholly at the mercy of two or three labor-union leaders, who opened formal headquarters in Chicago and issued proclamations with the assurance of mili tary conquerors. Not until the Federal Government intervened with a body of regular infantry to protect the mails of the United States, and thus provided security for the moving trains, was it clear that anarchy could be averted.

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 con sequence 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 esti mated 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 inter vals 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, Kan sas, and Nebraska was ruined. In 1893 these three States had produced 548,0oo,0oo 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 fail ure 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 abun dant 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 16o, 000,000 bushels over even No crop ap proaching this in magnitude has been raised by the agricultural world before or since. With such com petition, 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.' It was in the face of this series of industrial calam ities, with trade prostrated, credit shaken, agricul ture depressed, and labor in open revolt, that the Administration was called on to redeem its promise and reform the tariff. Action in this regard could not possibly be avoided; first, because the party and Administration were absolutely pledged to it, but second, because the existing revenue law had proved its inability, under prevailing trade conditions, to meet the expenses of Government. If Mr. Harri son had been elected in 1892, his Administration would equally have been forced to take the revenue laws in hand. Of this there cannot be the slightest reasonable doubt. Mr. Sherman, it is true, has gone so far as to declare, in a published review of the situation, not only that the Government's financial ills were primarily due to deficit in revenue, but that no such deficiency would have occurred " had not the President and both Houses of the Fifty-third Congress, then in political sympathy, united in pass ing a law reducing the revenue below expenditures for the first time since the close of the war." But the reader is able now to judge the historical reckless ness of this assertion. The tariff act of the new Administration was not even introduced in Congress until December 19, 1893, whereas the revenue deficit had been continuous in every quarter since Septem ber, 1892, and had amounted in the five months ending with November, 1893, to nearly thirty million dollars.' The further argument that revision of the import tariffs in 1894 ought to have been gradually and cautiously undertaken, so as to make absolutely sure Of sufficient revenue while unsettling business plans as little as possible, is more honest and legiti mate. I have already noticed the bad effects of the American practice of tariff reconstruction by whole sale, and there was probably never a year when such effects ought to have been more scrupulously avoided than in 1894. But politically speaking, revision of the taxes, conservatively and by piecemeal, was impracticable. General reduction of the import schedules was the solitary bond which still united the Administration party; with this removed, the Congressional majority would simply have resolved itself into its original elements. Furthermore, it was easily possible to procure an increased revenue through reduction of the duties. This must be manifest to any one who considers the nature of the two opposing tariff theories. Wholly aside from the general merits of the protective theory, its pur pose is exclusion of competing 'foreign goods. So far, then, as it achieves its purpose, a law of this character necessarily removes a possible source of income.

But to say that lower duties may be made a more remunerative source of revenue is not to say that any reduction will accomplish that result. Nothing had been more conclusively demonstrated, in the Government's recent history, than the danger to the public revenue if economic theories were alone allowed to govern the preparation of a law. The McKinley Act itself was an index to this dan ger, and there is little excuse for the absolute in difference of the Congress of 1894 to the warning. The truth appeared to be, however, that in 1894, as in 189o, an optimism which amounted to infatu ation had seized on the public leaders of the major ity. Mr. Carlisle remarked, it is true, in his report of December, 1893, that the extent to which " im portations will be increased solely on account of reductions in the rates of duty, it is of course im possible to foresee."' This judgment ought to have foreshadowed cautious adjustment of the schedules. But the Secretary himself went on to say that conditions will be much more favorable here after for the collection of an adequate revenue " '— a prediction wholly unwarranted, either by the state of general industry, which was paralyzed, or by the movement of import trade, which was then decreas ing twenty to thirty per cent. from the preceding year.

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 months more in which to observe the growing trade demoralization, and in July it was no longer possible for a reasonable man to cherish the hopes which had been current in December. In fact, the legislators had already seen one of Mr. Carlisle's predictions, for the revenue of the first six months of 1894, turn out an overestimate by the enormous sum of forty million dollars.' Nevertheless, they constructed their own optimistic estimates on the basis of the trade of 1891 and 1892. But in truth, the estimates of revenue played as small a part in the season's tariff legislation as they had played in that of 189o. It was evident very soon, in the course of the de bate, that the two Houses of Congress were guided by different and conflicting motives in their action on the Wilson Tariff Bill, and that neither House was giving any scientific attention to the question of sufficient revenue. The House majority was plan ning a law to remit taxation; those who held the balance of power in the Senate were secretly con triving to retain as much protection as they dared. Between the two, the urgent question of a deficit had little hearing.

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 insignificant source of revenue, but it restored only such part of the sugar duties as should play directly into the hands of the refining companies. Considered merely as a law contrived to produce sufficient revenue, the Senate bill was undoubt edly superior to the House bill. The Senate sugar tariff, it is true, produced eventually hardly one half as much revenue as had been yielded by the sugar tariff of 1883,' but there was nevertheless collected from this source, in the first full year under the amended Wilson Act, the sum of $29,800,000, none of which revenue would have been obtained by the Government under the House bill's free-sugar provisions.' But the public refused for very obvious reasons to give the framers of the Senate amend ments any credit for this achievement. On the eve of the passage of the Wilson Bill in the Upper House it was discovered that several senators, whose votes controlled action on the sugar duties, were speculating on Wall Street in the stock of the refin ing company chiefly interested. The angry public clamor over these disclosures was followed by an open letter from President Cleveland to his sup porters in the House, declaring the senatorial changes to be " outrageous discriminations and violations of principle " '—an assertion which, in view of the plat form of the majority, was certainly not unwarranted. From the floor of the Senate, the ringleaders of the protectionist compromise retorted publicly with much show of indignation.' When, finally, 'after a long and stubborn struggle, the Senate tariff pre vailed and passed both Houses, the President con temptuously refused to put his name to it, and left the emasculated bill to become a law without his signature.

The result of this haphazard reckoning on the revenue was a law which never produced a surplus. Even with its sugar import tax, the yield of the Senate bill, in the succeeding year, fell short of the estimate of its authors by no less a sum than eighty seven million dollars.' It never brought the revenues to the low ebb of the fiscal year 1894, before the Wilson Bill was passed, but it produced a deficit of $42,805,223 in the fiscal year 1895, and of $25,203, 245 in 1896.' For this exceedingly ill-timed miscal culation, the Forty-third Congress is properly held responsible. It is true that both Houses had added to the bill a tax of two per cent. on incomes over $4000, and in a comfortably indefinite way had reckoned that the product of this tax would make good whatever deficiencies might arise from other schedules. The income-tax provision did not stand the test of examination by the United States Supreme Court, and no public revenue was ever derived from it. " Representatives and direct taxes," provides the Federal Constitution, " shall be apportioned among the several States which may 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 herein'before 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 ap portioned 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 in come, 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 taxes, and it therefore annulled the law so far as in comes of this nature were affected.' At the same time, it pronounced unconstitutional the levy of Fed eral 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 Consti tution.' 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 loth 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 the meaning of the Constitution, and was therefore void because of its unequal distribution.' This im portant ruling was sustained by five Supreme Court judges in a bench of nine, the majority vote includ ing 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 deter mining 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 oc curred, 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 lowest rate to $39,000,000 at the highest," and the lower average was predicted for the early operation of the law.' Such a result would have ensured a deficit only slightly less than those of 1895 and 1896.

In short, the Treasury had obtained little more real relief from its appeal for revenue legislation than from its appeal for authority to issue bonds. For a single month there was a surplus revenue, wholly due to payment of whiskey taxes in advance of the imposition of the increased internal schedules '; but by October, 1894, the monthly deficit had risen to thirteen million dollars, the largest of the year. Even when it had become evident that the new revenue act would not remove the deficit, Congress did nothing to help the Treasury. Its single proffer of relief, during the entire session, was a bill direct ing the Treasury to coin and use the fifty-five millions " seigniorage " theoretically acquired by the Gov ernment in buying silver at the market price and paying it out in over-valued silver dollars—a strange expedient in the face of a drain of gold forced by an already redundant circulation, and properly vetoed on that ground by the President.' This bill was urged on the usual ground that the country was suffering for lack of circulating medium, whereas the money supply, as we saw in the preceding chap ter, had been increasing more rapidly than in any previous period of our history. Never had the American money supply approached the volume shown in the Treasury estimates of February, 1894. The absurdity of the complaint of an insufficient 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 ex port gold had reduced the Treasury's gold reserve to $52,189,5oo,' or less even than its minimum before the February loan.

Another appeal was made to the New York banks to exchange their gold for the legal tenders in the Treasury, and again the banks thus surrendered some fifteen millions gold.' But this was little help; it could not affect the gold-expulsion move ment. Having borrowed on its surplus notes all of the gold obtainable, the Treasury again undertook in November to borrow on its bonds. The experi ence of January was repeated; a banking " syndi cate " was hurriedly forced together. Half the subscription gold was again obtained from the Treasury through redemption of legal tenders—not immediately, for the large subscribers had tacitly agreed to obtain their gold from other sources, but afterwards, when subscribers who had quietly bor rowed the necessary gold from other banks on thirty day gold notes repaid such obligations at maturity through Treasury redemptions. In its original pur pose, then, the loan was again a failure; the more immediately so in that the sight of a suddenly crumbling gold reserve, at a time when the Treasury 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."' The home and foreign markets were in fact forced to the belief, at the close of 1894, that pres ervation of the gold standard and of the public credit was no longer possible. It certainly had be come impossible through the whipping into Line of reluctant city banks. The first loan of 1894 had failed of its purpose within ten months; the second had failed within ten weeks, and, outside the loan market, no recourse was left to the Government. Such was the panicky rush of home and foreign capital to escape before the anticipated crash, that sterling rates advanced even above the normal specie-export point. In January, 1895, $25,900,000 gold went out on export, and the enormous sum of $45,000,000 was withdrawn from the Treasury in redemption of legal tenders.' The gold reserve had risen to $111,000,000 after the payments on the December loan of 1894; by February, 1895, it had fallen to $41,340,181, and it was falling at the rate of nearly two million dollars daily. In the first week of February, a telegram came to the Secretary from the Assistant Treasurer at New York, warning him that the New York office could hardly continue redemption of legal tenders more than one day longer.' The crisis predicted in 188o by Secretary Sherman and in 1884 by Secretary McCulloch, and foreshadowed with increasing distinctness ever since the enactment of the Law of 189o, 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 de preciated 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-ex port engagements were cancelled, and the rumor ran through all business centres that the President had met the emergency.

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