THE PANIC OF 1893 We left the Treasury, in our last chapter, con fronted for the first time in its history with a heavy drain on its gold reserve to redeem out standing notes. During the nine months after the beginning of this movement, Secretary Foster was engaged in a continuous struggle to save the re demption 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 $25,00o,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 de livered 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 tion. In December, 1892, and January, 1893, up wards of $25,o0o,000 gold was withdrawn by note holders from the Treasury to provide for export needs.'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 bond issue under the Resumption Act.' As a last resort, however, he bethought himself of Secretary Man ning's gold-borrowing operation of 1885. In Febru ary 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 entire problem could be turned over to the new Executive. To his successor in the Treasury, Mr. Foster left exactly $loo, 982,410 in the gold reserve,' and barely $25,000,000 in other forms of money.' Probably no financial administration in our history has entered office under such disheartening condi tions. The condition of the national finances was almost as bad as when the Buchanan Administration relinquished office. The Treasury was empty and the public credit shaken. But even in 1861, the line of financial policy to be pursued in the emergency was clearly pointed out, whereas in 1893 the Cleveland Administration found it impossible to frame a policy. It was indeed open to the new Administration, as to its predecessor, to issue bonds under the Law of 1875. But such a move, at such a time, was likely to involve the political ruin of the Administration, and it would certainly destroy all possibility of gaining Congressional consent to the first and most urgent measure on the Administration's books— repeal of the Silver-Purchase Law. This was beyond doubt the reason why the President's inaugural ad dress, on March 4, 1893, gave no intimation of his purposes regarding the gold reserve. Meantime the new Secretary of the Treasury merely adopted his predecessor's makeshift, appealing to the banks to give up gold in exchange for notes.' To this re quest, enthusiastically echoed in the press, and argued on the plea of patriotism, the banks again responded. In March and April, therefore, the 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.
Such a situation could not continue long. The very sight of this desperate struggle going on to maintain the public credit was sufficient to alarm both home and foreign interests, and this alarm was now reflected everywhere. The feverish money market, the disordered and uneasy market for securities, and the renewed advance in foreign ex change, combined to bring matters to a head. On April is, Secretary Carlisle gave notice that issue of Treasury gold certificates should be suspended. This action was taken merely in conformity with the Law of 1882, already cited. It was, however, public announcement that, for the first time since resumption of specie payments, the reserve against the legal tenders had fallen below the statutory mini mum. The news provoked immediate and uneasy inquiry as to what the Treasury's next move would be. No definite advices came from Washington, but in the following week a very unexpected and financially alarming rumor ran through the markets. Out of the $25,000,000 legal tenders redeemed in gold during March and April, 1893, nearly $11,000, 000 had been Treasury notes of 1890.' Under one clause of the Law of 1890, it will be remembered, the Secretary was empowered to" redeem such notes in gold or silver coin at his discretion." The burden of the rumor of April 17th was that the 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.
During the two or three days in which this rumor circulated, general misgiving and uneasiness pre vailed, the security markets fell into great disorder, foreign exchange again rose rapidly, and the money market ran up to the panicky rate of fifteen per cent. On April loth, the Secretary of the Treasury gave out a public interview, declaring that in the exercise of his discretionary power he had " been paying gold for the coin Treasury notes issued for the purchase of silver bullion, and he will continue to do so as long as he has gold lawfully available for that purpose." But this official statement, instead of allaying panic, added fuel to it. What did the Secretary mean by " gold lawfully available for that purpose " ? This was the very question at stake, and Mr. Carlisle's unfortunate, though probably un intentional, evasion had precisely the effect which such an utterance ought to have made impossible. The disturbance in the markets extended after the issue of this statement; it was not allayed until the President, on April 23d, took the matter into his own hands, announcing in a public interview with the Associated Press that despite the discretionary clause regarding redemption of the notes of 189o, " declaration of the policy of the Government to maintain the parity between the two metals seems so clearly to regulate this discretion as to dictate their redemption in gold." That the President was justified in this construc tion of the law, must be apparent from our examina tion, in a previous chapter, of the debate on the Silver-Purchase Bill. Even the free-coinage senators had declared in 189o, on the floor of Congress, that this was the actual meaning of the parity clause. It is, however, entirely probable that Mr. Carlisle wav ered 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.' Severe economy alone could have averted the approach ing retribution, and instead of practicing economy the people, like the Government, were indulging 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.' The panic of 1893, in its outbreak and in its cul mination, followed the several successive steps familiar to all such episodes. One or two powerful corporations, which had been leading in the general plunge into debt, gave the first signals of distress. On February 2oth, the Philadelphia & Reading Railway Company, with a capital of forty millions and a debt of more than $125,000,o00, went into bankruptcy; on the 5th of May, the National Cord age Company, with twenty millions capital and ten millions liabilities, followed suit. The management of both these enterprises had been marked by the rashest sort of speculation; both had been favorites on the speculative markets. The Cordage Company in particular had kept in the race for debt up to the moment of its ruin. In the very month of the Com pany's insolvency, its directors declared a heavy cash dividend; paid, as may be supposed, out of capital. As it turned out, the failure of this noto rious undertaking was the blow that undermined the structure of speculative credit. In January, National Cordage stock had advanced twelve per cent. on the New York market, selling at 147. Sixteen weeks later, it fell below ten dollars per share, and with it, during the opening week of May, the whole stock market collapsed.
The bubble of inflated credit having been thus punctured, a general movement of liquidation started. This movement immediately developed very serious symptoms. Of these symptoms the most alarming was the rapid withdrawal of cash reserves from the city banks. There are two classes of deposits on the basis of which these larger banks conduct their business: deposits by individuals and deposits by other banking institutions. A country bank in the West or South, for instance, is required by law to hold in cash a sum fifteen per cent. as large as the sum of its deposits; but it may entrust . to other banks at certain designated cities three fifths cash reserve.' Since demand for loans at these interior points is nominal except in the harvest season, and since the city banks are always willing to pay two per cent. for the use of such in terior funds, it follows that the bulk of the country bank reserves is kept perpetually on deposit in the cities.
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 employ ment to the country's general money supply. The drain of currency from the cities to the interior in the harvest season, and its return after the crops are marketed—phenomena which we have frequently had occasion to notice—are managed through this very system of re-deposit of reserves. There are nevertheless some obvious dangers in the system in a time of panic, and it will readily be understood that a violent and arbitrary expansion of the Govern ment's paper money must increase both the volume of such accounts and the incidental risk. During the two years after July, 189o, these deposits by interior banks in the city institutions had increased one third; in New York they had actually doubled.' There had been no such ratio of increase since the establishment of the national banking system; not even during the resumption period. At the close of 1892, no less a sum than $204,000,000 stood in the city banks to the credit of such smaller institutions, every dollar of this amount being payable on de mand. It was a " run " of depositors on these Western banks which in 1893 precipitated the urgent demand for return of deposited reserves from Eastern institutions.
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 deposi tors that in a general collapse of credit the banks 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. In stinct 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 posses sion 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 de positors of interior banks demanded cash, and such banks had in immediate reserve a cash fund amount ing 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 re serves of banks in that city decreased nearly twenty millions; during July, they fell off twenty-one mil lions 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 un obtainable. The cash reserves of the New York banks, that week, fell below the proportion to liabili ties 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 sum mer strain, to help out customers who were in serious straits.
But the strain was not relaxed. The use of loan certificates at New York, promptly imitated by the Clearing-House banks of Boston, Philadelphia, Bal timore, and Pittsburg, could not check the drain of cash from the East to the interior. Nor, in fact, did even this wholesale recall of deposits from the East avert the Western crisis. We have seen that the inflation of credit, during 1892, had been heaviest by far in the interior. The early withdrawals by depositors in the country banks were only a slight indication of what was to follow. In July, this Western panic had reached a stage which seemed to foreshadow general bankruptcy. Two classes of in terior institutions went down immediately—the weaker savings banks, which in that section were largely joint-stock enterprises, and a series of private banks, distributed in various provincial towns, which had fostered speculation through the use of their combined deposits by the men who controlled them all. In not a few instances, country banks were forced to suspend at a moment when their own cash 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 com panies.' 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 enor mous drain would have found compensation in im port 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 op erations in exchange, even for the import of foreign specie, were impracticable. Banks with impaired re serves 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 cer tificates that a number of banks adopted the ex treme measure of refusing to pay cash for the checks of their own depositors. Charged with such refusal in the press and on the floor of the United States Senate,' the banks simply intimated that they had not the money to pay out. This was not far from general insolvency. Long continued, a situation of the kind must reduce a portion of the community almost to a state of barter; and in fact a number of large employers of labor actually made plans in 1893 to issue a currency of their own, redeemable when the banks had resumed cash payments. On the 25th of July, the Erie Railroad failed, the powerful Milwaukee Bank suspended, and the governors of the New York Stock Exchange seriously discussed a repetition of the radical move of November, 1873, when the Exchange was closed. The very hope lessness of the situation brought its own remedy.
Relief came in two distinct and remarkable ways. Large as the volume of outstanding loan certificates already was, three New York banks combined to take out three to four millions more, and this credit fund was wholly used to facilitate gold imports. At almost the same time, the number of city banks re fusing to cash depositors' checks had grown so con siderable that well-known money-brokers advertised in the daily papers that they would pay in certified bank checks a premium for currency. This singular operation virtually meant the sale of bank checks for cash at a discount. Checks on banks which re fused cash payments were still good for the majority of ordinary exchanges, but they were useless to depositors who had, for instance, to provide large sums of cash for the weekly pay-rolls of their em ployees. Being unavailable for such purposes, the
certified checks were really depreciated—like paper money irredeemable in gold. Through the money brokers, 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 ex pedient 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 busi ness 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 deadlock of the foreign exchange market, the cur rency 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 $4.871- 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 pay ments in eagles and double-eagles. With this relief, the acute spasm of 1893 ended.
Congress was summoned in extra session at almost the darkest hour of distress. The President issued his call on June 30th, the date for the assembling of Congress was fixed at August 7th. It was probably unfortunate that the extra session was not opened earlier; but, as it happened, the financial situation indirectly favored the Administration's purposes. The session was expressly called to repeal the Silver Purchase Law of 189o, and in the popular discussion of the day, entire responsibility was laid on this law for the existing distress. Congressmen from all business communities, and in fact from all the popu lous States, were made well aware of their constitu ents' wishes before they started for Washington. This was as true of the Republicans as of the Demo crats; indeed, the Republicans were urged to sustain repeal not only by their constituents, but by their party leaders, among them Mr. Sherman, who then and afterwards declared regarding the forced issue of legal tenders: " From the date of the passage of that law to its final repeal, I was opposed to this compulsory clause." ' 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 ineffect ual struggle for a substitute, proposing successively bills for free coinage at the ratio of i6 to i, of 17 to i, of 18 to i, of 19 to i, and of 20 to I. All these propositions were rejected, though a heavy Demo cratic vote supported each. A final substitute, reviving the Silver-Coinage Act of 1878, was simi larly 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 Demo cratic 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 sec tional—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 popula tion. But we have already seen how different the situation was in the Senate. Not only did States such as Nevada, with its 45,7oo population, have equal voice in the Senate with New York or Massa chusetts, 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 with nothing but dilatory tactics. Advocates of repeal retorted by adopting the drastic expedient of a continuous session, without even a night's adjourn ment. But the physical endurance of the silver faction was equal to the test. Forty hours had to suffice; the silver senators kept the floor with a series of three-and four-hour speeches, and the at tempt to force a vote was abandoned. Next came a series of efforts by the silver senators at com promise, chiefly based on a year's continuance of the Silver-Purchase Law, and the immediate coinage of the silver bullion. The President's assent was claimed to this provision, apparently under a real misunderstanding, for his prompt repudiation of the compromise called forth the angriest demonstration of the session from members of his own party. The plan of free-coinage substitute measures was then tried again, but the measures were defeated, some times by very close majorities. At last, on the 3oth of October, the Repeal Bill passed by a majority of . In the Senate, as in the House, Republican votes were needed to carry it. Out of the 43 votes for this Administration measure of repeal, 23 were Republican and only 20 Democratic; one of the most anomalous incidents in the history of Congress.
The Law of 189o, 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. Re peal 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.
Its failure to cause immediate recovery is not at all surprising. Repeal of the Silver-Purchase Law stopped future mischief of inflation, but it could not change the mischief already done. It was hardly reasonable, therefore, to expect, as many people did in 1893, that the vote of Congress would restore pros perity. There had, it is true, been a sharp upward reaction in all the markets, when the worst midsum mer strain was relaxed. Undoubtedly, the wholesale import of foreign gold had ended the period of acute distress; indeed, the mere news of the first gold engagement, immediately following the Stock Ex change's " Black Wednesday," July 26th, resulted in a violent recovery, affecting prices not only of securities, but of commercial products. The premium on currency declined, then disappeared, and presently, though not until after some hesita tion, the hoarded legal tenders returned from their hiding-places. At length, with the opening of Sep tember, the six-months' drain of currency to the interior was ended. It returned to its accustomed channels as rapidly and suddenly as it had left them; in November, legal tenders were moving into New York at the weekly rate of eight to ten million dollars.
Panic, in short, had ended, but not until the movement of liquidation had run its course. The record of business failures for the year gives some conception of the ruin involved in this forced liquid ation. Commercial failures alone in 1893 were three times as numerous as those of 1873, and the aggre gate liabilities involved were fully fifty per cent. greater.' It was computed that nine commercial houses out of every thousand doing business in the United States failed in 1873; in 1893, the similar reckoning showed thirteen failures in every thou sand.' The after-effects of this wholesale de struction presently appeared. So long as prices in every security and commodity were forced abnor mally low by the necessities of domestic holders, foreign capital came into the markets in great amounts in search of panic bargains. But with prices moderately advanced above the lowest, the bargain-hunters left off buying, some of them sold again to take profits, and domestic trade was left to the crippled American consumer.
The consequent return of depression and in dustrial stagnation happened almost immediately after the final vote on the Repeal Bill; it was there fore alleged triumphantly by the silver party that the law which stopped the arbitrary issue of new legal-tender currency had stopped also the trade re covery. 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.
To people with a leaning towards currency in flation, this was a captivating post-hoc argument; it played its part in subsequent political campaigns. No argument, however, could have been more ab surd as applied to the autumn trade stagnation of 1893. Trade, it is true, had been cramped and crippled by the almost complete disappearance of .the circulating medium during the panic months. But in the four months beginning with July, 1893, the gold imports, the Government disbursements against its deficit, and the large issue of bank notes to supply the lack of currency,' had between them increased the actual stock of money by the huge sum of $125,000,000. While hoarding of other cur rency was in progress, these new supplies merely filled the void in circulation. But we have already seen how, in the Autumn months, the hoarded currency poured back into the channels of trade. In the closing days of 1893, so far from true was the assumption that the currency supply had been con tracted through repeal of the Act of 1890, that the increase in the available circulating medium was more rapid than at any previous period of our his tory.' We shall find this fact important in con nection with the events of 1894.
It was the judgment of many experienced watch ers of the national finances that the autumn of 1893 was the time to issue bonds for gold under the Re sumption Act and restore the Treasury's impaired reserve. As a mere commercial question, there can 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 ex ports 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 re demption, 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 im ported 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.' 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 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 ioth was actually the maximum of the season. " By October 19th," Mr. Carlisle remarked in his annual report, " it had been diminished by re demptions of currency and otherwise to $81,551,385, which is the lowest point it has ever reached." ' But the explanation of this seeming anomaly is simple. The loss of gold by the Treasury, in the face of its large receipts of specie, was not at all oc casioned by presentation of legal tenders for redemp tion; Mr. Carlisle was entirely mistaken in his state ment. During the four months after August, 1893, barely two million dollars in legal tenders were presented for altogether insignifi cant withdrawal. The truth is, that the Treasury had nothing left but the gold reserve with which to pay its ordinary bills. The Harrison Administra tion, as we saw at the beginning of this chapter, turned over in March to its successor only a meagre $25,000,000 available surplus outside the gold re serve. In the middle of 1893, when the country's commercial structure collapsed, sources of public revenue instantly dried up. Receipts had hardly met expenditures during the whole preceding the sudden fall in revenue, therefore, left the Treas ury with a heavy monthly deficit,' and an outflow of every kind of money in the Government's hands ensued. The customs revenue was the first to con tract; for with the blockade of credit and the paralysis of domestic trade, import of foreign mer chandise 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 de fined; 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 hope less outlook for a domestic selling market, the influ ence of anticipated tariff changes was trivial.' All branches of public income, in fact, fell off simultaneously in their yield, and the Treasury sur plus 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 some thing to say for that contention. But the Acts of 1875 and 1882 were obscure on this vital question, and the alternative involved some disquieting possi bilities. Mr. Carlisle, at all events, rejected the expedient, and drew on the only surplus left in the Treasury. During the last six months of 1893 the sum of $79,coo,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 pre sented 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 de crease 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 pres sure 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.