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The Silver Problem

THE SILVER PROBLEM Although President Hayes and his Secretary of the Treasury differed radically in their opinion of the legal tenders, they were agreed, at the close of the Administration, in their judgment regarding compulsory coinage of silver dollars. This was the more noteworthy, in view of Mr. Sherman's expressed disapproval of the President's veto mes sage of 1878. But the Secretary had begun to change his own mind, even before the year was over. When the Act of 1878 was passed, Mr. Sherman held that the Senate amendments " seemed to remove all serious objections to the measure." ' A few months later, he took a very different view. He began by suggesting compromises, recommending, first, " the addition of one tenth or one eighth to the thickness of the silver dollar," '—a singular proposition to make on a steadily declining silver market, and one for which, curiously enough, he obtained the Presi dent's approval.' Congress having paid no attention to this proposition, the Secretary made a still more definite appeal for the " importance of further limit ing the coinage of the silver dollar." ' But the Law of 1878 was left in force, and so rapidly now did the Secretary's misgivings deepen, that in the summer of he privately declared that " the silver law threatens to produce within a year or so a single silver standard. . . . I could at any moment, by issuing silver freely, bring a crisis."' Let us see what was the reason for this remarkably pessimistic judgment, at the very time when outside trade was moving towards the high tide of prosper ity. When President Hayes vetoed the Silver Act of 1878, he expressed his judgment that circulation of a dollar worth intrinsically less than the gold dollar would sooner or later " put an end to the re ceipt of the revenue in gold," and thus deprive the Government of the means of paying its gold obliga tions.' It was this objection to the law which presently turned out to be the matter of serious con cern. The Silver Coinage Act had been only a very short time in operation before the President's predic tion was confirmed by the movement of events.

The legal-tender notes were redeemable in coin, and since the Resumption Act was passed when the only authorized United States coin, except the trade dollar, was gold, it was quite universally conceded that gold redemption was peremptory. Even the Congressional resolution of January, 1878, which declared for silver payment on the bonds, had made no such suggestion regarding the legal-tender notes. Being redeemable in gold, the notes could not de preciate so long as the Treasury had the power and means of providing gold for such redemption. They therefore circulated freely, and were not only used for banking purposes in the cities, but were absorbed in the every-day interior exchanges, being easily portable and issued in convenient denominations.

But the silver dollars established by the Law of 1878 stood on a different basis. To begin with, it developed almost immediately that the people did not want this heavy coin for their every-day change. If any kind of currency is needed constantly by the customers of a bank, it is the business of the bank to keep that currency on hand. But if its customers do not want a given kind of currency, and ask for something different, the bank will necessarily try to pass over to other institutions the currency not in request among its depositors. This is exactly what occurred with the silver dollars throughout the States. City and country trade alike ob jected to settlements in the sillier dollars. At the time, the legal tenders forwarded from the East were sufficient as a basis for trade exchanges; the silver dollars were not necessary, as they might have been with materially larger trade. Every bank of deposit, therefore, passed them along at the earliest opportunity to its neighbor. Eventually, as Presi dent Hayes had predicted in his veto message, silver began to fill the channels of public revenue, which are the final outlet for a superfluous or unpopular currency. As early as 188o, it had proved to be im possible to keep in circulation more than thirty-five per cent. of the dollars coined.' Now it is true that what the Treasury receives in revenue—whether paper, gold, or silver—it can pay out again for public expenses. If the silver dollars would not circulate in the interior, they could be forced into circulation at the large Eastern disbursing centres, especially at New York, where the National Government's monthly expenditure at the time ran as high as twenty to thirty millions. But for a very interesting reason, this outlet was virtually blocked. The New York Sub-Treasury, it will be recalled, was a member of the Clearing-House of the New York Associated Banks. On November 12, 1878, when the Clearing-House admitted the Sub-Treasury to membership, and arranged for the free exchange of United States notes and gold, it formally resolved to " prohibit payment of balances at the Clearing House in silver certificates, or in silver dollars, ex cept as subsidiary coin, in small sums." To this condition the Treasury authorities had raised no objection.' So long as the silver circulation was small, and the return of the silver coin from interior circu lation had not yet become active, the New York Clearing-House rule was regarded as a mere rou tine banking arrangement. When, however, sil ver dollars began to crowd the channels of public revenue, the Treasury's inability to get rid of its silver through the Clearing-House became a matter of considerable moment. Its stock of legal tenders was already very low, and except for the legal tender notes, gold was the only medium for these New York payments. As a result, the silver surplus in the Treasury increased during the early months of 1880 with great rapidity, while its surplus gold fund, which had been materially enlarged during the harvest movement of the previous autumn, decreased even faster. With the Treasury's mass of gold ob ligations, this was a serious sign of danger.

This policy of the New York Clearing-House caine in for a round of angry denunciation on the floor of Congress. It was declared to be a conspiracy of Eastern bankers, designed, first, to discredit the silver currency, and second, to get the advantage of the Treasury. It was formally proscribed in July, 1882, when the twenty-year charters of the national banks, about to expire under the banking law, were renewed by Congress. In granting extension of these charters, Congress added the positive stipula tion that " no national banking association shall be a member of any clearing-house in which such [silver] certificates shall not be received in settlement of clearing-house balances." In all this controversy, the New York banks seemed to be on the defensive. Let us see, how ever, what was their actual motive. The New York banks perform for the United States the office which the London banks perform for England; they man age the country's settlements on foreign exchange and they act both as depositories and remitters of funds for the interior. We have seen that the in terior banks and their customers did not wish the silver currency; silver dollars were therefore super fluous in New York reserves for their inland busi ness. But, on the other hand, silver dollars were useless, except at a heavy discount, for settlements in foreign exchange. Had the silver dollars, like the legal tenders, being convertible at the Treasury into gold, the problem would have been somewhat altered; but they were not thus convertible.' If the silver dollar's bullion value had advanced to equa lity with the gold dollar, either coin might possibly have been used for remittance against bankers' ex change. But there was no such advance. The pur chase of two million dollars' worth of silver bullion monthly did indeed temporarily raise the price of silver. The rise, however, was only slight. There was an instant increase in the output of the silver mines, production in 1878 rising four million ounces over the previous year in the United States and eleven million in the world at large. India and China, which had absorbed ,17,000,000 silver from the London export market in 1877, took in the next year only £5,842,000.' Even without allowing for the sales of old coin by the German Government, the new demand for coinage purposes by the United States Treasury was more than offset by these plain commercial factors.

These influences, it may be observed, were con tinuous; export of silver to the East never again reached the total of 1877, and within twelve years the world's annual product had exactly doubled.' Even in 1878, the average intrinsic value of the silver dollar on the bullion market was barely eighty nine cents; in 1879, it was less than eighty-seven.' The silver coin was unavailable, therefore, for settle ments in foreign exchange, except at a discount of twelve per cent. or more. It was rejected from in terior circulation. In the event of a year of dull interior trade, it was reasonably certain, first that the surplus silver currency of the interior would heap up at New York City, and second, that gold ship ments to Europe would grow heavy. If to this double movement were to be added Government disbursements wholly or chiefly .in silver dollars, the time must eventually come when all the bank exchanges at New York would be conducted in silver coin. That this was no idle fear, but a correct view of the situation, the experience with another form of redundant currency proved conclusively in 1892.

But the inevitable result of such conversion of the New York banking reserve into silver coin worth in trinsically less than gold would be that gold for pur poses of foreign settlements could be had only at a premium. In other words, the entire currency would depreciate. It was to avert this possibility that the Clearing-House framed its rule of 1878. It was a most unusual move, and it could hardly in the end have prevented a fall to the silver standard, if the country had remained unable to absorb the two millions' monthly coinage. At New York, never theless, it was regarded as a measure of self-preser vation, and this was what Secretary Sherman meant when he said in 188o that by issuing silver freely he could at any time bring on a crisis. Both the banks and the Treasury recognized the nature of the situation, even in 1882. When the New York Clearing-House, after the passage of the law for bidding national banks to co-operate in a clearing house which excluded silver, resolved that the institution's rules " be amended so far as they con flict with section 12 of the Act of July 12, 1882," not only did no bank take advantage of the op portunity to tender silver for its balances, but the Treasury itself, in its transactions with the Clearing-House, pursued exactly the same policy.' It pursued it, notwithstanding the fact that the re turn of silver currency from circulation, in the nine months after the harvest season of 1879, increased the Government's silver surplus eleven million dol lars, while its gold reserve, which had to be drawn upon for Eastern settlements, declined from $157, 000,000 to $115,000,000.

But the crisis predicted by Mr. Sherman did not come, and we shall readily discover why. The trouble in the summer of 1880 arose partly from the fact that the new silver issues were in excess of the needs of interior trade. But a money supply which is sufficient, or even superfluous, for the trade ex changes of one season, may be only large enough in another, when the volume of trade has greatly ex panded. Something like this happened in the au tumn of 188o, when interior trade, as we have seen, rose to unprecedented volume. Not only did the West and South retain in permanent circulation a large part of the legal-tender notes shipped to them in the harvest movement of 1879, but they now drew heavily on the East for fresh remittances. Again, as is usual under such conditions, the Eastern banks drew gold from Europe and shipped their own legal tenders inland. But the absorption of Government notes in the two preceding active seasons had largely drained the East of this form of currency. During the autumn of 188o, the legal-tender reserve of the New York banks fell to the very low aggregate of $1 1,989,000, only half as much as they had held a year before.' Their gold holdings, on the other hand, were very large, and they now applied to the Treas ury, as they had done in 1879, to exchange its own surplus of legal-tender notes for gold.

Meantime, however, the very causes which had drained off the legal tenders from the Eastern banks had also reduced the Treasury's supply to small pro portions. At the close of 188o the Government held less of the legal tenders even than the New York banks. This was the opportunity for relieving the Treasury's stock of idle silver, and it was promptly utilized. In September, 188o, Secretary Sherman offered, in return for deposit of gold at seaboard cities, to supply exchange on interior sub-treasuries, payable at those points in silver coin. The offer, under the circumstances, was very generally ac cepted. The silver shipments, it is true, were ex pensive to the Government, and the coin, even when delivered, would not stay in circulation, but was promptly tendered again for silver certificates.' This was interesting evidence, at the height of the interior demand for currency, that silver dollars were un popular, even in quarters where the silver advocates had pictured the trade as eager for that form of cur rency. The silver certificates, under the Law of 1878, could not be issued in denominations smaller than ten dollars; nevertheless, these bills were obviously preferred to the coin itself by the interior trade. But even in this form, the operation served the Treasury's purposes. During the twelve months following the issue of the circular, this arrangement with the Eastern banks put $23,560,000 of the Gov ernment's silver surplus into circulation from the sub-treasuries of New Orleans, St. Louis, Cincinnati, and Chicago, and replaced it with imported gold.' In the five last months of 188o—almost immediately after Mr. Sherman's despondent prophecy,—the silver surplus in the Treasury fell from $46,256,000 to $18,246,00o, and its surplus gold fund rose from $115,000,0oo to $15o,000,000. The danger of a sil ver standard had apparently disappeared.

I have gone thus fully into this introductory silver coinage episode, at the risk of wearying the reader with particulars, because no chapter of our financial history is so widely misunderstood. The fact that the Eastern banks in 1878 and 1879 virtually refused to accept silver dollars from the Treasury, whereas in 188o they paid gold for them, is often cited as proof that the Clearing-House rule against silver payments was unwarranted. From the fact that the interior trade absorbed the silver currency in the autumn of 1880, it has been inferred that only the op position of the banks prevented its ready interior circulation a year before. The reader will now, I think, be able to understand the reason for both these seeming discrepancies. The silver currency was superfluous in the spring of 1880; therefore it was thrown back upon the Treasury and the East. It was not superfluous in the winter of 1880, be cause the volume of trade had expanded even more rapidly than the increase in the currency. Ob viously, the question of the future was, whether interior trade would continue to expand with suffi cient uniformity to absorb the $25,000,000 annual silver coinage of the future, as it had apparently absorbed the coinage of 1880.

There were some signs of a change in the move ment of prosperity, as early as 1881. Most people, in succeeding years, were accustomed to date back the " turn of the tide " to the assassination of Presi dent Garfield on July 2, 1881. Undoubtedly this event was a shock to the financial markets; particu larly to markets in which excited speculation for the rise had cut so large a figure as it did in those of 1880 and 1881. But Garfield's death was not a de cisive influence on the situation; it was in fact a coincidence rather than a cause. A far more per manent influence was exerted by the destructive drought of 1881 in the entire harvest district of the United States. The country's wheat crop of that year turned out only three fourths as large as the crop of 188o; its corn crop was the smallest since To the farmers, there was an unexpected com pensation for this shortage; a wet harvest season in England and on the European continent cut down the wheat yield of the foreign producers also. Foreign and home demand for grain was very heavy, and what could be spared for export was sold at high prices. According to the Agricultural Bureau's estimate, the total market value of the year's American grain harvest, small as its volume was, exceeded the value even of the great crop of 1880. But in two other directions, the harvest short age of 1881 had more unpleasant results. The rail ways suffered severely from the decrease of grain supplies on which they relied for traffic. Their freight earnings, in the ensuing year, decreased no less than At the same time, the scarcity of grain for export cut down the country's export trade. This happened at a time when im ports of foreign merchandise had been excessively stimulated by the protracted speculation for the rise in almost every market, and, as a consequence, the excess of exports over imports, which in the twelve months ending with June, 1881, had reached the enormous sum of $259,70o,000, fell in the next twelve months to less than $26,o0o,000. By the close of 1881, the foreign exchanges, so long held down in favor of the United States, began to move against us. By March, 1882, heavy export of gold began; before the close of the fiscal year, in June, $32,500,000 had been shipped,—the largest export of gold since 1876.

This decided change in foreign trade meant, of course,. that the country's command over foreign capital was lessened. But the impetus to industrial prosperity, in the two preceding years, had been so great that the reaction was slow in developing. What was lost in foreign capital seemed to be made up in home support, and the earlier markets of 1882 appeared to reflect actually increased prosperity. So far as prices were an index to the situation, the average level of 1882, on all the American commod ity markets, was the highest in half a dozen years.' Unfortunately, these very commodity prices were fixed and sustained by the use of credit on a highly speculative basis. " It could not be regarded as a favorable circumstance," one contemporary critic wrote, in reviewing 1882, " that so many parties in various kinds of business, and even professional men, were engaged in carrying stocks, produce, cotton, petroleum, and so forth, on margin." Before the year was half over a movement of liquidation was ap parent. It was disguised, as such operations always are, but the facts might easily be inferred from actual results. The investment markets were then, as usual, typical of the general situation. During a good part of the year, the strongest capitalists and speculators were kept busy denying reports that they had been selling securities. Most of them, like Mr. William H. Vanderbilt, answered the accusation by liberal pre dictions of prices still higher than the inflated values lately prevalent. Mr. Jay Gould evolved the charac teristic expedient of exhibiting to a select committee the contents of his safe, comprising $53,000,000 rail way and telegraph share certificates made out in his own name. This, too, was designed to prove that the owner of the shares was not a seller. Nothing, however, to an experienced eye, could better have proved the existence of liquidation than these care ful efforts to disprove it. As a matter of fact, all of the markets were moving downward by the middle of 1882. In the produce markets, the movement was emphatic, and it reflected the very patent fact that the United States was now losing the singular advantage which it had for three years enjoyed in the foreign trade. The American grain harvest of 1882 was only a trifle smaller than the great harvest of 1880. But in 188o the European crops ran short, whereas in 1882 the foreign states produced the largest total wheat crop in their history.' For the first time since 1878, the American farmer met urgent competition in the export market, and the price of wheat, which in May, 1882, had touched $1.40 per bushel in Chicago, fell in December to 91* cents.

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

The bearing of this altered trade situation on the silver-currency problem we shall presently notice. For the time, the currency problem was in a con siderable measure obscured by the question of the surplus revenue. The enormous importations of foreign merchandise, which in 1882 were larger by sixty per cent. than those of 1879, and the conse quent increase of the customs, had now intro duced that unique problem of American finance, a revenue too large to be conveniently disposed of. The surplus of public revenue over expenditure was $6,879,300 in the fiscal year 1879; in 1882 it was $145,543,810. Now it is true that the funded debt of the United States, even after the large redemp tion of bonds in the ten preceding years, remained at a billion and a half of dollars, and that nearly one third of these outstanding bonds were redeemable at par at the pleasure of the Government.' But the surplus revenue, if continued at the annual rate of 1882, would extinguish all this redeemable debt within three years, leaving no outlet for the surplus except purchase of unmatured bonds at whatever price they commanded in the market, or enormous increase in expenditure.' The Administration reasoned that such an out look pointed distinctly to reduction of the taxes, and to that end the President and the Secretary of the Treasury earnestly urged on Congress a revision of the customs tariff.' President Arthur went beyond the mere question of the surplus, and submitted a strong plea for the relief of " industry and enterprise from the pressure of unnecessary taxation." Un fortunately for this apparently reasonable advice, the customs taxes were protective, and the Republican party, then in power in all branches of the Govern ment, was committed to protection. Rather than reduce the surplus revenue, therefore, Congress began to spend it. Out of the forty-four millions

increase in the annual Government expenditure, be tween 1879 and 1883, only a trifling part arose from larger outlay for the Civil List, the Federal arma ment, or the Indians. In 1872, when reporting the session's appropriation bill, General Garfield had de clared in the House of Representatives: " We may reasonably expect that the expenditures for pensions will hereafter steadily decrease, unless our legisla tion should be unwarrantably extravagant."' And in fact, between 1872 and 1878 the annual expendi ture of the Pension Bureau did decrease some seven millions.

Now, however, the annual disbursement on that account increased from $27,137,019 in 1878 to $61,345,193 in 1882, and the new Congress, in its session during the spring of 1882, appropriated for pensions in the ensuing fiscal year no less a sum than $100,000,000. In similar spirit, these legis lators had applied themselves to Federal outlay for river and harbor work. During previous ad ministrations, such appropriations had ranged from $3,975,000 in the session of 1870 to $8,201,700 in 1878. The budget began to rise, even before the Forty-seventh Congress, elected in 188o, came into power; but this body, once assembled, broke all records. In its first session, river and harbor ap propriations reached the wholly unprecedented sum of $18,743,875. Angry criticism at this extrava gance was already spreading in the press and in popular discussion, and the nature of the policy now pursued by Congress was powerfully illustrated by the veto episode of 1882. In August of that year, President Arthur refused his signature to the Rivet and Harbor Bill, on the grounds of its unconstitu tionality and unwarranted diversion of public funds.' Within twenty-four hours the bill was passed over this Presidential veto, and the majority of votes to override the veto came from Administration Congressmen.

This incident happened at an unfortunate moment for the ruling party. Up to this time the annual elections had been influenced by the remarkable prosperity of the country, which served, as such con ditions usually do, to sustain the popular approval of the party in power. Severe reactions of public sentiment are not unusual in the year after a Presi dential victory; but the vote of November, 188r, had been decidedly favorable to the Republican party. Even in such States as Ohio, New Jersey, Iowa, Wisconsin, and Michigan, the dominant party had retained its advantage of 1880. We have seen, however, that the trade advantage was largely lost before the autumn of 1882. The fall in wheat and cotton, however inevitable, had aroused a feeling of discontent in the West and South. In the East, the large gold exports and the irregular money market had embarrassed trade sufficiently to make the people willing to listen to criticism of public policy. When the action of Congress was as vulnerable to criticism as was that of the spring session of 1882, it is not surprising that the opposition party made the recent legislative extravagance the text of its campaign declarations. Partisan use of the " spoils " of 1880. and the very rash attempt of the Executive to control the nomination for Governor of New York, were also called into public question; but since Congres sional elections were impending, the record of Con gress itself naturally played the leading part. The Republicans themselves could not fail to recognize the importance of this issue. So peculiarly embar rassing was the veto episode to the Administration party, that even the New York Republican State convention formally applauded the President's " courage in resisting the enactment of the River and Harbor Bill, which violated the accepted rules of constitutional power."' This was hardly a serviceable " plank " for a Congressional campaign. Meantime the opposition not only assailed the extravagant expenditures, but demanded that the excessive revenue which made them possible should be cut down by remission of taxation. In short, the Administration party, no longer helped by seemingly unlimited prosperity, was clearly on the defensive, and the result was an over whelming Republican defeat. A Republican plural ity of twelve in the Forty-seventh Congress was turned in the Forty-eighth into a Democratic plural ity of seventy-seven. Congressional delegations from States such as New York and Ohio, in which a large majority of the successful candidates in 1880 had been Republicans, were returned in 1882 with an almost equally large majority of Democrats. Alonzo B. Cor nell had been elected Governor in New York State in 1879 by a Republican plurality of 42,777; in 1882, Grover Cleveland was chosen Governor on the Democratic ticket by a plurality of 192,854. Robert E. Pattison, running for Governor of Pennsylvania on the Democratic ticket, carried that Republican stronghold by 40,202 plurality. In States as widely separated as Connecticut, Michigan, Kansas, Colo rado, and California, the Democrats reversed majori ties from the previous elections and carried their candidates for Governor into office. The tide of political reaction ran so high in Massachusetts that General B. F. Butler, who had captured the Demo cratic nomination despite his inflationist record, was chosen Governor by a plurality of 13,949.

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

The commission's recommendations were not, however, altogether what its creators had expected. According to its own statement to Congress, the commission's bill aimed at an average reduction in tariff rates of not less than twenty per cent.' This proposed reduction, as the president of the commis sion afterwards declared, was an unwilling " conces sion to public sentiment,"' and the uncompromising faction did some singular work with it in Congress. The commission bill was either blockaded or radi cally altered, first in one house and then, on a different basis, in the other. Eventually the House and Senate disagreed, whereupon a conference com mittee, after a plan which later gained even more ce lebrity, settled a compromise by raising duties higher than those proposed by either branch of Congress.' In the end, while numerous duties—those on cloths especially—were reduced, other and equally impor tant tariffs, such as those on metal manufactures, were materially increased. Since it was doubtful if these conflicting changes in the import duties would reduce the revenue, Congress applied itself to the internal taxes. Under the Revenue Act of 1872, with its later amendments, manufactured cigars had been assessed six dollars per thousand, and had yielded $18,000,000 annually; the tax was now re duced to three. On tobacco, the impost, which produced in 1882 $25,000,000, was cut down from sixteen cents a pound to eight.

There has been a curious fatality in the coincidence of tariff revision, in this country, with trade reaction. The Tariff Acts of 1872, of 1883, of 1890, and of 1894, in every case accompanied or shortly preceded a period of serious commercial distress, and.the coinci dence has been plausibly used by opponents of revenue revision. Now it cannot well be questioned that the American practice of ripping up by whole sale a complicated import tariff runs two very serious risks. It is pretty sure to derange at least one season's plans in the industries affected, and it is apt to make a bad miscalculation as to future pub lic revenue. Of this second possibility, we shall find some very forcible examples in our review of 1890 and 1894. How far, if at all, these later meas ures were a factor in the subsequent trade reactions, we shall then inquire. It has been very commonly asserted that the change of import duties during 1883 had such unfavorable influence. The Tariff Act became a law in March, 1883; public revenue decreased $50,000,000 in the twelve months ending with June, 1884, and something like $25,003,003 in the fiscal year 1885; and in 1884 the financial situa tion reached a crisis. To those who opposed any change in the protective-tariff system, the inference was accordingly drawn, that the tariff changes caused the trade reaction.

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

Nothing can better prove the purpose of the legislators than the original title of the Law of 1883: " a bill to reduce internal taxation." We have seen already that taxes on tobacco manufactures were reduced forty to fifty per cent.; in the preceding fiscal year they had yielded $47,000,000 revenue. Taxes on bank deposits, capital, and checks, and on other miscellaneous objects, had hitherto yielded annually upwards of $10,000,000; these taxes were abolished. Here, then, was $31, 000,000 struck off deliberately,' without considering the movement of the customs revenue. But the conclusive proof that changes in the import duties did not affect the fall in revenue is shown by the average rate imposed and collected before and after the Act of 1883. By the official record, average rate of duty actually collected during the fiscal year 1883 (less than four months of which came under the new tariff) was 42.45 per cent., whereas in 1885 the aver age rate had risen to 45.86.' The financial troubles of 1884, then, did not in any respect arise from changes in the tariff. What did occasion the misgivings with which that year began is not at all difficult to discover. For the time had now arrived to test the question whether it was possible, with the existing supply of other forms of currency, to circulate twenty-five million new silver dollars annually. Even in 1882, the Treasury authorities warned Congress that the seem ing demand for silver in the interior was artificial and temporary, and that, despite this demand, a slow but ominous displacement of the Treasury's gold with silver was already in progress.' Congress had replied only by its attempt to break down the prohibitory rule of the New York Clearing House, and thus force the dollars into Eastern circulation.

After the very general reactions in the markets of 1882, the volume of interior trade decreased con tinuously; a logical outcome, certainly, of the dis covery that production had far outrun the imme. diate home and foreign demand. Genuine trade demand for money, in any country, is accurately measured by the bank exchanges of a season at the commercial centres. Now in 1881, these exchanges in the leading American cities were larger by nearly sixty per cent. than those of 1879, and the decrease in 1882 was only slight. But total exchanges at the same points in 1883 decreased fourteen per cent. from 1882; in 1884, they fell off eighteen per cent. further.' While, therefore, the silver currency was increasing with unaltered regularity, opportunity for its employment was decreasing even more rapidly. The question as to the movement of silver coin, in default of continuous commercial expansion, was now answered very emphatically. In 1883, as in the spring of 188o, a silver surplus again began to pile up in the Treasury. Foreign exchange moved heavily against us. Europe not only bought from the United States the smallest amount of merchan dise in five years, but it sold on the American markets as large a supply of foreign goods as that of 188o, and sold in addition a heavy instalment of its American securities. In March, 1884, $12,2oo, 000 gold was shipped to Europe; in April, $21,000, 000. Payment of gold in public revenue decreased rapidly; payment in silver as rapidly increased. The crisis foreshadowed in 188o by Secretary Sher man seemed to be imminent.

The so-called panic of 1884, an immediate conse quence of these disquieting developments, chiefly affected the security markets. It was provoked, first, by the heavy liquidation of securities, already no ticed, and by the embarrassment of several over-cap italized railway companies; second, by uneasiness over the currency situation, which was decidedly em phasized, in February, by the ill-judged hint of the local Treasury authorities that it might be deemed ad visable to force out silver through the Treasury pay ments at New York.' This rumor had an influence much like that of a similar Treasury rumor in the financial uneasiness nine years later. But the range of the resultant panic was not much wider than New York City, nor was the financial crisis similar in grav ity to those of 1873 and 1893. Symptoms such as the hoarding of currency, causing a public premium on every form of money; the complete blockade of foreign and domestic exchange, the general run upon the savings-banks, the failure of sound deposi tory institutions, and the temporary suspension of American industry, were witnessed in both the earlier and the later panic year; but there was nothing of the kind in 1884. Business in all departments of production was indeed seriously depressed, and re sults unsatisfactory, as regards both volume of trade and prices.' But the manner in which the producing and mercantile communities endured the money market strain proved pretty conclusively two facts: first, that the liquidating process, during the two preceding years, had been thorough; and second, that underneath the crumbling structure of specula tion was a firm foundation of genuine and increased wealth.' The stock markets, however, passed in May, 1884, through an acute and very alarming convulsion; led up to by the commercial depression, the flight of foreign capital, and the disordered Treasury finances, and immediately precipitated by the discovery of several vast financial frauds. Looking at 1884 in retrospect, it would seem that the financial com munity for a day or two lost faith entirely in the honesty and credit of its members. It is no unusual incident for a group of swindlers and defaulters, who have escaped detection while their speculative " mar gins " could be sustained, to be exposed with mer ciless publicity when the markets break suddenly away from them, and the falling markets of the season found plenty of such ventures ripe for de struction. But the 1884 disclosures were of a peculiar order. The theft of $3,185,000 of a New York City bank's securities by its president, without the least misgiving on the part of its officers or directors; the failure of a second-rate Wall Street firm for $16,000,000, with assets of $67,000; the ruin of a strong national bank through its president's connection with this firm, despite his knowledge of its fraudulent representations '; the suspension of another well-known institution through the notorious speculations of its president,'—these were disquiet ing developments enough, had they come separately and singly. But when it is considered that the per formances of John C. Eno, Grant & Ward, the Marine Bank, and the Metropolitan Bank, all came to public knowledge within a single week and in the same community, the shock to financial confidence is not hard to understand.

It resulted on the Stock Exchange, during a day or two, in what can only be described as a delirium of panic; prices of standard dividend-paying shares collapsing, from a level already very low, fifteen to twenty per cent. in as many hours, while the rate for loans on call ran up as high as three per cent. a day. But the spasm was not continu ous; the low level of security prices was touched within a very few weeks of the acute collapse. Even the sudden and very serious strain upon the money market was relieved by a contrivance virtu ally introduced during the panic of 1873, whereby the Clearing-House issued to any bank in its mem bership loan certificates, secured by the deposit of that bank's securities to a value greater by twenty five per cent. than the certificates allotted, and receivable in lieu of cash in settlement of balances at the Clearing-House. Through this emergency device, banks whose cash reserves were impaired during the panic avoided actual suspension. Against deposit with the Clearing-House of sound commer cial paper not at the moment marketable, they took out $24,915,000 of such loan certificates, thus tiding over the worst of the money-market crisis.' We shall encounter this noteworthy banking makeshift under still more interesting circumstances, in our re view of 1893.

This New York panic in the spring was followed by a heavy fall in agricultural prices; partly occa sioned, perhaps, by the disordered money markets, but chiefly by the immense increase of home and foreign production. The American grain crop of 1884 was larger even than that of 1882; the whole world's wheat production was twelve per cent. larger than the crop of 1878, under which, it will be remem bered, prices had broken continuously.' In 1884, the price of wheat fell lower than in 1878; in other staple products, prices fell nearly to the level of the earlier year of depression. If, as had been argued in the debates of 1878, the fall in prices was caused by an insufficient currency, no such result ought to have been expected in 1884; for notwithstanding the gold shipments of the year, the total 'money supply in circulation in the United States had in creased $425,000,000, or fifty per cent., since the resumption of specie payments.' The debaters of 1878 were not familiar, however, with the statistics of foreign grain production. Neces sities of life can never, strictly speaking, be " over-pro duced," but they may be produced in such quantity that, in order to sell them all, new customers must be brought in by fixing a lower range of prices. The world's product of wheat, in 1884, was not only the largest in history, but it was not equalled again dur ing the next half-dozen years.' The average price of wheat in 1884, accordingly, was not only the lowest ever touched up to that time in American history, but it was also lower than any yearly average there after until 1892.' Public authorities on agriculture flatly declared that there was no profit in raising wheat at the prices of 1884.' This was undoubtedly an exaggeration; but when a National Bureau of Agriculture published such a statement, it is -not difficult to guess what must have been the feeling of the farmer.

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

The Democratic party thus obtained control of the National Administration, for the first time in twenty-four years. It inherited from its predecessor a very serious financial situation, the outcome of which, when President Cleveland took office in 1885, was extremely doubtful. The pessimism prevalent even in the Administration which relinquished office was frankly voiced in its final Treasury report. Through a curious irony of fortune, Hugh Mc Culloch, whose own plan of resumption had been repudiated eighteen years before, was called again to the Treasury, in his old age and in the closing months of the Arthur Administration, to witness what seemed to be the undermining of the Sherman resumption plan. His view of the situation was wholly discouraging. " Silver certificates," he wrote in his report of December, 1884, " are taking the place of gold "; " a panic or an adverse current of exchange might compel the use in ordinary pay ments by the Treasury of the gold held for the re demption of the United States notes, or the use of silver or silver certificates in the payment of its gold obligations."' On one occcasion, the Treasury be gan to force out silver through the Clearing-House.' Mr. McCulloch's gloomy forecast was confirmed by the new Executive. " Silver and silver certifi cates have displaced and are now displacing gold," wrote the President-elect, early in 1885; adding that the part of the Treasury's gold reserve pledged for redemption of the legal tenders, " if not already encroached upon, is perilously near such encroach ment."

gold, trade, york, treasury and foreign