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The Surplus Revenue

THE SURPLUS REVENUE Almost the first act of the Cleveland Adminis tration, in its management of the Treasury, suggested that Government finances were in imme diate and serious straits. Its surplus gold reserve, by midsummer, 1885, was down to $115,000,000— hardly more than was held at the resumption of specie payments; this reserve was falling three or four millions every month, and the July interest payments drew on it heavily. The Treasury's sur plus of silver dollars meantime had risen by July to the unprecedented sum of $71,5oo,000, and was in creasing two to three million dollars monthly. The recourse first adopted by the Treasury was an appeal to the New York banks for help. These institu tions responded by turning over to the Treasury in July of 1885 some $5,915,000 gold from their own reserves, taking in place of it fractional silver coin, of which the Treasury happened then to have on hand an exceptionally large supply.' As a precedent, this action was important; as a permanent solution of the Treasury's difficulties, it was quite as fruitless then as the similar recourse was in 1893 and 1894. The silver, after being held by the New York Clearing-House for three or four months, as security for certificates issued to its owners and used in bank exchanges, was returned to the Treasury for legal tenders.' Fortunately, the new Administration did not base its subsequent operations on makeshifts such as this. What it did undertake was very interesting. It had been observed, in connection with the outflow of legal-tender currency to the interior during and after 1879, that bills in small denominations were most apt to stay in circulation. In the two years 1880 and 1881, for instance, the Treasury paid out some $70,000,000 Government notes in one-, two-, and five-dollar bills. Against this outflow of small notes, only $46,000,000 was paid back to the Treasury, during the period, in notes of the same denomina tions. On the other hand, the Treasury received in revenue during the same two years, in notes for one hundred dollars and upwards, four times as large a sum as it paid out.' I have already called attention to the automatic law under which a bank keeps on hand for permanent circulation the currency needed by its depositors for daily uses; passing along, there fore, in settlements with other banks or with the Treasury, such forms of currency as its depositors do not need. The failure of the small notes to re turn from circulation had proved, therefore, that such denominations could be kept in constant use. Nor is this preference hard to understand. Wages are paid in bills for five dollars or less; retail pur chases rarely require exchange of anything larger than a ten-dollar bill. Very few people carry about with them currency in bills of one hundred or five hundred dollars, but every citizen is apt to have in his pocket-book a handful of paper money in the smaller denominations. The pocket-books of sixty million citizens, with business active, are capable of absorbing permanently, in this way, enormous sums.

Now the framers of the Silver Act of 1878 had an idea that silver dollars would serve exactly such a purpose. In this they were mistaken. The people would not take these heavy coins in any quantities from their depositories; they insisted on being sup plied with other forms of currency; so much so that in 1885 a million more than the whole year's silver dollar coinage came back to the Treasury.' The people had not the same objection to the silver cer tificates. As we saw in studying the results of the silver shipments south and west after 188o, the recipients of these dollars turned them back to the nearest sub-treasury in exchange for silver certifi cates, but they took the certificates readily enough. But the provision of the Law of 1878 that silver certificates should not be issued in denominations of less than ten dollars prevented their use for ordinary retail purposes. Such a provision virtually declared that there should be no pocket-money, the per manent circulating medium, in that form of currency.

The Treasury now undertook to reverse this situa tion. The people had the legal-tender notes which the Treasury needed to facilitate its own New York exchanges, and they would not take the silver cur rency which was embarrassing the Treasury. Might it not, then, be possible to issue silver certificates in one-, two-, and five-dollar denominations, and mean time to hold back in the Treasury reserve such small legal-tender notes as should from time to time be received in revenue 1 The project would, of course, involve the establishment of store-houses for the idle silver dollars held against the certificates outstand ing. Even in 1885, one hundred million of the coins were thus stored away. But the plan would serve at any rate, if successful, to transfer ownership of these dollars from the Treasury to outsiders; it would substitute another form of money in the Treasury's own balances, and, what was more im portant, it would prevent the silver currency from coming back in the revenue in such quantities as to embarrass the Treasury's operations. If the people were to keep the silver certificates for their daily uses, heavy payments to the Government must be made in gold or legal tenders, and either currency could be freely used again in all Clearing-House ex changes.

The new Administration began by keeping in the Treasury all of the one- and two-dollar legal tenders paid to it, and by using in its own disbursements only notes in large denominations. This policy had prompt results. Within a year, complaint of the scarcity of small notes came in from various sections of the country; and in 1886 Congress was asked to permit the issue of silver certificates in small denom inations. Congress consented grudgingly, and in August, 1886, it authorized the issue of such silver currency in one-, two-, and five-dollar bills, and the exchange of large silver certificates for an equal amount in small denominations. With this author ity, the Treasury tried at once the experiment of dislodging the legal tenders from the people's pocket books and replacing them with small silver certifi cates, and the plan succeeded. By 1888, there were $34,000,000 less in legal-tender notes for one, two, and five dollars in the country's circulation than in 1886, and all this void was filled by newly issued silver currency in the same denominations.

Meantime another influence was at work, which was much more useful to the Treasury's plans. I have mentioned the Government legal-tender cur rency as a permanent medium of retail circulation; I have not yet noticed the circulating national bank notes. These notes were a very important factor in the operation just described. In 1884, there were more of the bank notes outstanding than there were of the legal tenders, and more than half of such outstanding bank notes were in denom inations of ten dollars or less.' The demand for currency in the rapid trade expansion after 1879 had not only attracted foreign gold, and absorbed into interior circulation legal tenders and even silver, but it had stimulated the national banks to add some thirty millions to their circulating notes. It will be recalled that the check to trade activity, after the summer of 1882, sent gold back to Europe and silver and Government notes back to the Eastern banks and the Treasury. The same business motive, there fore, which had inspired the banks, in the three pre ceding years, to increase their note circulation, now encouraged reduction of such issues.

Nor was the state of trade the only motive for such reduction. Under the National Banking Law, a bank wishing to issue notes was required to deposit Government bonds with the Treasury, against which it would receive in its own notes ninety per cent. of the par value of the bonds deposited. This is an admirable contrivance to ensure soundness in a bank note circulation, but a very doubtful expedient to ensure its permanency. The Bank of England is not allowed to sell the public securities on which its circulation rests; the banks of the United States have a perfect right to do so, provided they retire the circulation issued against such bonds. Not only did the banks possess the right of sale, but in the case of bonds, like the three per cents, redeemable on call, banks were forced to surrender both bonds and circulation when the Government was paying out its surplus. In 1883, upwards of $353,000,000 Government bonds were on deposit as a basis of bank-note circulation. Out of this total, more than $200,000,000 were in the three per cents,' and it was naturally these very three per cents which the Treasury selected in its public-debt redemptions. Whenever such bonds were called for redemption, the bank possessing them was compelled either to replace them with other Government issues bought on the open market, or else to retire its circulating notes. Under the circumstances, it is not surprising that the circulation was surrendered. Fully three fourths of the bank notes thus retired from circulation were in small denominations; and this, of course, signified growing scarcity in money available for small ex changes.

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

The particular causes of this surplus revenue, whose consequences in many different directions were destined to be of the utmost importance, we shall presently examine. Its influence on the cur rency_ was immediate. To avoid direct contraction trough heaping up a constantly increasing sum of money in the Treasury, the Government again en larged its purchases of outstanding bonds. In the fiscal year 1886 it had bought only $50,000,000; in 1887 it purchased $125,000,000; in 1888, $130, ()moo°. When, later on, the three per cents, re deemable at the Government's will, had all been retired through such purchases, the Treasury began to bid in the open market for its unmatured bonds. Banks which had paid 102 in 1879 for the four per cents, for instance, and had since employed the bonds as a basis of circulation, were now offered a steady market for them at 125 or higher. The temptation to accept such profit was strong, and the banks accordingly began to retire the circulation based on the four per cents. Between 1886 and 189o, national bank-note circulation decreased $126, 000,000, nearly one half this decrease being in notes of five or ten dollars each.

Such a reduction in the retail currency, coming along with the Treasury's policy of keeping in its own reserve the smaller legal tenders, opened the gate wide for the silver certificates. Even in 1886, the Treasurer was able to report that the average proportion of silver currency in payments at the New York Custom-House was barely twelve per cent., against thirty-six per cent. in 1885, while the percentage paid in legal tenders, which the Treasury could freely disburse again through the Clearing House, increased from twenty-seven per cent. to fifty-nine.' In the eight years between the passage of the Silver-Coinage Law and the middle of 1886, $150,000,000 silver coin and certificates had been put into general circulation; in the four years after 1886, the country absorbed $200,000,000 more, and this four-year increase happened coincidently, as we have already seen, with a shrinkage of $126,000,000 in the bank-note circulation.

The Treasury's silver surplus, meantime, was re duced with such rapidity that it fell from $99,745, 750 at the opening of August, 1886, to exactly one year afterwards, and to barely $19,000, coo before the close of the Cleveland Administra tion. Most people will remember how suddenly, in those years, they lost sight of the once familiar bank-notes and small legal-tender pocket-money, and found instead, in their daily exchanges of petty cash, the new silver certificates. Whoever noticed this was unconsciously observing the working-out of one of the most curious economic experiments of the century.

For the second time, therefore, the anticipated crisis in the currency was averted, and on this occa sion, so far as the silver certificates were concerned, it was permanently set at rest. What will occur in relation to this and other forms of United States currency in the future is a matter of simple guess work. But with the subsequent halt in compulsory silver-coinage, under the law which will be noticed in the next chapter, the silver certificates took the place of the cancelled bank-notes in the retail circu lation. In 1891 the bank currency reached its lowest point since 1865, but even at the close of the fiscal year 1896, the country's national bank-note circu lation was $137,000,000 less than its maximum of 1882, and the silver currency made up one fourth of the total money supply outside the Treasury.

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

The excessive rise in surplus revenue, after 1886, happened in spite of a further considerable increase in public expenditure. It was partly caused by a general increase in the product of internal taxes, but of the total gain in annual income, sixty per cent. was made at the custom-house. In 1885, the import duties made the lowest yield of any year under the tariff of 1883; in 189o, under the same law, they had risen forty-eight million dollars, reaching the highest record in the history of the Government, before or since.

No such increase would have been possible with out an equally remarkable increase in the import of foreign merchandise, and no such expansion could occur in the import trade without some notable changes in the industrial situation. Such a change had in fact occurred. As compared with the re sumption period, these years did not reach the high range of prosperity. They were, however, a period of great activity in trade. We saw that recovery from the 1884 collapse was rapid. Prices did not move up as in 1879 and 1880, for the reason that foreign competition, in all branches of production, including agriculture, was continuous. But profits, though irregular, averaged fairly well on a largely increased volume of business. Of 1886 itself, contemporary critics wrote that it was " the best business year since 1880 " '; of 1889, that it " surpassed all predecessors in the volume- of trade movements."' In the dry-goods industry, " an unusually large and prosperous trade was done in 1888,"' and in 1889, " distributors were in such good spirits that their operations for the spring were exceptionally liberal." ' The active markets during 1887 and 1888 induced some repetition of the experiments of 1880; wheat and coffee were " cornered " on more than one occasion in the speculative markets. In the first of these two years the experiment broke down disastrously, but in September, 1888, wheat was put up to two dollars a bushel. The iron busi ness was prosperous. Between 1885 and 1889, an nual consumption of iron in the United States considerably more than doubled.' In 1887, came a decided rise in iron prices; a result, as usual, of sudden demand for railway purposes. There were laid down in that year 12,878 new miles of road, four times the total of 1885, and the largest year's construction in the country's history.' This increase in railway mileage, which was located almost wholly in the West and South, partly caused and was partly caused by another symptomatic move ment—the active " town-lot " speculation in the newly developed regions West and South. During September and October, 1887, interior speculation reached to such a height as actually to embarrass Eastern money markets by the heavy drain of capi tal to the centres of excitement. During 1887 and 1888, upwards of forty-nine million acres out of the public lands were sold to settlers, an annual increase of nearly five million acres over the years immedi ately preceding.' Not unconnected with this new extension of the improved interior domain, annual immigration, which in 1886 had fallen to 334,203, increased again by 1888 to 546,889.

It cannot readily be doubted, then, if the usual tests are to be trusted, that these were years of pros perity. There were, on the other hand, several qualifying features in the period which must be noticed before its character can be fully summed up. Labor troubles were intermittent, and in very for midable shape. These years witnessed the establish ment and spread of those remarkable organizations which for half a dozen years held at bay the corpora tions which employed them. In the spring of 1886, the Knights of Labor strike was declared on the Missouri Pacific Railway, the switchmen's strike at Chicago and Milwaukee, and the strike of street-car employees in New York City. All of these demon strations failed. They were followed, during May, by the memorable anarchist riot at Chicago, brought about by a concerted effort to demand an " eight hour day " for laborers throughout the country. Checked for some months as a result of the Chicago episode, trouble began again in 1888. The Phila delphia and Reading miners' strike of January, and the strike of the Chicago, Burlington, and Quincy's locomotive engineers in March, involving 2500 of the railway's employees, were movements of even larger scope than their predecessors, and they cer tainly reflected industrial discontent.

For a time, signs of equally angry discontent came from the farming districts. The American wheat crop of 1885 was the smallest since 1881, and, unlike the deficient crop four years before, it came at a time when supplies left over from the crop of the preceding year were double the average,' and when Europe's wheat yield as a whole nearly equalled that of 1884. The result in 1885 was that the American wheat-producer had to face, for the first time in a generation, the double misfortune of a short crop and low prices. When farmers are dis contented, currency agitation is certain to begin, and so it turned out on this occasion. In April, 1886, a free-coinage bill came to a vote in the House of Representatives after warm debate, and was de feated by a majority of only thirty-seven votes. Better harvests in the two following years, with de crease in competitive foreign production, somewhat relieved the pressure from this particular source, and as a consequence the currency agitation waned; but the dissatisfied laborer in the East continued much longer a conspicuous factor in politics. It was in November, 1886, that Henry George, run ning for Mayor of New York City on a platform of discontented labor, polled 68,110 votes out of a total of 219,679. Hardly less significant was the fact that the third party in the Presidential campaign of 1888 abandoned most of its traditional watchwords, styled itself the " Union Labor party," and in its platform made the question of strikes and arbitration the central plank.

These combinations of laborers were not the only reflection of a considerably altered situation. A very singular parallel, at the opposite end of the in dustrial scale, was provided by combinations of corporations. This phenomenon came to public view with even greater suddenness. Political plat forms may be counted on, ordinarily, to notice cur rent events susceptible of use as " issues." But in 1884, the so-called " trust question " was not once named in any Presidential platform. The State conventions of 1886 made no reference to it; only one or two platforms of minority organizations men tioned the movement, even in 1887. In 1888, on the other hand, denunciation of the trusts was made a separate and conspicuous plank in the platform of every political party submitting nominations. As a matter of fact, the majority of the sugar refineries in the United States, and a large part of its lead, rope, oil, and spirits manufactories, had before 1889 been combined into associations under single manage ments. The magnitude of these undertakings may be judged from the fact that in 1890, four trusts, organized within three years, reported aggregate capital stock of $188,000,000. This enormous capi tal was used not only to extend the actual plant and trade of the allied manufacturers, but at times to buy off aggressive competitors simply for the pur pose of shutting down competing mills.

The limits of this book will not permit me to go at any length into this question of the trusts. It may, however, be noticed that in one respect the movement was an instructive symptom of the period. The trusts were organized to restrict a competition which their organizers declared to be ruinous if left unchecked. That there was some basis for this allegation may be judged from the course of many other markets, which pretty uniformly told a story of keen, close, and sometimes destructive competi tion. The over-capitalized and in some quarters unwisely projected railway systems naturally felt the full force of this movement. A series of " rate wars " so far cut down profits that, although, with the heavy annual increase in the niileage, total gross earnings rose with great rapidity after 1887, net earnings and dividends actually decreased.' With the opening of 1889, was introduced that extraor dinary plan known' as a " gentlemen's agreement," whereby the presidents of the important railway systems, not at all with a sense of humor, met and pledged their personal word of honor to see that rates were conscientiously maintained.' Undoubt edly as a consequence of the same ruling conditions, the record of commercial failures, which stood in 1886 at 9834 individual suspensions, with total lia bilities of $114,644,119, rose by 1889 to 10,882, with liabilities of $148,784,357.' With home competition thus aggressive, the enor mous merchandise import movement becomes a matter of curious historical interest. It might have been supposed that home competition would have shut out these imports. But the period which we are noticing was as peculiar in Europe as in the United States. Production by foreign manufacturers, during this period, reached a volume quite unprecedented; in Great Britain especially, the search for outside mar kets was urgent and aggressive. Merchandise exports from that country reached in 1890 by far the highest total in its history, having increased, since 1886, some $287,000,000, or very nearly twenty-five per cent.' In England, this was not a symptom of dis tress, although competition was aggressive; for 1889 was declared by English commercial authorities to be a year when labor was abundantly employed, and when trade compared very favorably, even in the matter of profits, with previous years.' But the un precedented stimulation of production drove manu facturers to an urgent quest after new fields of export trade. In return for these heavy foreign sales of the English surplus product, securities issued by the countries to which the goods were sold were taken by English capital in enormous quantities.' The investment phase of this operation led to some extraordinary phenomena in London during 189o, and had much to do with our own investment markets during that and the three ensuring years. For although there was not a nation in the commer cial world to which Great Britain's exports, during the four years ending with 1889, had not been heavily increased, its exports to no other nation increased as did its shipments to the United States.' The con suming power of this country had grown enormously with the extension of its wealth and population. I have already noticed the increase of one hundred per cent. in annual use of iron; in 1889, consumption of cotton was reckoned larger by 2,600,000 bales than in any previous year of the nation's history,' and these markets were typical. Nor were the increased importations limited to any particular branch of foreign products. They embraced necessities and luxuries, finished manufactures and raw material of manufacture. In the four years prior to 1890, an nual imports of iron increased $4,00o,000 and im ports of precious stones $4,000,000. There was a gain of $17,000,000 in foreign cordage-ware received, and of $io,000,000 in foreign silks. Along with a $15,000,000 increase in annual importations of wool len goods came increase of ,000,000 in tobacco imports, nearly $2,000,000 in import of foreign wines, and no less than $1,800,000 in so small an item as foreign-made gloves.

These growing imports were doubtless evidence of increasing wealth. But nations as well as individu als will sometimes buy in excess of their means of ready payment; this being usually true of a specu lative period, when hopes are high and money lenders ready to make loans on easy terms and on all sorts of security. It is conspicuously true of such a period as that which we are reviewing, when foreign merchandise is taken and consumed in exchange for mere evidences of debt. Imports were equally heavy in the trade revival after 1879, but they were then for the most part Europe's method of settling its debt for our enormous grain exports. In none of the five years following 1885, on the contrary, did the annual breadstuffs-exports of the United States come within one hundred million dollars of the trade of 1880.' Out of the 498,000,000 bushels American wheat crop of 1880, 186,000,000 bushels were exported; out of the 491,000,000 bushels crop of 1889, foreign consumers took only 109,000,000. There had, in fact, been another immense expansion in the grain-fields of foreign competitors. Not only did Europe enjoy fair harvests on an extraordinary acreage, but India and the Argentine Republic, which had hardly been noticed in the grain export markets of ten years before, were now in 1888 ex porting fifty million bushels of wheat per annum.

This was an immediate fruit of the British capi tal invested in the railways of those countries. The net result of this foreign competition was that the total outward trade of the United States decreased or held stationary at the moment when imports were increasing at the rate of twenty to forty millions annually. In 1888, for the first time since the specie-resumption law was passed, imports of merchandise exceeded exports; in 1889, the same phenomenon was repeated. Like other customers of England at the time, we settled our adverse balance by selling our own securities; but the sequel to this operation, with trade relations what they were, was in the main disastrous. For, let it be observed, although these heavy foreign pur chases of American stocks and bonds contributed immense amounts of capital to our markets, the capital thus acquired was almost wholly based on debt. If these foreign investors were for any reason to take alarm over the outlook in this country, with drawal of such capital, through sale of the railway securities on our markets, was an immediate possi bility. Even a shock to confidence and credit in the home of this invested European capital would be reasonably sure to cause its abrupt withdrawal. This had happened once before, in the London panic of 1866, with consequent serious embarrassment to the United States. But the foreign capital invested here in 1866 was a trifle compared with the amount poured into American enterprises between 1886 and 189o.

This was, however, a problem of the future; ex isting conditions served very notably to strengthen the Treasury's position. Acting directly, the heavy home consumption added to the internal revenue; indirectly, it caused the increase in the customs. There seemed to be no check to the rise in reve nue. In 1887, as I have already noticed, the pub lic debt redeemable at par was extinguished, and the Government was forced to ask authority from Congress to enter the open market as a buyer of its own unmatured bonds at a premium. This, as the Secretary of the Treasury declared to Congress, was " a responsibility which ought not to be put upon any officer of the Government." But there was absolutely no alternative. The few months during which the Treasury, while awaiting some authorita tive action on the part of Congress, suspended bond redemptions, sent up the surplus money holdings of the Government nearly thirty millions. In August, 1888, it was literally true that the Treasury's cash surplus, wholly removed from the use of trade, was one fourth as large as the entire estimated sum in the country's outside circulation.

It would have been larger even than this but for the use made, under pressure of necessity, of the depository banks. At the close of 1885, $12,901, of the Government's funds were thus deposited. On the last day of March, 1888, these deposits had increased to $61,231,647, and they had risen nearly twenty millions within four months. Now it is true enough that this method of putting a public surplus on deposit with the banks, where it may still con tinue to serve the purposes of trade, is legitimate, and in ordinary cases beneficial. No other tempo rary disposition of an excess revenue is ever thought of, for example, by the British Exchequer, whose funds go, as a matter of ordinary course, into the Bank of England. It is true, also, that these bank deposits of United States Government funds were abundantly secured, under the law, by pledge with the Treasury of Government bonds to a face value ten per cent. greater than the money thus entrusted.' A careful effort was moreover made to distribute such deposits equitably; in 1888, they were shared by no less than two hundred and ninety separate institutions.' Nevertheless, this recourse was as un popular with the community at large as it was in 1878, and it was, moreover, even more limited in scope and permanency. The Government's deposits were liable to immediate recall, and they were looked upon as temporary in any case. Yet to qualify for such deposits, a bank was obliged to obtain Govern ment bonds at prices forced to a maximum by the Treasury's own purchases.' From any point of view, therefore, the bank deposits were inexpedient. There was one very obvious recourse—reduction in the revenue,—and this the Administration urged on Congress. But Congress refused to act. The House of Representatives contained an Administra tion majority, and it had already, in 1887, passed the Tariff-Reduction Bill of Mr. Mills. But the Re publicans then controlled the Senate, and all such legislation was accordingly blocked. As a last re sort, therefore, in April, 1888, formal authority was wrung from Congress to devote the surplus to bond redemptions at a premium.

A very extraordinary chapter in American finance now opened. During 1888, the Government four per cents. ranged on the open market from 123 to 129'; yet at these high prices the Treasury bought, within seven months, upwards of $50,000,000.' The 4.5s, ruling, because of their near maturity, between 106 and 109, were redeemed, meantime, in the amount of $33,000,000. During 1888 and the two ensuing years, $45,000,000 was actually paid out in premiums; within four years, the enormous sum of $235,000,000 was expended for bond redemptions in excess of the annual sinking-fund requirement.' To the world at large, this spectacle of public debt redemption, to the extent of nearly half a billion dollars in five years, was sufficiently astonishing. But admiration was at least tempered by contempt for the wild extravagance of the policy. That any such methods should continue long was inconceiv able. If the people did not put a stop to them, out side conditions would themselves have forced the issue. By the middle of 189o, the total interest bearing debt of the United States was reduced to $725,000,000. A few years more of wholesale redemptions, under the methods employed in 1888, and the entire debt would be extinguished. This result, except for the waste of public funds involved in the constantly advancing premium, would of itself have been no misfortune. But these very redemp tions were extinguishing the bank-note currency, thus actually contracting circulation. After the debt's extinction, moreover, and the removal thus of the single outlet for excessive surplus revenues, what was to be the outlook ? Apparently, this Treasury octopus would absorb the entire domes tic circulation. No such situation has ever been presented, before or since, in the history of nations. It need hardly be a matter for surprise that the outside business community grew more and more uneasy. An excessive circulating medium is an undoubted evil; but a law which draws into the public vaults, and keeps in idleness, seven per cent. of the circulation every year is a source of possible mischief whose evil influence can scarcely be ex aggerated. That something must be done to stop it, and must be done quickly, was agreed by all parties. Such was the situation at the close of 1889.

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