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The Two Laws of

THE TWO LAWS OF 1890 Unusual as the problem of excessive public revenue was in the experience of modern gov ernments, it was not wholly new to the United States. Almost exactly half a century before, a similar dilemma had arisen whose results, had they been kept in mind, might have given some useful warnings to the financiers of the later period. Be tween 1834 and 1836, the annual Federal revenue was doubled. In the first of those two years, as in the several years preceding them, there was a hand some Treasury surplus, which was applied to reduc tion of the public debt. Before 1836, however, this debt was wholly extinguished, and a sudden increase in the revenue left a surplus for the year of not quite twenty million dollars—something unprecedented in those days. This rise in public income resulted from an abnormally rapid growth of customs revenue and a great expansion of receipts from sales of public lands; both of 'these movements being stimulated, in 1836 as in 1888, by a season of interior develop ment and speculation. The customs schedules might have been conservatively revised, but Con gress refused to touch them. Instead, it voted to distribute $37,000,000 to the States, and then pro ceeded to increase public expenditure. The next year happened to be a season of trade disaster; cus toms receipts in 1837, and with them the total revenue, decreased one half from 1836, while ex penses were enlarged by twenty per cent. The result was prompt and logical. The surplus revenue of twenty millions in 1836 was changed only one year afterward to a deficit of thirteen millions, the " deposits " with the States had to be suspended, and before the close of 1837 the Government was issuing bonds to ward off actual insolvency.

Whether the experience of 1837 was or was not a precedent worth regarding, there is no evidence that it was studied by the statesmen of 1888 and 189o. The question of the surplus did, however, become the focus of a vast deal of more or less intelligent popular controversy. This was a natural result of the fact that the perplexities of 1888 reached their acutest point on the eve of a Presidential contest. Both political parties made the Treasury's situation the text of their campaign platforms, and both went into the campaign with a demand for reduction of the surplus. But the methods of reduction, as pro posed by the two National Conventions, differed radically. At St. Louis, June 6, 1888, the Demo cratic party attacked the sytem of high import duties, to which it ascribed the excessive revenue. It ac cused the Republican party of endeavoring " to meet and exhaust by extravagant appropriations and expenses " the abnormal surplus, and pledged itself not only to " enforce frugality in public ex pense," but to " abolish unnecessary taxation " through reform of the tariff system.

It was plain enough, from this declaration, that the electoral contest would pivot, not on the main question of a properly adjusted budget of revenue, but on the familiar problem of protection. The Republicans accepted this gage of battle with a bold ness and distinctness which left little obscurity to the issue. Conceding the needless excess in current revenue, they proposed, in their Chicago Convention of June 21st, " such revision of the tariff laws as will tend to check imports of such articles as are pro duced by our own people." This, of course, meant increase, not decrease, in the custom-house tax-rate. If this expedient should not suffice, the party de clared for " the entire repeal of the internal taxes rather than the surrender of any part of our protec tive system." No reduction in public expenditure was recommended; on the contrary, the platform went on to say that " we demand appropriations for the early rebuilding of our navy, for the construction of coast fortifications, . . . for the payment of just pensions to our soldiers, for necessary works of national importance in the improvement of harbors and the channels of internal, coastwise, and foreign commerce, for the encouragement of the shipping interests." The pension legislation particularly, the Republican platform concluded, ought to be " en larged and extended." Now it is clear that either party's expedient, greatly as the two plans differed in principle and method, could be made to reduce the surplus. The Republican plan of course offered the surer means of rapid and wholesale reduction, because, while the effect of mere alteration in schedules of taxation is more or less conjectural, the effect of increased ex penditure is certain. However large a public revenue may become, it can at least be spent if appropriations are made sufficiently heavy. But it is hardly neces sary to point out that the plan of using up a surplus revenue through extraordinary expenditure is haz ardous. The revenue might change, as it had changed repeatedly in the hiStory of our Govern ment, through an unexpected accident of trade; but a budget of expenditure, once fixed, will not be easily reduced. When, therefore, it is proposed simultaneously to cut down the public income and enlarge the public outlay, the greatest possible legis lative sagacity and discretion will be necessary to escape disaster. Exactly how far such qualities could be reckoned on, in reducing the surplus reve nue of 1888, was presently to be tested. For al though the Presidential contest of 1888 was close and for a long time doubtful, its result was a Re publican victory. In the Electoral College Mr. Harrison received 233 votes out of 401, his majority of 65 being wholly obtained through the vote of New York State. On the total popular vote of the United States, however, Mr. Cleveland's plurality over Mr. Harrison was 100,476; which, curiously enough, was more than double the popular plurality of any successful candidate since 1872.

There was no good reason to doubt what general policy the Republican party would pursue. It is true that both parties, in their appeals to the people during the campaign of 1888, had more or less modified their platform declarations to suit the pre judices of particular sections or communities. Mr. Cleveland's letter of acceptance, for instance, de clared against " abrupt and radical changes " where " reliance upon present revenue arrangements " had become an element in commercial plans. This as surance was addressed to the protectionist interests of the East. The Republicans were in a somewhat similar quandary as regarded the well-known anti protectionist sentiment of the Northwest, and they accordingly hinted, during the crisis of the canvass, at changes in the import duties in the interest of consumers.' This policy of evasion is not at all un usual at such times, but in 1888 the Republican de clarations in the West gave rise to some mistaken expectations. There was little ground for them. The national platform was perfectly distinct in its outline of policy. The letters of acceptance by the Republican candidates were quite as unmistakable. Mr. Harrison, while expressing his willingness to " modify rates " of import duties, frankly repudiated the idea of lower duties, while Mr. Morton, the Vice Presidential nominee, went further still, asking whether, in case the existing tariff needed revision, it would not be " wiser and more patriotic to revise it with a careful regard to the interest of protection than with the purpose of lessening its protective features." The successful party had, in short, pretty consist ently advocated increase in import duties, where by imports would be in a degree excluded, and it had promised increase in expenditure. It did not flinch from this second proposition after its suc cess. Mr. Harrison's inaugural address declared, it is true, that " wastefulness, profligacy, or favorit ism in public expenditure is criminal." . But this was a very general declaration. When he descended to particulars, in this address and in his first message to Congress, the President urged appropriations for river and harbor work, for coast defences, for " a more rapid increase in the number of serviceable ships," and for a pension to every veteran of the war unable to earn a living, whether his disability originated in the service or not.' Congress, he sug gested, ought to adjust the revenue only after having estimated " these extraordinary demands " and " having added them to our ordinary expenditure."' Mr. Harrison was undoubtedly sincere in his be lief that he was outlining a judicious public policy. But never in the history of this Government was ad vice bestowed with more unfortunate results. An nual Government expenditure had already been increased some $49,000,000 since the heavy surplus revenue began in 1886, and half of this annual in crease was in pensions, outlay for which was now three times as large as it was when General Garfield declared the reasonable maximum to have beer, reached. As for the river and harbor expenditure, Mr. Harrison might profitably have recalled the ex perience of President Arthur. That many of these expenditures were useful and necessary, no one doubted, but it was equally notorious that every committee and every President for ten years past had been driven to desperation to keep back jobbery and extravagance from such appropriations. No President before Mr. Harrison had dreamed of such a thing as urging river and harbor expenditure on Congress.

But it was hardly necessary to reason from the immediate past. Anybody who has studied the tendencies of legislative bodies, American and foreign, during the present generation, must admit that President Harrison's advice, on general princi ples, was exceedingly dangerous. A national legis lature may be safely left to itself, if increased expenditure is desired, and nowhere is this principle more certain of application than in the United States. The immense variety of local interests re presented in Congress; the pressure on each indi vidual Congressman to obtain his district's goodLwill by procuring local expenditure of national funds; the virtual impossibility of getting a share in such appropriations without in turn favoring demands of other Congressmen—these are perhaps the most familiar incidents in legislation. They are, and always have been, emphasized by two serious vices in our legislative system; the haphazard construc tion of appropriation bills by separate committees not concerned in planning for the revenue,' and the unfortunate provision of the Constitution that the President may veto an appropriation bill only as a whole, and not in sections.' Finally there was added, in 189o, the powerful inducement of the so called " Grand Army vote," which was believed to have carried some States in the 1888 election, and which, in the judgment of politicians, could be con trolled by the largess of the Pension Bureau. All this ought to have been considered by a prudent Executive in his official advice.

It was at once apparent how little need there had been for any such stimulus to Congress. The revenue was first taken in hand. The Tariff Bill introduced on April i6, 189o, by Mr. McKinley for the House Ways and Means Committee, in creased materially the rates on all competing pro ducts. The average rate imposed on dutiable imports in the year before the McKinley Act be came a law was 44.41 per cent.; in the next year it was 48.71 per cent.' In the case of many classes of importations, this increase might foreshadow larger instead of smaller revenue. There was, however, one very important branch of customs revenue which was stricken off altogether. In 1889, the duty on imported sugar produced $55,976,228. The Mc Kinley Law placed sugar on the free list, and in the twelve months ending with June, 1892, the customs revenue from that commodity was only $76,987.' This particular source of public income—the largest, with one exception, on the Government's accounts—was therefore removed completely and permanently. The question then remained, would the other articles left on the dutiable list yield more revenue than before, or less ? If they continued to be imported in the same amount as previously, they would, of course yield more, and on this assumption the framers of the Act of 1890 estimated the outside reduction in the total annual revenue at forty-two to forty-three million dollars,' which was substan tially the amount of reduction recommended by the President.' But President and Congress alike ignored two facts which ought not to have been omitted from the reckoning. The increased rates of duty might turn out to be so high as to exclude competing foreign products, which would, of course, curtail receipts at the custom-house. Or, without such artificial exclusion, the volume of importations, which was abnormally large in 1889 and 1890, might suddenly contract from natural causes. Previous tariff experiments had shown the possibility of either result, but the experience under the tariff law of 1890 was destined to be the most forcible illustration of all. As against the Congressional estimate of $43,000,000 revenue reduction, through the McKinley Tariff Act, the actual decrease in customs receipts, during the first fiscal year in which all the new schedules were in force, was $52,200, 000, and two years later,' with the revenue law un changed, receipts had fallen $45,600,000 further.' Instead of forty-three millions maximum reduction, the ultimate decrease in annual customs revenue under the law of 1890 was close to one hundred millions.

The surplus revenue for the fiscal year before the Act of 1890 had been proposed was $105,053,443; ' it will be readily seen, therefore, that the cut in revenue, even as estimated on the floor of Congress, left no great margin for increased expenditure. In case of a heavy decrease in dutiable importations, it left no margin whatever. Forty-three millions re duction from the revenue of 1889 would leave room for sixty-two millions increase in expenditure, in order to end the year without a deficit. But Con gress put no such limitations on its drafts upon the public purse. Encouraged alike by the platform of the successful party and by the advice of the suc cessful candidate, the first session of Congress under Mr. Harrison's Administration increased its annual appropriations $79,000,000 over those of the pre ceding session.' In the next year the budget of ap propriations was increased $35,000,000 more, forty per cent. of the increase being for the account of pensions.' Every department estimate and every committee budget kept first in view the idea that an unlimited fund was at hand on which to draw, and that the public welfare would be subserved by drawing liberally on it. The jubilant pension com missioner who, on assuming office at President Harrison's invitation, exclaimed " God help the surplus! " had very distinctly grasped the situation.

The surplus, indeed, was obviously doomed to speedy destruction. But it became evident, before the revenue and appropriation laws had been twelve months in operation, that something more than the dissipation of an accumulated surplus was threat ened, and the Treasury officers soon took fright. If the expenditure of the ensuing fiscal year had been kept to the mark fixed by the permanent and annual appropriations of this spendthrift Congress, there would have been an immediate and heavy an nual deficit in revenue. Only by the most strenuous exertions was such a deficit avoided. Fortunately for the Administration, not all the proposed drafts on the Treasury were compulsory. Some of the plans were hurriedly abandoned. The Government ceased buying bonds, except for the annual sinking fund requirement, within seven months after the passage of the revenue law of A year later, they abandoned any attempt to meet even the statutory requirement of " the purchase or payment of one per centum of the entire debt of the United States, to be made within each fiscal year."' Had this sufficiently distinct requirement been observed, public expenses in the twelve months ending with June, 1892, would have run some thirty-nine millions beyond the income of the year.' The pension ex penditures in which the President had urged an in crease grew to proportions so enormous that the President himself had to interfere, and rid himself of a commissioner who had been too literal in his interpretation of the Executive advice. By these and similar expedients, the emergency was staved off. There was a Treasury deficit in the fourth quarter of the fiscal year 1891, the first quarterly deficit in many years; ' it was repeated in two of the quarterly periods of 1892; ' but in each case a fortunate though temporary expansion of the revenue in other months helped the Treasury through the year. At last came a season when the trade from which the revenue was drawn contracted, with finan cial and political results as extraordinary as anything in our history.

The revenue and appropriation laws of 189o, then, had of themselves marked out a precarious future for the Treasury. But these laws were not the only or the most interesting achievements of the session. We have now to consider another law of 189o, of supreme and far-reaching importance--a law surpassed in its permanent influence on the national finances only by the Legal-Tender Act of 1862. I have noticed that the national party plat forms of 1888 were so exclusively occupied with the revenue dispute that they quite ignored the lately urgent question of silver coinage. The Democratic Convention said not a word on the subject; the Re publicans merely inserted the declaration that the party was " in favor of the use of both gold and silver as money "—a convenient platitude, familiar in the platforms of both parties, which offended nobody and meant nothing, because it touched none of the questions of currency standards and mint re strictions on which alone the bimetallic controversy hinged. The campaign speakers and the candidates were as silent on the silver question as were the plat forms. In his letter of acceptance, Mr. Harrison dis cussed the revenue, the immigration laws, the trust question, and the problem of civil-service reform, but he did not so much as mention the currency. He made no allusion whatever to the silver contro versy in his inaugural address of March 4,1889, al though that address discussed the purposes of the new Administration on numerous points of public policy.

Clearly, then, there was no party issue at stake in the silver question, no party or personal pledge to be redeemed, and no reason to anticipate an early and radical move in that matter by the Administration. Yet in the two or three weeks before Congress assembled in the winter of 1889, there was prepared a plan for revolutionizing the United States currency, and to the exposition of this project the Secretary of the Treasury devoted nearly one third of his first annual report, urging the plan on Congress with all the argument and per suasion at his command, and ending by the form ulation of a bill which he sent to Congress with a plea for early action.' So radical and unprecedented was this proposed legislation that some time was re quired before Congress or the people could under stand what it meant. So hurriedly was it ccntrived that the President himself, in his Annual Message submitted after the publication of the Treasury report, frankly declared that he had " been able to give only a hasty examination " to the plan, " owing to the press of other matters and to the fact that it has been so recently formulated." What was this

sudden after-thought of a Presidential canvass, and why was a new system of currency forced upon the consideration of Congress by an Administration elected on wholly different issues ? President Harrison had chosen as his Secretary of the Treasury Mr. William Windom of Minnesota, who had already seen some service both in Congress and in the Cabinet. As Secretary of the Treasury under President Garfield, Mr. Windom had brought to a satisfactory close the Government bond-refund ing operations of Secretary Sherman. His duty in this matter was only to carry out the plans of his predecessor, a task easily performed in the prosper ous investment markets of 188i. Nevertheless, some of the glamor of a great fiscal operation suc cessfully achieved remained with Mr. Windom, and Mr. Harrison's choice for his finance minister in 1889 was generally commended. The new Secre tary, however, was not a great financier. He was not even a trained economist, and, as we shall presently see, his ideas on the problems of currency and circulation were singularly obscure and confused. But Mr. Windom was a skilful politician, and it was as a politician that he immediately applied himself to the silver question.

The situation, on the eve of the session of De cember, 1889, was peculiar. Although the Repub licans had won a majority in the Electoral College of 1888, they had not, as we have seen, polled a popular majority. This failure had its natural influ ence on the Administration's support in Congress. In the House, its majority at the start was only eight, and included in the slender majority were Western Congressmen restive over the plan for a higher tariff. The Senate was still more of a stumbling-block. The Administration apparently controlled that chamber also by a majority of eight; but as an experienced member of the party has re marked, " the nine States west of the Missouri, commonly classified as silver or Western States, have eighteen senators "; a representation which gives the section " very decided advantage in tariff legislation."' How decided this advantage was may be judged from the fact that in 1889, seventeen out of the forty-seven Republicans in the Senate came from these very States, where their constituents were notoriously lukewarm if not hostile towards a high protective tariff. Without the greater part of these seventeen votes, the Administration stood in a minority in the Senate, and the tariff bill was the first measure on the programme.

Now it was pretty well known that the united support of these senators could be obtained in re turn for the passage of a free-silver coinage bill. Their support could be obtained, without such in ducement, for party measures endorsed by their constituents; but the high-tariff bill had not been thus endorsed. The Administration was properly unwilling to concede the question of free-coinage, and Mr. Windom undertook to frame a compromise. His plan as framed was a political concession, on the one hand, to the agrarian communities who de manded larger money circulation; on the other hand, to the silver-producing States of the Rocky Mountains and the Sierras. The second of these concessions was the more important. The primary purpose of the bill, as frankly stated by its author, was to create an artificial market for silver; the question of increased money supplies being treated as a minor consideration.

In this regard, the measure was absolutely unique in legislation. All previous silver bil!s had con templated restoration of the double standard—a plan at least economically intelligible—or at a pinch they had decreed compulsory additicns to the currency supply through limited coinage of silver dollars. Mr. Windom's plan proposed that the Government should buy at the market price the entire annual silver output of the world, or as much of the output as silver-miners chose to offer; that it should store away this silver in bulk at Wash ington, paying for it, meantime, in of the United States.' All previous debates on the subject had urged remonetization, on the ground that prices of agricultural and other commodities would thereby be enhanced; Mr. Windom con cerned himself with no commodity but silver.

Where other champions of the larger use of silver in the currency had pointed to the fall in wheat as the calamity which they were determined to avert, Mr. Windom discussed the fall in the price of the metal itself as the prime misfortune.' So firmly did the Secretary's mind seem to be fixed on this phase of the question that he recited as the chief advantage of his project the " utilization of silver " so that " a market would always be provided for the surplus product."' This notion of an artificial market was the only part of his Secretary's plan which the Presi dent grasped at once. Although waiving comment on the details of the scheme, Mr. Harrison called attention to the fact that he himself had " always been an advocate of the use of silver in our cur rency," because " we are large producers of that metal, and should not discredit it."' This was not the only novel and curious feature of Mr. Windom's plan. The Treasury notes were to be issued " against deposits of silver bullion at the market price of silver when deposited "; but they were to be redeemable " on demand, in such quantities of silver bullion as will equal in value, at the date of presentation, the number of dollars ex pressed on the face of the notes at the market price of silver, or in gold at the option of the Govern ment, or in silver dollars at the option of the holder." The reader of this extraordinary para graph will hardly wonder that the President de clined, on short notice, to express his judgment of it. One inference was, however, readily to be drawn regarding its operation. An indefinite addi tion to the United States currency, either in paper or in silver, was proposed. The entire silver prod uct of the world was to be made exchangeable at the Treasury for notes, and the notes, if not ex pressly legal tender, were at all events to be exchangeable again for legal-tender silver dollars. Mr. Windom himself predicted that not less than $37,000,000 worth of bullion, at the market price then ruling, would be exchanged each year for notes.' Even this purchase would involve yearly additions to the Government currency larger by fifty per cent. than those of the Silver-Coinage Law of 1878. If the annual silver product of the world were to be doubled, as had already happened since 1877, the issue of Treasury notes would double or quadruple along with it.

Plans for an unprecedentedly large increase in money circulation are usually based, like the Legal Tender Act, on the necessities of Government, or, like the Silver-Coinage Act of 1878, on a theory that existing circulation is deficient. But the public revenue in 1889 was overflowing, while as to the circulation, Mr. Windom himself took pains to show that since 1878 the total increase in currency sup plies had been seventy-four per cent., against only thirty-three per cent. increase in population.' These facts did not, he argued, " appear to justify a largely increased coinage of silver dollars for the purpose of expanding the currency " '; indeed, if the issues of such silver currency " should become so numerous as to endanger the free circulation of gold," " it would only be a question of time when the specie reserve in the Treasury would change from gold to silver to such an extent as to force the to pay out silver " for the public debt.' This was orthodox reasoning, but a singular argument to in voke in behalf of a plan for indefinite increase of notes redeemable in silver dollars, and the lack of any intelligent convictions in the Secretary's mind was equally shown by his argument, only a few pages further on, that the plan " would meet the wants of those who desire a larger volume of circu lation." ' The report, in fact, is crowded with such strange contradictions. What, for instance, is to be thought of a financial document which begins by declaring that the silver dollars already outstanding can be maintained at par only " so long as their number is kept within safe and proper limits," and ends by commending its own plan as a short road to conditions " where we can with safety open our mints to the free coinage of silver ? " Mr. Windom could not fail to notice that even with his curious plan of redemption of the notes in silver bullion, a fall in the price of silver would in flict enormous losses on the Treasury. A decline of ten per cent., for instance, would impair to precisely that extent the power of the deposited silver bullion to redeem outstanding notes. But Mr. Windom believed such a decline to be impossible. Silver, in his opinion, would advance to its old coinage parity, because the output of the mines of the United States would thereafter be held back from the ex port market.' This sounded reasonable, but it was based on the wholly erroneous presumption, al ready tested and disproved since 1878, that the annual silver product of the world would not be vastly increased by the new demand. The net annual export of silver from the United States, at the time of Mr. Windom's calculations, was a trifle over twelve million dollars,' or, roughly, thirteen million ounces. The increase in the annual silver product outside the United States, during the next four years, was thirty million ounces.' In other words, the entire silver output of the United States could have been spared by foreign consumers, and still their available supplies would have increased with exceptional rapidity. This increase in the foreign silver product came, as we shall presently see, in the face of a decline in silver. What the production would have been with a steady rise in silver's price can only be conjectured.

Mr. Windom's extraordinary plan was not destined to be embodied in the statutes as its author framed it. From its unlimited possibilities of currency in flation, every prudent statesman shrank. But all that conservative Congressmen accomplished was to bind in advance, so far as possible, this Frankenstein which the Administration had constructed. The House of Representatives began by limiting the issue of notes to $4,500,000 monthly; it made them legal tender and, like the older obligations of the Govern ment, " redeemable, on demand, in coin." Thus modified, the measure passed the House on the day of its first consideration, June 5, 1890, by a majority of sixteen, the entire vote in its favor being Repub lican. It went next to the Senate, and that body promptly showed its opinion of Mr. Windom's com promise by substituting a flat free-silver coinage bill, which passed by a majority of seventeen votes, the majority vote including every Republican senator, with two exceptions, from the very trans-Missouri States which the Secretary was laboring to conciliate. The situation was sufficiently awkward, because the tariff bill was laid before the Senate on the very day when the Senate returned its free-coinage substitute measure to the House. With calm assurance in the strength of its position, the Senate turned down the tariff bill on its calendar and awaited develop ments.

It has sometimes been alleged that the preparation and enactment of the Silver-Purchase Bill 1 of 1890 were made necessary, not by senatorial obstruction to the tariff bill, but by fear that in default of a promise, a free-coinage measure would be passed. Such an inference assumes that President Harrison would have signed a free-silver bill, which he could hardly have done, in spite of Mr. Sherman's insinu ation to that effect, after declaring officially that the results of such a law " would be discreditable to our financial management and disastrous to all business Interests."' But the theory also assumes the exist ence during 1890 of a free-coinage majority in the House of Representatives. If such a majority ex isted, the time for it to show itself was when the free-coinage substitute bill came back to the House for action. Mr. Bland at once proposed that the Senate substitute be adopted by the House, and his motion was promptly defeated by a vote of 152 to 135. The President's declaration and the vote of the House of Representatives prove, if they have any meaning, that the fear of a free-coinage bill was imaginary. Nor need such a conclusion be based only on general principles; there has been positive and authoritative testimony to the same effect. " On the day when the Sherman Bill passed," Sena tor Teller has since declared from the floor of Con gress, " there was no more show of a free-coinage bill becoming a law than there was of the heavens falling."' There could certainly be no safer witness than this Colorado statesman, the leader of the sil ver Republicans in the Senate of 189o.

But the jeopardy, indeed, into which the tariff bill had fallen through the deadlock on the Silver-Pur chase Act, was real, and an anxious week for its pro moters followed. The silver bill, as usual in case of a disagreement between House and Senate, went to a conference committee. When it emerged, it was altered than an entire new set of financial problems was called forth. The conference bill required the Treasury to purchase monthly, not $4,5010,000 worth of silver bullion, but 4,500,000 ounces, or as much thereof as should be offered. Like the House bill, it directed the Treasury to pay for this silver in legal-tender notes. These notes were not to be redeemable in silver bullion, for a final quietus was now put on Mr. Windom's fantastic redemption plan. The Secretary of the Treasury, " under such regulations as he may prescribe," was directed to " redeem such notes in gold or silver coin, at his discretion." But as a limitation to this discretion ary power, the following remarkable clause was added: " It being the established policy of the United States to maintain the two metals on a parity with each other upon the present legal ratio, or such ratio as may be provided by law." This conference measure, with its famous " parity clause," was chiefly the work of Mr. Sherman, for which reason the law became subsequently known, somewhat unjustly, as the" Sherman Act." Those who have studied Mr. Sherman's handiwork in legis lative compromise, notably in the Resumption Act of 1875, will recognize something familiar in this compromise of 1890. Like the Resumption Law, it conceded a thoroughly bad principle in order to avoid the enactment of that principle in a still more vicious form. Both laws were extremely obscure in their description of the duties imposed on the Treas ury; each was susceptible of two diametrically op posite interpretations, according to the personal convictions of the Secretary who should administer it. Neither ventured to say in plain English what its author meant, and both were therefore destined to bring on their future administrators a storm of legislative protest and abuse.

There is, however, little doubt of the purpose of the Compromise Bill of 189o. The senator who, in the ensuing debate on the measure, described it as " a beckoning hand for an interpreter,"' expressed fairly the general bewilderment. But other senators showed plainly enough the meaning attached to the measure by the silver faction. " This compromise," said one of the most determined silver advocates, " is an abandonment, a total abandonment of the double standard."' " In all these provisions," another silver senator declared, " the gold redemp tion is asserted and is made the essential and the unqualified and the operative and the valuable con dition of the bill."' No one, during the whole debate, combatted this interpretation. The Eastern senators confined themselves to pointing out that, while the time would probably never come when the Treasury would be forced to make its choice of metals in redemption, the " parity clause " required, in case of such emergency, that the note-holder should re ceive whichever kind of coin he desired.' We shall find this contemporary evidence highly important in the discussion of a later episode.

The conference measure promptly passed both House and Senate. It passed the Senate partly be cause senators from the silver-producing States, con vinced that the Treasury purchases would raise the price of silver to the coinage parity, now took the floor in favor of it.' But the true reason for its prompt enactment was the heavy party pressure now applied to recalcitrant Republicans. The final vote of July 14, 189o, is remarkable from the fact that in neither House of Congress did a single Re publican member vote against the bill, or a single Democrat in favor of it.

Thus did this extraordinary measure pass into law. It was presently followed by the passage of the revenue law for which, as we have now seen, the silver-purchase legislation was the price. The situa tion at the close of 1890 was remarkable in many ways. The Treasury's accumulated surplus was about to be wholly dissipated. Prospect of making both ends meet in Government finances was to be subjected altogether to the chances of outside trade. In the face of these impaired resources, outstanding demand liabilities of the Treasury were to be in creased by upwards of fifty million dollars annually, and this forced addition to the country's paper cir culation was to be made at the very moment when the Treasury's hoards were thrown on the open money market and when contraction of bank-note circulation had ceased.

When Secretary Sherman was defending, in 1879 and 188o, his own plan of Government legal-tender issues, he was reminded of the possibility that a heavy revenue deficit might some time leave the Treasury with nothing but its gold reserve from which to meet expenses. To this he answered that it was not " to be presumed that Congress will omit to provide ample revenues." ' He cited further the objection that the amount of notes " may be en larged by Congress, and that this power is liable to abuse," but his reply was that under resumption of specie payments " there is no temptation for over issue."' Fourteen years had passed, and Congress now had suddenly enacted one law destined to force a deficit on the Treasury, and another to increase without assignable limit the issues of legal-tender notes. That Mr. Sherman himself should have voted for both these measures and constructed one of them is another notable instance of the irony of history.

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