9: The Free Silver Revolt
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The avenging consequences of the Silver Purchase Act moved so
rapidly that when John Griffin Carlisle took office as Secretary
of the Treasury in 1893, the gold reserve had fallen to
$100,982,410—only $982,410 above the limit indicated by the Act
of 1882—and the public credit was shaken by the fact that it was
an open question whether the government obligation to pay a
dollar was worth so much or only one half so much. The latter
interpretation, indeed, seemed impending. The new Secretary's
first step was to adopt the makeshift expedient of his
predecessors. He appealed to the banks for gold and backed up by
patriotic exhortation from the press, he did obtain almost
twenty-five millions in gold in exchange for notes. But as even
more notes drawing out the gold were presented for redemption,
the Secretary's efforts were no more successful than carrying
water in a sieve.
Of the notes presented for redemption during March and April,
nearly one-half were treasury notes of 1890, which by law the
Secretary might redeem "in gold or silver coin at his
discretion." The public was now alarmed by a rumor that Secretary
Carlisle, who while in Congress had voted for free silver, would
resort to silver payments on this class of notes, and regarded
his statements as being noncommittal on the point. Popular alarm
was, to some extent, dispelled by a statement from President
Cleveland, on the 23rd of April, declaring flatly and
unmistakably that redemption in gold would be maintained. But the
financial situation throughout the country was such that nothing
could stave off the impending panic. Failures were increasing in
number, some large firms broke under the strain, and the final
stroke came on the 5th of May when the National Cordage Company
went into bankruptcy. As often happens in the history of panics,
the event was trivial in comparison with the consequences. This
company was of a type that is the reproach of American
jurisprudence—the marauding corporation. In the very month in
which it failed, it declared a large cash dividend. Its stock,
which had sold at 147 in January, fell in May to below ten
dollars a share. Though the Philadelphia and Reading Railway
Company, which failed in February, had a capital of $40,000,000
and a debt of more than $125,000,000, the market did not
break completely under that strain. The National Cordage had a
capital of $20,000,000 and liabilities of only $10,000,000, but
its collapse brought down with it the whole structure of credit.
A general movement of liquidation set in, which throughout the
West was so violent as to threaten general bankruptcy. Nearly all
of the national bank failures were in the West and South, and
still more extensive was the wreck of state banks and private
banks. It had been the practice of country banks, while firmly
maintaining local rates, to keep the bulk of their resources on
deposit with city banks at two per cent. This practice now proved
to be a fatal entanglement to many institutions. There were
instances in which country banks were forced to suspend, though
cash resources were actually on the way to them from depository
centers.(1)
Even worse than the effect of these numerous failures on the
business situation was the derangement which occurred in the
currency supply. The circulating medium was almost wholly
composed of bank notes, treasury notes, and treasury certificates
issued against gold and silver in the Treasury, coin being little
in use except as fractional currency. Bank notes were essentially
treasury certificates issued upon deposits of government bonds.
In effect, the circulating medium was composed of government
securities reduced to handy bits. Usually, a bank panic tends to
bring note issues into rapid circulation for what they will
fetch, but in this new situation, people preferred to impound the
notes, which they knew to be good whatever happened so long as
the Government held out. Private hoarding became so general that
currency tended to disappear. Between September 30, 1892 and
October 31, 1893, the amount of deposits in the national banks
shrank over $496,000,000. Trade was reduced to making use of the
methods of primitive barter, though the emergency was met to some
extent by the use of checks and clearinghouse certificates. In
many New England manufacturing towns, for example, checks for use
in trade were drawn in denominations from one dollar up to
twenty. In some cases, corporations paid off their employees in
checks drawn on their own treasurers which served as local
currency. In some Southern cities, clearing-house certificates in
small denominations were issued for general circulation—in
Birmingham, Alabama, for sums as small as twenty-five cents. It
is worth noting that a premium was paid as readily for notes as
for gold; indeed, the New York "Financial Chronicle" reported
that the premium on currency was from two to three per cent,
while the premium on gold was only one and one half per cent.
Before the panic had ended, the extraordinary spectacle was
presented of gold coins serving as a medium of trade because
treasury notes and bank notes were still hoarded. These
peculiarities of the situation had a deep effect upon the popular
attitude towards the measures recommended by the Administration.
While this devastating panic was raging over all the country,
President Cleveland was beset by troubles that were both public
and personal. He was under heavy pressure from the office
seekers. They came singly or in groups and under the escort of
Congressmen, some of whom performed such service several times a
day. The situation became so intolerable that on the 8th of May
President Cleveland issued an executive order setting forth that
"a due regard for public duty, which must be neglected if present
conditions continue, and an observance of the limitations placed
upon human endurance, oblige me to decline, from and after this
date, all personal interviews with those seeking office."
According to the Washington papers, this sensible decision was
received with a tremendous outburst of indignation. The President
was denounced for shutting his doors upon the people who had
elected him, and he was especially severely criticized for the
closing sentence of his order stating that "applicants for office
will only prejudice their prospects by repeated importunity and
by remaining at Washington to await results." This order was
branded as an arbitrary exercise of power compelling free
American citizens to choose exile or punishment, and was featured
in the newspapers all over the country. The hubbub became
sufficient to extract from Cleveland's private secretary an
explanatory statement pointing out that in the President's day a
regular allotment of time was made for congressional and business
callers other than the office seekers, for whom a personal
interview was of no value since the details of their cases could
not be remembered. "What was said in behalf of one man was driven
out of mind by the remarks of the next man in line," whereas
testimonials sent through the mails went on file and received due
consideration. "So many hours a day having been given up to the
reception of visitors, it has been necessary, in order to keep up
with the current work, for the President to keep at his desk from
early in the morning into the small hours of the next morning.
Now that may do for a week or for a month, but there is a limit
to human physical endurance, and it has about been reached."
Such were the distracting conditions under which President
Cleveland had to deal with the tremendous difficulties of
national import which beset him. There were allusions in his
inaugural address which showed how keenly he felt the weight of
his many responsibilities, and there is a touch of pathos in his
remark that he took "much comfort in remembering that my
countrymen are just and generous, and in the assurance that they
will not condemn those who by sincere devotion to their service
deserve their forbearance and approval." This hope of Cleveland's
was eventually justified, but not until after his public career
had ended; meanwhile he had to undergo a storm of censure so
blasting that it was more like a volcanic rain of fire and lava
than any ordinary tempest, however violent.
On the 30th of June, President Cleveland called an extra session
of Congress for the 7th of August "to the end that the people may
be relieved through legislation from present and impending danger
and distress." In recent years, the fact has come to light that
his health was at that time in a condition so precarious that it
would have caused wild excitement had the truth become known, for
only his life stood in the way of a free silver President. On the
same day on which he issued his call for the extra session,
President Cleveland left for New York ostensibly for a yachting
trip, but while the yacht was steaming slowly up the East River,
he was in the hands of surgeons who removed the entire left upper
jaw. On the 5th of July they performed another operation in the
same region for the removal of any tissues which might possibly
have been infected. These operations were so completely
successful that the President was fitted with an artificial jaw
of vulcanized rubber which enabled him to speak without any
impairment of the strength and clearness of his voice.(2)
Immediately after this severe trial, which he bore with calm
fortitude, Cleveland had to battle with the raging silver
faction, strong in its legislative position through its control
of the Senate.
When Congress met, the only legislation which the President had
to propose was the repeal of the Silver Purchase Act, although he
remarked that "tariff reform has lost nothing of its immediate
and permanent importance and must in the near future engage the
attention of Congress." It was a natural inference, therefore,
that the Administration had no financial policy beyond putting a
stop to treasury purchases of silver, and there was a vehement
outcry against an action which seemed to strike against the only
visible source of additional currency. President Cleveland was
even denounced as a tool of Wall Street, and the panic was
declared to be the result of a plot of British and American
bankers against silver.
Nevertheless, on the 28th of August, the House passed a repeal
bill by a vote of 240 to 110. There was a long and violent
struggle in the Senate, where such representative anomalies
existed that Nevada with a population of 45,761 had the same
voting power as New York with 5,997,853. Hence, at first, it
looked as if the passage of a repeal bill might be impossible.
Finally, the habit of compromise prevailed and a majority
agreement was reached postponing the date of repeal for twelve or
eighteen months during which the treasury stock of silver bullion
was to be turned into coin. Cleveland made it known that he would
not consent to such an arrangement, and the issue was thereafter
narrowed to that of unconditional repeal of the Silver Purchase
Act. The Senators from the silver-mining States carried on an
obstinate filibuster and refused to allow the question to come to
a vote, until their arrogance was gradually toned down by the
discovery that the liberty to dump silver on the Treasury had
become a precarious mining asset. The law provided for the
purchase of 4,500,000 ounces a month, "or, so much thereof as may
be offered at the market price." Secretary Carlisle found that
offers were frequently higher in price than New York and London
quotations, and by rejecting them he made a considerable
reduction in the amount purchased. Moreover, the silver ranks
began to divide on the question of policy. The Democratic silver
Senators wished to enlarge the circulating medium by increasing
the amount of coinage, and they did not feel the same interest in
the mere stacking of bullion in the Treasury that possessed the
mining camp Senators on the Republican side. When these two
elements separated on the question of policy, the representatives
of the mining interests recognized the hopelessness of preventing
a vote upon the proposed repeal of the silver purchase act. On
the 30th of October, the Senate passed the repeal with no
essential difference from the House bill, and the bill became law
on November 1, 1893.
But although the repeal bill stopped the silver drain upon the
Treasury, it did not relieve the empty condition to which the
Treasury had been reduced. It was manifest that, if the gold
standard was to be maintained, the Treasury stock of gold would
have to be replenished. The Specie Resumption Act of 1875
authorized the sale of bonds "to prepare and provide for"
redemption of notes in coin, but the only classes of bonds which
it authorized were those at four per cent payable after thirty
years, four and a half per cent payable after fifteen years, and
five per cent payable after ten years from date. For many years,
the Government had been able to borrow at lower rates but had in
vain besought Congress to grant the necessary authority. The
Government now appealed once more to Congress for authority to
issue bonds at a lower rate of interest. Carlisle, the Secretary
of the Treasury, addressed a letter to the Senate committee of
finance, setting forth the great saving that would be thus
effected. Then ensued what must be acknowledged to be a breakdown
in constitutional government. Immediately after a committee
meeting on January 16, 1894, the Chairman, Senator Voorhees,
issued a public statement in which he said that "it would be
trifling with a very grave affair to pretend that new legislation
concerning the issue of bonds can be accomplished at this time,
and in the midst of present elements and parties in public life,
with elaborate, extensive, and practically indefinite debate."
Therefore, he held that "it will be wiser, safer and better for
the financial and business interests of the country to rely upon
existing law." This plainly amounted to a public confession.that
Congress was so organized as to be incapable of providing for the
public welfare.
Carlisle decided to sell the ten-year class of bonds,
compensating for their high interest rate by exacting such a
premium as would reduce to three per cent the actual yield to
holders. On January 17, 1894, he offered bonds to the amount of
fifty millions, but bids came in so slowly that he found it
necessary to visit New York to make a personal appeal to a number
of leading bankers to exert themselves to prevent the failure of
the sale. As a result of these efforts, the entire issue was sold
at a premium of $8,660,917, and the treasury stock of gold was
brought up to $107,440,802.
Then followed what is probably the most curious chapter in the
financial history of modern times. Only gold was accepted by the
Treasury in payment of bonds; but gold could be obtained by
offering treasury notes for redemption. The Act of 1878 expressly
provided that, when redeemed, these notes "shall not be retired,
canceled, or destroyed, but they shall be reissued and paid out
again and kept in circulation." The Government, as President
Cleveland pointed out, was "forced to redeem without redemption
and pay without acquittance." These conditions set up against the
Treasury an endless chain by which note redemptions drained out
the gold as fast as bond sales poured it in. In a message to
Congress on January 28, 1895, President Cleveland pointed out
that the Treasury had redeemed more than $300,000,000 of its
notes in gold, and yet these notes were all still outstanding.
Appeals to Congress to remedy the situation proved absolutely
fruitless, and the only choice left to the President was to
continue pumping operations or abandon the gold standard, as the
silver faction in Congress desired. By February 8, 1895, the
stock of gold in the Treasury was down to $41,340,181. The
Administration met this sharp emergency by a contract with a New
York banking syndicate which agreed to deliver 3,500,000 ounces
of standard gold coin, at least one half to be obtained in
Europe. The syndicate was, moreover, to "exert all financial
influence and make all legitimate efforts to protect the Treasury
of the United States against the withdrawals of gold pending the
complete performance of the contract."
The replenishing of the Treasury by this contract was, however,
only a temporary relief. By January 6, 1896, the gold reserve was
down to $61,251,710. The Treasury now offered $100,000,000 of the
four per cent bonds for sale and put forth special efforts to
make subscription popular. Blanks for bids were displayed in all
post-offices, a circular letter was sent to all national banks,
the movement was featured in the newspapers, and the result was
that 4635 bids were received coming from forty-seven States and
Territories, and amounting to $526,970,000. This great
oversubscription powerfully upheld the public credit and,
thereafter, the position of the Treasury remained secure; but
altogether, $262,000,000 in bonds had been sold to maintain its
solvency.
Consideration of the management of American foreign relations
during this period does not enter into the scope of this book,
but the fact should be noted that the anxieties of public finance
were aggravated by the menace of war.(3) In the boundary dispute
between British Guiana and Venezuela, President Cleveland
proposed arbitration, but this was refused by the British
Government. President Cleveland, whose foreign policy was always
vigorous and decisive, then sent a message to Congress on
December 17, 1895, describing the British position as an
infringement of the Monroe Doctrine and recommending that a
commission should be appointed by the United States to conduct an
independent inquiry to determine the boundary line in dispute. He
significantly remarked that "in making these recommendations I am
fully alive to the responsibility incurred and keenly realize all
the consequences that may follow." The possibility of conflict,
thus hinted, was averted when Great Britain agreed to
arbitration, but meanwhile, American securities in great numbers
were thrown upon the market through sales of European account and
added to the financial strain.
The invincible determination which President Cleveland showed in
this memorable struggle to maintain the gold standard will always
remain his securest title to renown, but the admiration due to
his constancy of soul cannot be extended to his handling of the
financial problem. It appears, from his own account, that he was
not well advised as to the extent and nature of his financial
resources. He did not know until February 7, 1895, when Mr. J. P.
Morgan called his attention to the fact, that among the general
powers of the Secretary of the Treasury is the provision that he
"may purchase coin with any of the bonds or notes of the United
States authorized by law, at such rates and upon such terms as he
may deem most advantageous to the public interest." The President
was urged to proceed under this law to buy $100,000,000 in gold
at a fixed price, paying for it in bonds. This advice Cleveland
did not accept at the time, but in later years he said that it
was "a wise suggestion," and that he had "always regretted that
it was not adopted."
But apart from any particular error in the management of the
Treasury, the general policy of the Administration was much below
the requirements of the situation. The panic came to an end in
the fall of 1893, much as a great conflagration expires through
having reached all the material on which it can feed, but leaving
a scene of desolation behind it. Thirteen commercial houses out
of every thousand doing business had failed. Within two years,
nearly one fourth of the total railway capitalization of the
country had gone into bankruptcy, involving an exposure of
falsified accounts sufficient to shatter public confidence in the
methods of corporations. Industrial stagnation and unemployment
were prevalent throughout the land. Meanwhile, the congressional
situation was plainly such that only a great uprising of public
opinion could break the hold of the silver faction. The standing
committee system, which controls the gateways of legislation, is
made up on a system of party apportionment whose effect is to
give an insurgent faction of the majority the balance of power,
and this opportunity for mischief was unsparingly used by the
silver faction.
Such a situation could not be successfully encountered save by a
policy aimed distinctly at accomplishing a redress of popular
grievances. But such a policy, President Cleveland failed to
conceive. In his inaugural address, he indicated in a general way
the policy pursued throughout his term when he said, "I shall to
the best of my ability and within my sphere of duty preserve the
Constitution by loyally protecting every grant of Federal power
it contains, by defending all its restraints when attacked by
impatience and restlessness, and by enforcing its limitations and
reservations in favor of the states and the people." This
statement sets forth a low view of governmental function and
practically limits its sphere to the office of the policeman,
whose chief concern is to suppress disorder. Statesmanship should
go deeper and should labor in a constructive way to remove causes
of disorder.
An examination of President Cleveland's state papers show that
his first concern was always to relieve the Government from its
financial embarrassments; whereas the first concern of the people
was naturally and properly to find relief from their own
embarrassments. In the last analysis, the people were not made
for the convenience of the Government, but the Government was
made for the convenience of the people, and this truth was not
sufficiently recognized in the policy of Cleveland's
administration. His guiding principle was stated, in the annual
message, December 3, 1894, as follows: "The absolute divorcement
of the Government from the business of banking is the ideal
relationship of the Government to the circulation of the currency
of the country." That ideal, however, is unattainable in any
civilized country. The only great state in which it has ever been
actually adopted is China, and the results were not such as to
commend the system. The policy which yields the greatest
practical benefits is that which makes it the duty of the
Government to supervise and regulate the business of banking and
to attend to currency supply; and the currency troubles of the
American people were not removed until eventually their
Government accepted and acted upon this view.
Not until his message of December 3, 1894, did President
Cleveland make any recommendation going to the root of the
trouble, which was, after all, the need of adequate provision for
the currency supply. In that message, he sketched a plan devised
by Secretary Carlisle, allowing national banks to issue notes up
to seventy-five per cent of their actual capital and providing
also, under certain conditions, for the issue of circulating
notes by state banks without taxation. This plan, he said,
"furnishes a basis for a very great improvement in our present
banking and currency system." But in his subsequent messages, he
kept urging that "the day of sensible and sound financial methods
will not dawn upon us until our Government abandons the banking
business." To effect this aim, he urged that all treasury notes
should be "withdrawn from circulation and canceled," and he
declared that he was "of opinion that we have placed too much
stress upon the danger of contracting the currency." Such
proposals addressed to a people agonized by actual scarcity of
currency were utterly impracticable, nor from any point of view
can they be pronounced to have been sound in the circumstances
then existing. Until the banking system was reformed, there was
real danger of contracting the currency by a withdrawal of
treasury notes. President Cleveland was making a mistake to which
reformers are prone; he was taking the second step before he had
taken the first. The realization on the part of others that his
efforts were misdirected not only made it impossible for him to
obtain any financial legislation but actually fortified the
position of the free silver advocates by allowing them the
advantage of being the only political party with any positive
plans for the redress of popular grievances. Experts became
convinced that statesmen at Washington were as incompetent to
deal with the banking problems as they had been in dealing with
reconstruction problems and that, in like manner, the regulation
of banking had better be abandoned to the States. A leading organ
of the business world pointed out that some of the state systems
of note issue had been better than the system of issuing notes
through national banks which had been substituted in 1862; and it
urged that the gains would exceed all disadvantages if state
banks were again allowed to act as sources of currency supply by
a repeal of the government tax of ten per cent on their
circulation. But nothing came of this suggestion, which was,
indeed, a counsel of despair. It took many years of struggle and
more experiences of financial panic and industrial distress to
produce a genuine reform in the system of currency supply.
President Cleveland's messages suggest that he made up his mind
to do what he conceived to be his own duty regardless of
consequences, whereas an alert consideration of possible
consequences is an integral part of the duties of statesmanship.
He persevered in his pension vetoes without making any movement
towards a change of system, and the only permanent effect of his
crusade was an alteration of procedure on the part of Congress in
order to evade the veto power. Individual pension bills are still
introduced by the thousand at every session of Congress, but
since President Cleveland's time all those approved have been
included in one omnibus bill, known as a "pork barrel bill,"
which thus collects enough votes from all quarters to ensure
passage.
President Cleveland found another topic for energetic
remonstrance in a system of privilege that had been built up at
the expense of the post-office department. Printed matter in the
form of books was charged eight cents a pound, but in periodical
form only one cent a pound. This discrimination against books has
had marked effect upon the quality of American literature,
lowering its tone and encouraging the publication of many cheap
magazines. President Cleveland gave impressive statistics showing
the loss to the Government in transporting periodical
publications, "including trashy and even harmful literature."
Letter mails weighing 65,337,343 pounds yielded a revenue of
$60,624,464. Periodical publications weighing 348,988,648 pounds
yielded a revenue of $2,996,403. Cleveland's agitation of the
subject under conditions then existing could not, however, have
any practical effect save to affront an influential interest
abundantly able to increase the President's difficulties by abuse
and misrepresentation.
__________
(1) Out of 158 national bank failures during the year, 153 were in
the West and South. In addition there went down 172 state banks,
177 private banks, 47 savings banks, 13 loan and trust companies,
and 6 mortgage companies.
(2) For details, see New York Times, Sept. 21, 1917.
(3) See The Path of Empire, by Carl Russell Fish (in The Chronicles of America,).
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