The United States Since The Civil War by Charles Ramsdell Lingley

C >> Charles Ramsdell Lingley >> The United States Since The Civil War

Pages:
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | 21 | 22 | 23 | 24 | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | 33 | 34 | 35 | 36 | 37 | 38 | 39 | 40 | 41 | 42

As effective as new expenditure was the McKinley tariff act of 1890,
the details of which from the point of view of tariff history have
already been noted.[3] The extremely high rates levied under that
legislation caused a slight reduction in customs revenue in 1891 and a
sharp decline in 1892. Moreover the coincidence of instability in the
currency system, business depression and the relatively high
Wilson-Gorman tariff schedules of 1894 continued the decline of income
from customs during the middle nineties.

In the meantime the silver agitation, which had been somewhat repressed
by the well-known attitude of Cleveland during his first administration
revived with increased vigor. The election of 1888, it will be
remembered, had turned wholly on the tariff and had been a victory for
the Republicans. The western states had almost uniformly supported
Harrison in the election and during 1889 four more were admitted to the
Union. Their representatives in Congress were mainly silver advocates.
In his first message to Congress the President declared that the evil
anticipations which had accompanied the use of the silver dollar had
not been realized but he feared nevertheless that either free coinage
or any "considerable increase" of the present rate of coinage would be
"disastrous" and "discreditable." He announced that a plan would be
presented by the Secretary of the Treasury, to which he had been able
to give only a hasty examination. The scheme for expanding the silver
coinage which the Secretary, William Windom, presented was not
acceptable to Congress, but the result of the agitation was the law
generally known as the Sherman silver purchase act, which was passed on
July 14, 1890. It directed the secretary of the treasury to purchase
4,500,000 ounces of silver bullion per month and to issue in payment
"Treasury notes of the United States." These notes were legal tender
for all debts and were receivable for customs and all public dues.
Further, the secretary was directed to redeem the notes in gold or
silver at his discretion, "it being the established policy of the
United States to maintain the two metals on a parity with each other."

[Illustration:
Total Silver Coinage, 1873-1894, in millions of dollars]

The silver to be purchased was substantially the total output of the
American mines. Fearing the strength of the silver element in the
Senate and doubtful of the position which the President might take,
former Secretary Sherman, now in the Senate, supported the act,
although confessing that he was ready to vote for repeal at any time
when it could be done without substituting free coinage. The provision
for the purchase of four and one-half million ounces instead of four
and one-half million dollars' worth was introduced at Sherman's
suggestion. This clause kept the amount to be absorbed at a uniform
level, whereas the purchase of a fixed number of dollars' worth would
have increased the coinage when the price of bullion fell. The vote on
the Sherman act was strictly partisan--no Republicans opposing it and
no Democrats favoring it when the measure was finally passed, although
116 members of the House failed to answer to their names on the
roll-call.

In view of the fact that the industrial and commercial countries of
Europe were almost universally reducing their silver coinage, the
passage by the United States of an act which substantially doubled
the amount of silver purchased under the Bland-Allison law seems
extraordinary. Moreover, only six years later a presidential campaign
was fought almost wholly on the silver issue and at that time the
Republican party resolutely opposed free coinage. It is obvious that
powerful forces must have been at work to align the party so unitedly
in behalf of the Sherman law. It was to be expected that western
Republicans would support it, but the eastern members were found
voting for it as well. Doubtless many things contributed to the
result. Some perhaps agreed with Sherman that the silver advocates
were so strong that free coinage would result in case Congress refused
to pass legislation of any kind. Some may have feared with Platt of
Connecticut, that a party split would ensue unless the wishes of the
westerners were acceded to--hence an act which gave liberal assistance
to silver to please the West and South but stopped short of free
coinage so as to please the East. That opportunist politics had an
influence with certain members is indicated by the remarks of a
Massachusetts Republican representative who later favored the gold
standard:

It is pure politics, gentlemen; that is all there is about it.
We Republicans want to come back and we do not want you (to
the Democratic side) to come back in the majority, because,
on the whole, you must excuse us for thinking we are better
fellows than you are. That is human nature, that is all there
is in this silver bill (laughter on the Republican side); pure
politics.

A Democrat who favored free coinage denounced the act as "Janus-Faced,"
moulded so as to look like silver to the West and gold to the East.
Important, also, seems to have been the attitude of the western members
on the tariff. The party had returned to power on the tariff issue and
it seemed necessary to pass some sort of legislation on the subject.
Yet the party majority in Senate and House was slight and the
westerners were understood to be ready to defeat the McKinley bill
which was then pending, unless something was done for silver. Harrison
seems to have been unwilling to endanger successful tariff legislation
by opposing the considerable extension of the coinage of silver.[4]

Contrary to the expectations of the proponents of the act, the price of
silver fell gradually until the value of the bullion in a dollar was
sixty cents in 1893 and forty-nine cents in 1894. They who had opposed
the law saw their fears verified; as they had prophesied, silver began
to replace gold in circulation; the latter was hoarded and used for
foreign shipments; customs duties, which had hitherto been paid largely
in gold, were now paid in paper currency; since gold was now more
desired than silver, large amounts of paper were presented to the
government for redemption in the more valuable metal. To be sure, the
Sherman law allowed the secretary of the treasury to redeem the
treasury notes of 1890 in gold or silver at his discretion, but it
contained a proviso that the established policy of the United States
was to maintain the two metals on a parity or equality. The secretary
believed that if he refused to redeem the treasury notes in whatever
coin the holder desired, that is if he insisted on redemption in silver
only, a discrimination would be made in favor of gold and the equality
of the two metals would be destroyed. Parity would be maintained, the
government held, only when any kind of money could be exchanged for any
other kind, at the option of the holder.

For the redemption of the greenbacks, the government had since 1879
maintained a fund known as the gold reserve. No law fixed its amount,
but custom had set $100,000,000 as the minimum. Hitherto a negligible
amount of paper had been presented for redemption, but as soon as the
Sherman law came into effective operation the demand for gold became
increasingly great and the level of the reserve promptly fell. Between
July 1, 1890, and July 15, 1893, the supply of gold in the treasury
decreased more than $132,000,000, while the stock of silver increased
over $147,000,000. Evidently silver was replacing gold in the treasury,
and it was equally clear that a continuation of the process would
result in forcing the government to pay its obligations in silver and
to refuse to redeem paper in gold--in other words, go upon a silver
standard.

The situation when Cleveland's second administration began on March 4,
1893, was complex and critical. The annual expenditures had increased
by $119,000,000 between 1880 and 1893, while the revenue had expanded
by only half that amount; the surplus had decreased every year during
Harrison's administration and a deficit had been avoided only by the
cessation of payments on the public debt; the supply of currency in
circulation was being heavily increased by the operation of the Sherman
law; and the gold reserve had been kept at the traditional amount only
through extraordinary efforts on the part of Harrison's Secretary of
the Treasury as the administration came to a close.

Cleveland's attitude toward the Sherman law was well-known. He had long
urged the repeal of the Bland-Allison act; before the election of 1892
he had predicted disaster in case the nation entered upon "the
dangerous and reckless experiment of free, unlimited, and independent
silver coinage"; it was his belief that the distresses under which the
country labored were due principally to the Sherman silver purchase
law. He therefore called a special session of Congress for August 7,
(1893), sent a message giving a succinct account of the operation of
the law and urged its immediate repeal.[5] In the House, repeal was
voted with surprising promptness, although a strong free-silver element
fought vigorously to prevent it. That party lines were broken was
indicated by the fact that two-thirds of the Democrats and four-fifth
of the Republicans voted in accord with the President's request.

In the Senate the silver advocates were stronger. The entire history of
coinage was discussed at length. Members who favored repeal disliked to
overturn the tradition of the Senate which allowed unlimited debate,
and the silver senators therefore filibustered through the summer and
early fall. Senator Jones of Nevada made a single speech that filled a
hundred dreary pages of the _Congressional Record_. Senator Allen of
Nebraska quoted more than thirty authorities, ranging from the Pandects
of Justinian to enlivening doggerel poetry. Feeling ran high. In the
West, Jones, Allen and others were looked upon as heroes; in the East,
as villains. To a satirical onlooker it seemed that the nation had
become insanely obsessed with the question of repeal:

All men of virtue and intelligence know that all the ills of
life--scarcity of money, baldness, the comma bacillus, Home
Rule, ... and the Potato Bug--are due to the Sherman Bill. If it
is repealed, sin and death will vanish from the world, ... the
skies will fall, and we shall all catch larks.

Not until October 30 were the silver supporters overcome. Including
members who were paired, twenty-two Democrats and twenty-six
Republicans favored repeal, and twenty-two Democrats, twelve
Republicans and three Populists opposed. Again the West and South were
aligned against the North and East. The Democratic party was divided
and charges and countercharges had been made that augured ill for party
success, as has been seen, in dealing with the tariff and other
important problems.[6] Worst of all, the chief question--the volume
and content of the currency--was still unanswered. Something had been
done for silver--and undone--but there was no scientific settlement of
the problem.

The disastrous financial and industrial crisis of 1893 made yet more
complex the already tangled skein of economic history during President
Cleveland's second administration. The catastrophe has been ascribed to
a variety of causes but the relative importance of the various factors
is still a matter of disagreement. Rash speculation on the part of
industrial interests here and abroad seems to have made weak links in
the international commercial chain; financial conditions both in
Germany and in Great Britain were precarious during the early part of
1890; the collapse of the Philadelphia and Reading Railroad in
February, 1893, and of the National Cordage Company soon afterwards
were warnings of what was to follow; the silver purchase law produced
widespread fear that the United States would not be able to continue
the redemption of paper currency; and the change of political control
had produced the usual feeling of uncertainty. The dwindling of the
gold reserve, which has already been mentioned, assisted in causing a
critical situation. Foreign investors, fearful of financial conditions
here, sold their American railroad and other securities and received
payment in gold. The one place where the yellow metal could be readily
obtained was the United States treasury and upon it the strain
centered. People attempted to turn property of all kinds into gold
before the existing standard should change to a depreciated silver
basis. At the same time there was a rush to the banks to withdraw
funds, and the visible supply of currency therefore was seriously
reduced. "Under these conditions gold seemed scarce. In reality gold
was only relatively scarce in comparison with the abnormal offering of
property for sale on account of the fear of the silver standard." In an
incredibly short time, currency became so scarce as to create a genuine
panic and was purchased like any commodity at premiums ranging from one
to three per cent. In order to enable their families to pay the running
expenses of every day at the summer resorts, business men were
compelled to buy bills and coin and send them in express packages. The
national banks were unable to supply the demand for currency so
quickly, and 158 of them failed in 1893 and hundreds of state and
private financial institutions were forced to close their doors.
Industrial firms were affected by the uncertainty and panic and over
15,000 failures resulted, with liabilities amounting to $347,000,000 in
the single year. Production of coal and iron fell sharply; railway
construction nearly ceased and the value of securities shrank to a
fraction of their former value. The distress among the wage-earners
became extreme; unemployment was common; strikes, like that beginning
in Pullman in 1894, were bitter and prolonged. "Coxey's army," composed
of unemployed workmen, marched to Washington with a petition for
relief.

As is usually the case in our politics, the blame for the industrial
disturbance was laid at the door of the party in power. The argument of
an Ohio congressman in the debate over the repeal of the Sherman law
typified the political use made of the crisis of 1893. Until November,
1892, the orator declared, prosperity was undimmed. "Iron furnaces
throughout the country were in full blast, and their cheerful light was
going up to heaven notifying the people of the United States of
existing prosperity and warning them against change of conditions."
Then came the election of the party "which had declared war on the
system upon which our whole industrial fabric had been erected." "One
by one the furnaces went out, one by one the mines closed up, one after
another the factories shortened their time." Business interests, he
asserted, were fearful of Democratic rule and especially of tariff
reform; hence prosperity and confidence could be renewed only by
leaving the Sherman law intact and by refusing to undertake any
sweeping revision of the protective tariff.

[Illustration:
Net Gold in the Treasury, by months,
Jan., 1883 to Feb., 1896, in millions of dollars]

Further to complicate the financial trials of the burdensome mid-nineties,
the depletion of the gold reserve demanded immediate attention. During
the closing months of President Harrison's administration, in fact, the
Secretary of the Treasury had ordered the preparation of plates for
engraving an issue of bonds by which to borrow sufficient gold to
replenish the redemption fund. By a personal appeal to New York bankers,
however, he was able to exchange paper for gold and so keep the level
above the one hundred million mark, and when Cleveland succeeded to
the chair, the reserve was $100,982,410. In the meantime the scarcity
of gold continued, and the combination of large expenditures and
slender income severely embarrassed the government in its attempts to
obtain a sufficient supply of gold to keep the reserve intact. The
administration, indeed, was all but helpless. Paper presented for
redemption in gold had to be paid out to meet expenses and was then
turned in for gold again. Hence, as Cleveland ruefully reminded
Congress, "we have an endless chain in operation constantly depleting
the Treasury's gold and never near a final rest." On April 22, 1893,
the reserve fell momentarily below $100,000,000 and later in the year
it was apparent that the reduction was likely to become permanent.
By January, 1894, the reserve was less than $70,000,000, while
$450,000,000 in paper which might be presented for redemption were in
actual circulation. Only one resource seemed available--borrowing gold.
The treasury therefore sold bonds to the value of $50,000,000. Even
this, however, did not remedy the ill. Bankers obtained gold to
purchase bonds by presenting paper currency to the government for
redemption. Relief was temporary. On the last day of May the reserve
amounted to only $79,000,000; in November, to $59,000,000. Another
issue of bonds was resorted to in November, but the results were not
better than before. At the same time the Pullman strike during the
summer months, the Wilson-Gorman tariff fiasco and an unfortunate
harvest seemed to indicate that man and nature were determined to make
1894 a year of ill-omen.

By February, 1895, the treasury found itself confronted with a reserve
of only $41,000,000. It seemed useless to attempt borrowing under the
usual conditions, and Cleveland therefore resorted to a new device. A
contract was made with J.P. Morgan and a group of bankers for the
purchase of 3,500,000 ounces of gold to be paid for with United States
four per cent. bonds. In order to protect the reserve from a renewed
drain, the bankers agreed that at least half the gold should be
obtained abroad, and they promised to exert all their influence to
prevent withdrawals of gold from the treasury while the contract was
being filled. The terms of the contract were favorable to the bankers,
but the President defended the agreement on the ground that the
promise to protect the reserve entitled the bankers to a favorable
bargain. The fact, however, that the Morgan Company was able to market
the bonds with the public and make a large profit, increased the
demand that the administration sell directly to the people and make
the profit itself. In January, 1896, occurred a fourth sale--to the
public, this time--and 4,640 bids were received, for a total several
times greater than the $100,000,000 called for. By this time, business
conditions were improving, confidence was restored among the financial
classes and gold again began to flow out of hiding and into the
treasury. The endless chain was broken.

The denunciation which Cleveland received for the untoward monetary and
industrial events of his administration was unusual even for American
politics in the middle nineties. Such extreme silver men as Senator
Stewart of Nevada declared that Cleveland's second administration was
probably the worst administration that ever occurred in this or any
other country; that he was a bold and unscrupulous stock-jobber; that
he deliberately caused the panic of 1893 and that he sent the Venezuela
message in order to divert the attention of the people from the silver
question. The New York _World_ described the transaction between the
government and the Morgan Company as a "bunco" game, and charged that
Cleveland had dishonest, dishonorable and immoral reasons for bringing
about the transaction and that he did it for a "consideration."
Representative W.J. Bryan, who belonged to the President's party and
who ordinarily was chivalrous to his opponents, declared that Cleveland
could no more escape unharmed from association with the Morgan
syndicate than he could expect to escape asphyxiation if he locked
himself up in a room and turned on the gas. The Democratic party, he
thought, should feel toward its leader as a confiding ward would feel
toward a guardian who had squandered a rich estate, or as a passenger
would feel toward a trainman who opened a switch and precipitated a
wreck.

BIBLIOGRAPHICAL NOTE

The standard works, mentioned under Chapter V, by Dewey, Hepburn and
Noyes continue valuable. The attitude of Hayes and of succeeding
Presidents is found in J.D. Richardson, _Messages and Papers of the
Presidents_; F.W. Taussig, _The Silver Situation in the United States_
(1892), is concise; _Political Science Quarterly_, III, 226, discusses
the surplus revenue; _Quarterly Journal of Economics_, III, 436, on the
direct tax; W.H. Glasson, _Federal Military Pensions_, has already been
mentioned. W.J. Lauck, _Causes of the Panic of 1893_ (1907), lays the
blame for the industrial distress of 1893 wholly on the silver law of
1890. On the gold reserve, consult Grover Cleveland, _Presidential
Problems_; D.R. Dewey, _National Problems_ (1907); _Political Science
Quarterly_, X, 573; and _Quarterly Journal of Economics_, XIII, 204.
"The Silver Debate of 1890," in _Journal of Political Economy_, I, 535,
contains a detailed account of the discussion in Congress. W.J. Bryan,
_First Battle_ (1897), should be consulted.

* * * * *

[1] According to the principle known as Gresham's law, bad money tends
to drive out good; or overvalued money to drive out undervalued money.
If the face value of a coin is more than its worth as bullion, it is
"overvalued." Thus, if coins of equal face value, but of different
bullion value, circulate side by side, there will be a tendency for the
possessors of the coins to pass on the currency with the smaller
bullion value and to withdraw the others for sale as bullion and for
use in the arts.

[2] Above, p. 164.

[3] Above, pp. 238-240.

[4] The law remained in force about three years. During that interval
nearly $156,000,000 worth of silver bullion was purchased with the new
treasury notes. The government began retiring these notes in 1900.

[5] The call for the extra session, together with news of the
suspension of free-coinage in India, sent the bullion price of silver
down twenty-one cents per ounce in two weeks. The President was
seriously handicapped at this time by a cancerous growth in the jaw,
necessitating an operation, news of which was withheld from the public
for fear of its ill effect on the financial situation. Cf. _Saturday
Evening Post_, 22 Sept., 1917.

[6] Above, p. 274.

CHAPTER XVI

1896

The political situation in 1896, when the parties began to prepare for
the presidential election, was more complex than it had been since
1860. The repeal, in 1893, of the purchase clause of the Sherman silver
act had divided the Democrats into factions; the financial and
industrial distress in the same year had been widely attributed to fear
of Democratic misgovernment; the Wilson-Gorman tariff act of 1894 had
discredited the party and aroused ill-feeling between the President and
Congress; the Pullman strike and the use of the injunction had aroused
bitterness in the labor element against the administration; the income
tax decision of 1895 had done much to shake popular confidence in the
Supreme Court; the Hawaiian and Venezuelan incidents had caused minor
dissent in some quarters; and the bond sales had made Cleveland
intensely unpopular in the West and South. The Democratic party was
demoralized and leaderless. The Republicans were better off because
they had been out of power during the years of dissension and panic,
but they had been without a leader since the death of Blaine in 1893
and were far from united in regard to the most pressing issues. Indeed,
the sectional differences in both parties, and the unexpected strength
of the Populist movement caused no little anxiety among the political
leaders. And finally, the volume and character of the currency was
still undetermined. The Democrats had divided on the question. The
Republicans were almost as little united; they had played politics in
passing the Sherman silver act and three years later had assisted a
President of the opposite party in accomplishing the repeal of its most
important provision. From the standpoint of the silver supporters
neither party organization was to be trusted. The outstanding political
questions of 1896, therefore, were whether the supporters of silver
could capture the machinery of one of the parties and whether the other
unsettled issues could ride into the campaign on the strength of the
financial agitation. The answers to these questions gave the campaign
and election its peculiar significance.

The background of 1896 is to be found in the South and West, where the
farmers' alliances and the Populist party continued their success in
arousing and directing the ambitions of the discontented classes. In
1892, it will be remembered, the Populists had cast more than a million
ballots and had chosen twenty-two presidential electors, two senators,
and eleven representatives. In 1894, at the time of the congressional
election, they had increased their voting strength more than forty per
cent., and had elected six senators and six members of the House,
besides several hundreds of state officials. In the Senate it happened
that the two great parties had been almost equally strong, after the
election of 1894, so that the Populist group had held the balance of
power. The insistence of the South and West that Congress do something
further for silver had not lessened. A measure providing for the
coinage of a portion of the silver bullion in the treasury had been
defeated in 1894 only through the President's veto. Indeed the only
hope of the East and of the supporters of the gold standard was the
unflinching determination of the head of a party to which the East and
the gold supporters were, in the main opposed.