To say that Secretary Sherman's management of the Treasury achieved during his time precisely the results proposed, and achieved them promptly, is to concede his administration's practical success. Nor were these results attained through extravagance or waste. In his refunding and resumption operations, Mr. Sherman placed the bonds of the United States on better terms than any of his predecessors.
Arrangements for Resumption[12]
The Secretary of the Treasury now put the final touches on his arrangements for resumption. Partly by accident and partly through stress of circumstances, the Treasury gold reserve was defined, in later years, at a fixed and arbitrary minimum. The theory adopted by Mr. Sherman, however, in his early operations, was different and undoubtedly better. Following probably the practice of the Bank of England, he fixed his reserve at 40 per cent. of outstanding notes—"the smallest reserve," he wrote to Congress, "upon which resumption could be prudently commenced and successfully maintained." On this basis he held in the Treasury, on December 31, 1878, $114,193,000 gold in excess of outstanding gold certificates, which was a trifle over 40 per cent. of the Government notes then circulating outside the Treasury. Of this gold reserve, $95,500,000 had been obtained through sale of bonds, part of the coin being procured in Europe.
There remained now to be settled only the formal machinery of exchange between the Treasury and outside institutions. If the Treasury had left the banks to pursue unchanged their policy of keeping special gold deposits, the Government reserve would have been at once imperilled. If the banks had continued to present their individual drafts for redemption across the counter of the Sub-Treasury, any timid or blundering banker might have started a general drain of gold. Against these possibilities Mr. Sherman now took measures. He secured the admission of the New York Sub-Treasury as a member of the clearing-house. At New York and Boston the clearing-houses modified their rules, agreed to abolish "gold deposits" after January 1st, and to accept the legal tenders freely in discharge of balances against one another and against the Government. At the same time, the requirement of coin payment of customs duties was revoked, and public officers were directed to receive coin or legal tenders at the payer's option—a move of obvious propriety, since refusal to take notes in payment would merely send the importer to the Treasury's redemption office to convert them into coin. All these preliminaries had been formally and positively settled before the close of 1878. On December 17th, the premium on gold disappeared, for the first time since 1861; on January 1st, specie payments were quietly resumed.
Should the Greenbacks Be Retired?
[13]Let us now consider for a moment an issue which twenty years ago was urgently pertinent, was in fact the very crux of so-called "currency reform," and which still persists as a live issue in the minds of some of the veteran "reformers" of those days, although the conditions which then gave it point have long since disappeared.
In the middle nineties, when it was estimated that the total gold stock of the entire country was only about 600 million dollars and less than 200 millions of this was in the vaults of the treasury, the Government's fiduciary currency, consisting of 346 millions of greenbacks and 400 millions or more of overvalued silver, presented beyond question a serious menace to the country's monetary standard. It meant that the treasury had outstanding currency obligations payable in gold to the extent of three or four times its own gold holdings, and amounting to far more than all of the gold in the country, including the holdings of the treasury, the banks, and the general public. At that time fluctuations in the trade balance of a single year sometimes almost equalled the treasury's gold holdings in amount, and it was quite conceivable, in fact not improbable, that a sudden unfavorable change in that balance might drain the treasury of all of its gold, and leave the country with a currency standard of depreciated silver or paper. This was the situation which continually menaced Mr. Cleveland's second administration, causing great financial anxiety and forcing the treasury during those years of peace and normal expenditures to borrow 262 million dollars in gold in order to replenish its continually dwindling reserve. Such a situation inevitably led the advocates of monetary legislation in the nineties to place first and foremost among their proposals the necessity of getting rid of the precarious greenback, and most of the plans proposed by bankers' associations, chambers of commerce, and financial experts generally at that time emphasized the urgency of this measure.
WHY RETIREMENT IS NOT IMPORTANT
It sometimes happens that, with the lapse of time and with changed conditions, infirmities, long left untreated, cure themselves, and so it has been with the one-time bothersome greenback. Twenty years ago, when the outstanding greenbacks amounted to twice the gold holdings of the treasury and to much more than half of the country's entire gold stock, there was abundant reason for anxiety on account of their continued circulation. The situation is utterly different to-day. Gold has accumulated in the treasury beyond the wildest "dreams of avarice" of the nineties. From less than 200 millions in the middle nineties the treasury's gold holdings have grown to approximately 1,250 millions to-day, and the estimated gold stock of the country has increased from 600 to more than 1,800 millions, despite the fact that the Director of the Mint in 1907 reduced the estimate for gold in circulation by 135 millions as compared with the basis of previous years.