In view of the unfavorable terms of the bargain imposed by this contract, the administration hoped that Congress would promptly act and authorize the issue of the lower and more remunerative bond. Faithful in its adherence to silver, Congress could not be swerved; it defeated the bill authorizing the sale of a low-rate gold bond, and then engaged in an angry debate denouncing the Executive for his subserviency to the gold standard banking interests in entering into a contract not only disgraceful but illegal. In reply it could be shown that the New York Sub-Treasury was within forty-eight hours of gold exhaustion....
At first the syndicate was successful, because of some slight improvement in trade, but later it practically failed to control the price of exchange. It once more became cheaper for merchants to ship gold than to purchase bills, and gold continued to be withdrawn from the Treasury. On December 3, 1895, the gold reserve stood at $79,333,000, and after the commercial apprehension caused by President Cleveland's Venezuelan message a fortnight later, the reserve was still further reduced. Once more the administration resorted to a bond sale, and again the action was preceded by a special message from the President to Congress asking for a grant of authority to issue gold bonds instead of coin bonds, and also for the retirement of the legal-tender notes which continued in an endless chain their journey to the Treasury, and drove off gold to the commercial market. As Congress still refused to act, the Treasury resorted to a fourth issue of $100,000,000 4 per cent. bonds. The Treasury now carefully avoided any appearance of dealing through a syndicate and publicly advertised for offers, with the encouraging result of 4,640 bids, amounting to $684,262,850. Seven hundred and eighty-one bids were accepted and the premium yielded about $11,000,000. The relief obtained by the Treasury, however, was meagre, for it is estimated that $40,000,000 of the bonds were purchased with gold withdrawn from the Treasury by the redemption of notes. This was the Government's penalty for its endeavor to separate itself from all dealings with a banking syndicate.
In spite of this sale of bonds the reserve remained near the traditional danger line. In July, 1896, it fell to $90,000,000 because of hoarding due to popular apprehension as to the success of the silver movement in the November presidential election. Fearful that a new bond issue might strengthen the claims of the silver advocates, bankers and dealers in foreign exchange voluntarily combined to support the Treasury by exchanging gold for notes. The effort succeeded, and the reserve was placed in safety. After the elections in November gold came out from its hiding-places, and was turned into the Treasury in large amounts. Business and revenue improved and the difficulties of the Treasury Department were tided over.
Many Republicans held the earnest conviction that the issue of bonds would not have been necessary if the revenue had been sufficient. Not only had industry and commerce been unsettled by the tariff act of 1894, but the operations of the endless chain must certainly continue, it was held, until there was a generous income in excess of expenditures, whereby a considerable part of the credit currency might be covered into the Treasury and thus lessen the possible claims for redemption. The administration emphatically replied that at no time when bonds were issued was there intention of paying the expenses of the Government with their proceeds, and that the Treasury Department had no authority whatever to issue bonds for such purposes. President Cleveland was insistent that on each occasion of a bond issue there were sufficient funds in the Treasury to meet the ordinary expenditures of the Government. The proceeds of the bonds sold for the maintenance of the national credit were, however, turned into the general fund of the Treasury, and consequently, though not originally designed for that purpose, employed to meet indiscriminately all demands made upon the Government, whether for redemption of notes or the payment of debts.... There was a series of deficits beginning with 1894, but the deficit by no means equalled the amounts of bonds sold.
FOOTNOTES:
[16] Adapted from A. D. Noyes, Forty Years of American Finance, pp. 2-6 G. P. Putnam's Sons, New York and London. 1909.
[17] Ibid., pp. 35-44.
[18] F. W. Taussig, The Silver Situation in the United States, pp. 8, 9. G. P. Putnam's Sons. New York. 1893.
[19] I have stated the price here, for simplicity, in terms of so much per ounce of standard silver, i. e., silver containing 10 per cent. of alloy. The usual quotation in the United States is per ounce of fine silver. [Thus, the New York price, March 10, 1916, was 56-3/4 cents per ounce of fine silver.]
[20] Ibid., pp. 9, 10.