The New Nation

by Frederic L. Paxson

Harrison was not unwilling to surrender the Government to Cleveland in March, 1893, for he had been struggling for weeks to conceal the financial weakness of the United States and to avoid a panic. The great surplus that had been a motive for legislation for more than ten years had nearly become a deficit. Continuous prosperity had tempted Congress to make lavish appropriations. The McKinley Bill had reduced the revenue through changes in the sugar schedule. The Pension Bill had used other millions. Internal improvements had been distributed to every section. The surplus, which had been at $105,000,000 for 1890, fell to $37,000,000 in 1891, and in the next two years to $9,900,000 and to $2,300,000. In the spring of 1893 the Treasury was so reduced that any unexpected shock might cause a suspension. Cleveland's first duty was with causes and cures.

The surplus had been affected both by increase in expenditures and by decrease in revenues. The latter had been due in part to the hard times, which had forced a curtailment of imports, with a resulting shrinkage in tariff receipts. At the same time an increasing nervousness, based upon the deterioration in quality of the assets of the United States, showed itself. The fear of free silver was hastening the day of panic.

Silver and gold had always been traditional American coins, but since 1834 little of the former had been coined or circulated, while between 1862 and 1879 neither variety of specie was ordinarily used as money. In 1873 a codification of coinage laws had omitted from the standard list the silver dollar, which had been unimportant for nearly forty years; and when, shortly thereafter, the decline in the price of silver made its coinage at the ratio of sixteen to one profitable, it was impossible. The demand for a restoration of silver coinage began with the silver miners who desired a stimulated market for their output. Some believed coinage would raise the price of bullion; others thought the Government would keep up the value of the silver coins, as it did the greenbacks, by redemption in gold. In 1878 a Free Coinage Act, pushed by R.P. Bland, was converted into the limited Bland-Allison Act. Under this the Treasury bought the minimum amount of silver bullion (two million dollars' worth) every month for twelve years, and protested continually that the silver coined from it was increasing the burden of redemption on the gold reserve. As the price of silver fell farther, the demand of the miners increased, and toward 1890 it was reinforced by the demands of inflationists who desired it for another reason.

In 1890 the free-silver movement was not political in the sense that parties had declared for or against it. In each great party it had supporters, and few politicians were actively opposing it. A movement in its favor, with the support of the Senate, was reshaped under the influence of Sherman, and became a law in July, 1890. Under this the Treasury was forced to buy 4,500,000 ounces of silver each month, and to pay for it in a new issue of treasury notes. For the next three years the United States kept at par with gold the Civil War greenbacks, the Bland-Allison silver dollars, and the treasury notes of 1890. Only by its constant willingness to pay out any form of money at the option of the customer could it prevent the Gresham Law from operating and the currency from declining to the bullion value of silver.

Every creditor feared the establishment of the silver basis because of the loss which it would entail upon him. His dollars would shrink from their gold value to their silver value. A depreciated currency was bad enough when unavoidable, but the deliberate adoption of it would be frank repudiation. Continually, after 1890, popular apprehension of this grew more acute, discouraging the undertaking of new enterprises and leading to the insertion of "gold clauses" in contracts. Gold was hoarded whenever possible. The receipts at the New York Custom-House, which had been mostly gold before 1890, contained less than four per cent of gold in the winter of 1892-93. As the Treasury found its expenditures nearing its receipts, and the proportion of gold in its assets lessening, business men were badly worried over the future of the currency, and an actual limit of available capital appeared.

For fourteen years there had been prosperity in the United States. Financial and economic disturbances had been relatively slight, and every year had seen a greater business expansion than the last. Investment for permanent improvement had passed the amount of annual savings, and before 1893 the United States as a community had approached the point at which its economic surplus would be exhausted and an enforced liquidation would be due. As banks curtailed in 1893 to save themselves, stringency became general, and depression turned to panic. In April the gold reserve in the Treasury, on which the whole volume of silver and paper depended, passed below $100,000,000, which business had come to regard as the limit of safety. In the summer Great Britain closed her Indian mints to silver and that bullion dropped farther in value. Before July there was panic and failure everywhere in the United States.

Panic had been imminent before Harrison left office and remained for Cleveland to confront. Already Cleveland had taken a solid stand against free silver and the silver basis. He saw in the Sherman Silver Purchase Act the most striking cause of danger, and summoned Congress to meet in August, 1893, to repeal it, while he maintained the gold reserve for the next two years by borrowing on bonds. For the first time since the Civil War his party controlled every branch of the Government, yet it now met an issue on which it had not been elected and over which it broke to pieces.

An angry minority opposed the Message in which Cleveland described the financial dangers and demanded the repeal of the Sherman Law. It was a sectional minority that included Western Representatives from both parties and many Democrats from the South. Men who had fought the Populists since 1890 now fraternized with them and raised their strength beyond their hopes. The President refused compromise, even to save his party from destruction, and found a majority for repeal among Easterners of both parties. The Sherman Law was repealed in November, and the liquidation following the crisis was effected during the next three years.

It was a bad beginning for tariff revision, to split the party at its first session and to drive into opposition those Democrats who were most genuinely interested in tariff reform. Cleveland had lost his influence with Western Democrats before the repeal of the McKinley Act was undertaken, and they, like the Populists, had decided that he was the tool of the corporations and the "gold-bugs" of the East. The anti-corporation feelings of the West were increased by the accident which threw the corporations and the farmers into different sides upon the silver question.

A tariff for revenue had been the winning issue in 1890 and 1892, and the Democratic organization was pledged to pass it. When Speaker Crisp made William L. Wilson chairman of the Committee on Ways and Means his act showed an intention to fulfill the pledge, for which purpose Wilson brought in his bill early in the regular session of 1893-94. Like previous bills, this tariff was passed in the House, rewritten in the Senate, and again changed in conference committee. "The truth is," confessed Senator Cullom long after, "we were all—Democrats as well as Republicans—trying to get in amendments in the interest of protecting the industries of our respective States." The surplus was no longer an argument in favor of reduction. The free-trade arguments were flatly contradicted by a group of Democratic Senators under whose leadership the bill lost most of its reducing tendency. Out of doors the Republicans attacked the measure and noisily charged it with having produced the panic of 1893. Fourteen years later a Republican President still described it as the measure "under the influence of which wheat went down below fifty cents." When it finally came to the President it was so little different from the McKinley Bill that he denounced it violently. He had tried in vain to hold his party to an honest revision, and now, in July, 1894, refused to sign the bill. It became a law without his signature. It contained no novelty but an income tax, which was a concession to the Populists and which the Supreme Court soon declared to be unconstitutional.