Presidential Problems

by Grover Cleveland

In compliance with this act, the sum of about $92,000,000 in gold was realized by the sale of bonds, and about $41,000,000, in addition, was obtained from surplus revenue; and thereupon the contemplated redemption was entered upon. But after the retirement and cancelation of only about $30,000,000 of these notes, and on the thirty-first day of May, 1878, this process was interrupted by the passage of an act forbidding their further retirement or cancelation, and providing that any such notes thereafter redeemed should not be canceled or destroyed, but should be “reissued and paid out again and kept in circulation.” At the time this act was passed the United States notes uncanceled and still outstanding amounted to $346,681,016. It will be observed that though the actual retirement of these notes was prohibited, their redemption in gold was still continued, coupled with the condition that, though thus redeemed, they should be still kept on foot and again put in circulation as a continuing and never-ending obligation of the Government, calling for payment in gold—not once alone, but as often as their reissue permitted, and without the least regard to prior so-called redemptions. It will be also observed that this prohibition of cancelation intervened seven months prior to January 1, 1879, the date when the general and unrestricted redemption and retirement of all these outstanding notes was, under the terms of the act of 1875, to commence. At the time when their further cancelation was thus terminated there remained of the gold which had been provided as a reserve for their redemption about $103,000,000. This is the fund which has since then been called the “gold reserve.”

In point of fact, this reserve was thereafter made up of all the net gold held by the Government; and its amount at any particular date was ascertained by deducting from the entire stock of gold in the Treasury the amounts covered by outstanding gold certificates, which instruments resemble a bank’s certificate of deposit, and are issued by the Secretary of the Treasury to those making with the Government specific deposits of gold, to be returned to the holders of the certificates on demand. Of course the gold thus held for certificate-holders is not available for the redemption of United States notes.

In the year 1882 a law was passed by Congress which provided that the Secretary of the Treasury should suspend the issue of these gold certificates “whenever the amount of gold coin and gold bullion in the Treasury, reserved for the redemption of United States notes, falls below $100,000,000.” Whatever may have been the actual relationship between gold certificates representing gold deposited for their redemption, and the gold kept on hand for the redemption of United States notes, the provision of law just quoted seems to have been accepted as a statutory recognition of the fact that our gold reserve for note redemption should have for its lowest limit this sum of $100,000,000. It is a singular circumstance that until very lately, when this reserve was increased and fixed at $150,000,000, no Act of Congress actually provided, or in any way expressly stated, what the limits of this gold reserve for redemption purposes should be; and it is no less singular that this provision in the law of 1882 fixed its lowest safe limit as perfectly and authoritatively in the understanding of our people as it could have been done by a distinct legislative requirement. At the time this reserve was created, as well as when the actual cancelation of United States notes after redemption was prohibited, it evidently was thought by those directing our nation’s financial affairs that the sum of $100,000,000 in net gold actually in hand, especially with such additions as might naturally be expected to reach the fund by way of surplus revenue receipts, or otherwise, would constitute a sufficient gold reserve to redeem such of these notes still left outstanding as might be presented, and that the assurance of their gold redemption when presented would keep them largely in circulation. This scheme seemed for a time to be abundantly vindicated by the people’s contentment with the sufficiency of the redemption reserve, and by their willingness to keep in circulating use these United States notes as currency more convenient than gold itself.

Another most important condition of mind among the people, however, grew out of, or at least accompanied, their acceptance of the redemptive sufficiency of the gold reserve as constituted. The popular belief became deep-seated and apparently immovable that the reduction of this gold reserve to an amount less than $100,000,000 would, in some way, cause a disastrous situation, and perhaps justify an apprehension concerning our nation’s financial soundness. Thus a gold reserve containing at all times at least $100,000,000 came to be regarded by the people with a sort of sentimental solicitude, which, whatever else may be said of it, was certainly something to be reckoned with in making our national financial calculations.

That the plans thus set on foot for the so-called redemption of the United States notes outstanding promised to be adequate and effective is seen in the fact that the gold reserve, starting at the end of June, 1878, with about $103,500,000, never afterward fell as low as $100,000,000 until April, 1893, and that sometimes in its fluctuations during this interval of twenty-five years it amounted to upward of $200,000,000. Under conditions then existing popular confidence was well established, the reserve satisfactorily endured the strain of all redemption demands, and United States notes were kept well in circulation as money.

In an evil hour, however, a legislative concession was made to a mischievous and persistent demand for the free and unlimited coinage of silver. This concession was first exhibited in an act of Congress passed in 1878, directing the expenditure of not less than $2,000,000 nor more than $4,000,000 each month by the Secretary of the Treasury in the purchase of silver bullion, and the coinage of such bullion into silver dollars. Though this act is not in itself so intimately related to my subject as to require detailed explanation, it was the forerunner of another law of Congress which had much to do with creating the financial conditions that necessitated the issuance of Government bonds for the reinforcement of the gold reserve.

This law was passed in 1890, and superseded the provision of the law of 1878 directing the purchase and coinage of silver. In lieu of these provisions the Secretary of the Treasury was thereby directed to purchase silver bullion from time to time in each month to the aggregate amount of 4,500,000 ounces, or as much as might be offered, at the market price, not to exceed, however, a limit therein fixed. It was further provided that there should be issued, in payment of such purchases of silver bullion, Treasury notes of the United States in denominations not less than one dollar nor more than $1000; that such notes should be redeemable in coin, and should “be a legal tender in payment of all debts, public and private, except where otherwise expressly stipulated in the contract, and should be receivable for customs, taxes and all public dues”; and that when they were redeemed or paid into the Treasury they might be reissued. The Secretary of the Treasury was directed to coin into silver dollars in each month until the first day of July, 1891, 2,000,000 ounces of the silver so purchased, and thereafter so much as might be necessary to provide for the redemption of the notes issued in payment for the silver from time to time purchased under the act.

I have recited these provisions by way of leading up to the proposition that, under the law of 1890, the burden upon the gold reserve was tremendously enlarged. It will be readily seen that it forced larger monthly purchases of silver than were required under the prior act, and that, instead of providing for silver dollars, which as coins, or certificates of deposit representing such coins, should circulate as silver currency, unredeemable in gold as was done under the act of 1878, it directed that in payment of such purchases a new obligation of the Government, redeemable in coin, should be issued and added to our circulating medium.

It is, however, only when we examine the specific provision for the redemption of these notes that we discover in its full extent the harmful relationship of this new device to the integrity of the gold reserve. At its outset the redemption clause of the act courageously and manfully gave to the Secretary of the Treasury the authority to redeem such notes in gold or silver at his discretion; but in its ending it fell down a pitiful victim of the silver craze. The entire clause is in these words: “That upon demand of the holder of any of the Treasury notes herein provided for, the Secretary of the Treasury shall, under such regulations as he may provide, redeem such notes in gold or silver coin at his discretion, it being the established policy of the United States to maintain the two metals at a parity with each other upon the present legal ratio, or such ratio as may be provided by law.”

According to the legal ratio then existing, which has never been changed, the average intrinsic gold value of a silver dollar as compared with a gold dollar was, during the year 1891, about seventy-six cents, during 1892 a trifle more than sixty-seven cents, and during 1893 about sixty cents.