A School History of the United States

by John Bach McMaster

%555. Grover Cleveland reëlected.%—The election was a complete triumph for the Democratic party. Mr. Cleveland was again elected, and for the first time since 1861 the House, Senate, and President were all three Democratic.

Mr. Cleveland was inaugurated March 4,1893. Never in its history had the country been seemingly more prosperous; the crops were bountiful; business was flourishing, manufactures were thriving. But the prosperity was not real. Business was inflated, and during the following summer an industrial and financial panic which had long been brewing swept over the business world, wrecking banks and destroying industrial and commercial establishments.

To understand what now happened, two facts must be remembered:

1. Under the Resumption of Specie Payment Act of 1875, the Secretary of the Treasury was authorized to buy specie by the issue of bonds and keep it to redeem United States notes.

2. In May, 1878, it was ordered that when a greenback was redeemed in specie, it should "not be retired, canceled, or destroyed, but shall be reissued and paid out again and kept in circulation." There were then $346,681,000 in greenbacks unredeemed.

%556. The Gold Reserve.%—Meantime, under the law of 1875, and before January 1, 1879, the secretary issued $95,500,000 in bonds, the proceeds of which, with other gold then in the Treasury, made a fund deemed sufficient to redeem such notes as were likely to be presented. This has since been called our gold reserve, and has been fixed by the secretaries at $100,000,000. January 1, 1879, the reserve was $114,000,000, and though it often rose and fell, it never went below that amount till July, 1892. By that time there were other gold obligations. The silver purchased under the law of 1890 was paid for with notes exchangeable for "coin"; but as the secretaries always construed "coin" to mean gold, and as by 1893 these notes amounted to $150,000,000, our gold obligations—that is, notes exchangeable for gold—were nearly $500,000,000 (greenbacks, $346,000,000; silver purchase notes, $150,000,000). This immense and steadily increasing sum caused a doubt of our ability to pay in gold, and a fear that we might be forced to pay in silver. Now silver, since 1873, had fallen steadily in value from $1.30 an ounce to $0.81 an ounce in 1893, so that the bullion value of a silver dollar was about 67 cents. The fear, then, that our debts might be paid in silver (1) led foreigners to cease investing money in this country, and to send our stocks and bonds home to be sold, and (2) led people in this country to draw gold out of the banks and the Treasury and hoard it, so that in April, 1893, the gold reserve, for the first time since it was created, fell below $100,000,000 (to $97,000,000).

%557. The Panic of 1893.%—Business depression and "tight money" followed. Over three hundred banks suspended or failed, manufactories all over the country shut down, and a period of great distress set in. People, alarmed at the condition of the banks, began to draw their deposits and hoard them, thereby causing such a scarcity of bills of small denominations that a "currency famine" was threatened.

%558. The Purchase of Silver stopped.%—Believing that the fear that we should soon be "on a silver basis" had much to do with this state of affairs, and that the compulsory purchase of silver each month had much to do with the fear, the President assembled Congress in special session, August 7, and asked for the repeal of that clause of the Sherman Act of 1890 which required a monthly purchase of silver. After a struggle in which both of the old parties were split, the compulsory purchase clause was repealed, November 1, 1893.

%559. The Silver Movement.%—The steady fall in the bullion value of silver was a serious blow to the prosperity of the great silver-producing states,—Colorado, Montana, Idaho, South Dakota, Wyoming, Nevada, Utah, and the territories of Arizona and New Mexico,—where silver mining was "the very heart from which every other industry receives support." In Colorado alone 15,000 miners were made idle. To the people of this section, some 2,000,000 in number, the silver question was of vital importance; and, alarmed at the call for the special session of Congress and the possible repeal of the silver-purchase clause, they held a convention at Denver, with a view to affecting public sentiment. A few weeks after, the National Bimetallic League met at Chicago. Both opposed the repeal, and demanded that if the government ceased to buy silver, the mints should be opened to free coinage. This the friends of silver in the Senate attempted in vain to bring about.

%560. The Industrial Depression; the Wilson Bill.%—The industrial revival which it was hoped would follow the repeal of the silver-purchase law did not take place. Prices did not rise; failures continued; the long-silent mills did not reopen; gold continued to leave the country, imports fell off, and, when the year ended, the receipts of the government were $34,000,000 behind the expenditures. With this condition of the Treasury facing it, Congress met in December, 1893. The Democrats were in control, and pledged to revise the tariff; and true to the pledge, William L. Wilson of West Virginia, Chairman of the House Committee on Ways and Means, presented a new tariff bill (the Wilson Bill) which after prolonged debate passed both Houses and became a law at midnight, August 27, 1894, without the President's signature. As it was expected that the revenue yielded would not be sufficient to meet the expenses of government, one section of the law provided for a tax of two per cent on all incomes above $4000. This the Supreme Court afterwards declared unconstitutional.