"578 Fifth Avenue, Oct. 17, 1878. "Hon. John Sherman.
"Dear Sir:—Referring to recent newspaper statements that I have been interested in movements either to tighten money or create a scarcity of gold and thus interfere with natural and early resumption, I beg to say that they are without the slightest foundation. On the contrary I feel a very deep interest in your efforts, so far eminently successful in carrying the country to a successful resumption.
"If resumption is made a real success it will be accompanied with substantial business prosperity and do more to strengthen and retain the ascendency of the Republican party than any and all other reasons.
"The real causes of the recent disturbances in the money market are the following:
"First. Government bonds have come back from Europe faster than investment orders would absorb them—the surplus are carried on call loans and have absorbed several millions of dollars.
"Second. The financial troubles in England are retarding the rapid movement of western produce. The elevators at Chicago and Milwaukee are full of grain; at Chicago alone about 7,000,000 bushels. The currency sent west to pay for this grain will not be released until the grain is marketed.
"Third. A large amount of foreign capital usually lent on call in
Wall street has been transferred to London and Liverpool as money
commands (or has until recently) better rates there than in New
York.
"I remain, yours very truly,
"Jay Gould."
The purchase of four per cent. bonds sensibly increased in October. As the six per cent. bonds could not be paid within ninety days after the call, the purchasers of the four per cent. bonds claimed the right to pay for such bonds in United States notes, which on the 1st of January would be redeemable in coin. To this I replied that as the sale of four per cent. bonds was solely for the purpose of refunding the six per cent. bonds, the proceeds of the sale must be such as could be lawfully paid for called bonds. "Under existing law the treasury is required to and will redeem in coin, on and after January 1, 1879, United States legal tender notes, on presentation at the sub-treasury in New York, and will then receive such notes in payment for four per cent. bonds. The department does not anticipate any change in the law that would operate to prevent this, but cannot stipulate against any act which Congress in its judgment may pass."
Every facility which the law allowed to promote the easy change in the basis of our currency was carefully considered and adopted. The chief measure adopted was to promote exchanges in the clearing house in New York, so that only the balance of debits or credits would actually be paid. I requested Assistant Secretary French to examine whether, under existing law, such an arrangement was in the power of the department, and called his attention to previous correspondence in 1875 in the department on this subject. He came to the conclusion that the existing law would not justify such an arrangement. John Jay Knox, comptroller of the currency, however, favored the admission of the assistant treasurer of the United States at New York as a member of the clearing house. He said: