Reminiscences of Sixty Years in Public Affairs Volume II Part 12

The act of 1873 prepared the way for the use of silver by the commercial nations of the world, upon an agreed ratio with gold, if indeed, the possibility of such an arrangement ever existed. We were upon a gold basis; the balance of trade, by groups of years, was in our favor; we had a gold revenue from customs of about $200,000,000, and the excess of Treasury receipts over expenditures was nearly $100,000,000 a year.

If we had chosen to acc.u.mulate gold and postpone payments upon the Public Debt, we could have brought the nations of the earth to our feet.

It was under circ.u.mstances thus favorable for negotiations for the use of silver that the Silver Commission of 1876 was const.i.tuted, and authorized, among other things, to inquire "into the policy of the restoration of the double standard in this country, and if restored, what the legal relation between the two coins of silver and gold, should be."

This authority opened a way for the introduction of a policy on the part of the United States looking to an arrangement for the use of silver by the states of Europe, and on that authority the commission dealt with the project of an international bimetallic system.

The commission consisted of eight persons. Senator Jones was the chairman, and Mr. Bland, of Missouri, was an influential member. It was my fortune to be of the commission and it was my fortune also to be alone in opinion upon the main questions that were treated in the reports.

The majority of the commission consisted of Messrs. Jones, Bogy, Willard, Bland and Groesbeck. They favored the remonetization of the silver dollar, and that without delay.

Of the points made in their report, I mention these. They said: "The supply of gold is diminis.h.i.+ng, being now but little more than one half what it was in 1852, and is always so fitful and irregular from the method of its production that it is ill-suited to be a sole measure of value."

This statement as a statement of an existing fact was wide of the truth, and as a prophecy it was as fallacious as are the prophecies which predict the destruction of the world. From 1851 to 1855 the annual gold product of the world was 6,410,324 ounces. From 1876 to 1880 the annual gold product of the world was 5,543,110 ounces. The gold product of the latter period was eighty-six per cent of the gold product of the former period.

Far wide of the truth were the predictions of the majority in regard to the future product of gold. For the year 1894 the product was 8,737,788 ounces, or about thirty-seven per cent over the product of 1851-'55.

They, the majority, said: "No increase in the yield of silver in the immediate future seems upon the whole to be probable." The commission said further: "The exchanges of the world, and especially of this country, are continually and largely increasing; while the supplies of both the precious metals, taken together, if not diminis.h.i.+ng, are at least stationary, and the supply of gold, taken by itself, is falling off."

Each of these two statements in regard to the precious metals was a serious error, and in their controlling influence upon the judgment of the commission they were fatal errors.

The gold product of the world in 1876 was 5,016,488 ounces. In 1894 the product had risen to 8,737,788 ounces, a gain of more than seventy-four per cent in the short period of eighteen years.

In 1876 the product of silver was 67,753,125 ounces, and in 1894 it was 167,752,561 ounces, a gain of about 147 per cent in eighteen years.

Upon these errors the majority of the commission based a policy by which the only opportunity that the country ever had for the establishment of a bimetallic system which should include the commercial nations of Europe, was put aside and forever lost.

If, in 1876, I had antic.i.p.ated the immense increase in the product of silver, I might have hesitated, but in the view that I was then able to command I had great confidence that a bimetallic arrangement might be secured.

The majority of the commission favored bimetallism but they demanded, first, the remonetization of the silver dollar. On the other hand, I claimed that all thought of the further use of silver should be postponed until the attempt to secure the co-operation of other countries had been tried faithfully.

The policy of the majority of the commission prevailed, and it was consummated by the Statute of 1878, which was pa.s.sed over the veto of President Hayes, and which authorized the coinage of the silver dollar.

When we had accepted silver, when we had abandoned the vantage ground that we had occupied, it was in vain that we solicited the co-operation of England, France and Germany. The adoption by the United States of a silver-using policy led the statesmen of those countries to antic.i.p.ate the more extended and continuous use of silver leaving to them a monopoly of gold, while we should sink financially to the level of the degraded states of the world. That catastrophe we have escaped after an experience of twenty-five years, and then only by the combined efforts of the two great political parties.

I submit brief extracts from the report of the majority of the commission and from my individual report of 1876, that our relative positions may be understood.

The commission said: "We believe that the remonetization of silver in this country will have a powerful influence in preventing, and probably will prevent, the demonetization of silver in France and in other European countries in which the double standard is still legally and theoretically maintained."

Again the majority said: "It may be added that a legislative remonetization on the relation to gold of 15.5 to 1 accomplishes without delay all the objects of the proposition for an international conference, which is urged from various quarters."

That I may place myself where I stood in 1876 I present brief extracts from my report of that year.

First I said: "There can be but one standard of value in any country at the same time, and a successful use of gold and silver simultaneously can be effected only by their consolidation upon an agreed ratio of value, and by the concurrence of the commercial nations of the world.

"The undersigned is also of opinion that it is expedient for this Government to extend an invitation to the commercial nations of the world to join in convention for the purpose of considering whether it is wise to provide by treaties and concurrent legislation for the use of both silver and gold in all such nations upon a fixed relative valuation of the two metals; and, finally, that until such an agreement between this Government and other commercial nations can be effected, the United States should pursue the existing policy in regard to the resumption of specie payments."

Further I said: "It is to be apprehended that the remonetization of silver by the United States at the present time would be followed by such a depreciation in its value as to furnish a reason against the adoption of the plan by the rest of the world, and that an independent movement on our part would increase the difficulties rather than diminish them."

These extracts shall suffice. I now repeat the a.s.sertion with which I introduced this topic, viz.: That in 1876 the majority of the Silver Commission put aside the most favorable opportunity, indeed the only opportunity, that the country has ever had for the organization of a universal system of bimetallism.

Of that majority, Senator Jones of Nevada, and Representative Bland, of Missouri, were the leading members. If in defence or in extenuation of the policy of the majority it shall be said that the United States has not remonetized silver, and that, therefore, the policy of the majority has not been tested, a partial rejoinder, if not, indeed, a satisfactory reply, may be deduced from the facts that between the years 1878 and the year 1893 the Government coined more than 400,000,000 silver dollars, and yet, in that period of time, silver bullion fell from 1.15 plus per ounce to .65 plus per ounce.

It is worthy of notice that the product of silver in the United States has increased with the demand for silver. Upon the pa.s.sage of the Sherman Bill the product advanced from 45,000,000 ounces in 1888 to an average of 55,000,000 ounces from 1889 to 1893, inclusive. Upon the repeal of that act the product fell to 49,000,000 ounces in 1894.

It is not only probable, it is certain, that with every increasing demand for silver there will be an added supply. Consider what has happened since the appearance of the inventions of which I have spoken.

The world's annual product of silver from 1493 to 1865, inclusive, was 16,887,157 ounces. The largest annual product was from 1861 to 1865, when it reached 35,401,972 ounces. From 1866 to 1894 inclusive, the annual average product was 114,326,397 ounces. In 1894 the product was 167,752,561 ounces, which, as will be observed, was about nine times the annual product from 1493 to 1865.

From 1876 to 1894 the business of silver mining was increased 147 per cent. Can any one name any other business or pursuit in which there was a like increase? And is not the inference justified that the profits have been large and tempting, notwithstanding the demonetization of silver in some countries and the suspension of coinage in other countries?

I turn now to the future, and first as to the possibility of the further use of silver as currency.

I a.s.sume that in countries where the standard is gold there may be a considerable use of silver, as in the United States to-day.

An international bimetallic system, binding nations to each other for a definite term of years, is a proposition involving large responsibilities.

If in 1885 it was not practicable to secure the adoption of the bimetallic system, when silver was worth eighty-four cents per ounce, what is the prospect of its adoption when silver is worth only sixty- four cents per ounce, with an annually increasing product and a diminis.h.i.+ng price?

What remains? This, possibly: That the nations may agree to purchase each a per cent of a fixed amount of silver as the product of each year. This scheme might prove, and probably it would prove, to be only a temporary expedient.

The enormous increase in the business of silver mining is evidence that the profits are far in excess of the profits that are gained in other pursuits. The increase in product is likely to be followed by a fall in price. Such are the resources of the earth that an increase in the demand for silver will be followed by an increase in the supply.

Gold mining is obedient to the same law. From 1876 to 1894 the product increased 74 per cent. That ratio of increase is likely to continue.

The world is not in peril of a gold famine. Gold as a currency, pa.s.sing from hand to hand, will be used less and less. Subst.i.tutes, for which gold can be obtained, will be preferred. The volume of currency in a country is not limited by the amount of gold that a country may possess. It may increase the amount of subsidiary coin very largely, and it may add to the sum of paper money, provided that that paper money is always redeemable in gold.

Nor does the quant.i.ty of gold in a country determine the price of commodities, except as that gold is a part of the total volume of the currency of the country. The volume of currency as a whole is the force by which the salable value of commodities is affected.

In truth, gold plays a small part only in actual business. It is a regulator of business rather than an active instrument for the transaction of business. It is not an exaggeration to say that the use of gold in business is limited to a small fraction of one per cent of the aggregate transactions in countries where gold is the standard.

It is not improbable that in the near future the world is to meet a surfeit of gold, as it is now meeting a surfeit of silver. Yet even then its capacity as a standard will not be affected. History does not carry us to a time when gold was not the recognized standard for the measurement of every other kind of property, and that not by one tribe or people only, but by mankind in every clime and in every stage of savageness or of civilization.

As the Mint Bill and the demonetization of silver have occupied the attention of the country for a third of a century, and as there may be a revival of the controversy at a time in the future I have thought it wise for me to make a record of the facts in the most enduring form at my command.

At the end this is my claim for the Mint Bill of 1873: It established the gold standard for the United States for all time. All the subsequent legislation has rested upon the fact that the Statute of 1873 made the gold dollar the standard of value in the United States.

x.x.xV BLACK FRIDAY--SEPTEMBER 24, 1869

So much time has pa.s.sed since September 24, 1869, that there may be a large public who may become interested in a review of the events of the spring and summer of that year which culminated in Wall Street, New York, in the transactions and experiences of the day known as "Black Friday."

When the Forty-first Congress a.s.sembled in December of that year, the House of Representatives directed the Committee on Banking and Currency "to investigate the causes that led to the unusual and extraordinary fluctuations of gold in the city of New York, from the 21st to the 27th of September, 1869." The committee made a report which was printed under date of March 1, 1870, and which may be found in a volume ent.i.tled "Garfield's Report on the Gold Panic Investigation." From that report it appears that certain persons in the city of New York entered into an arrangement, or understanding, or combination, as early as the month of April, 1869, for the purpose of forcing the price of gold artificially to a rate far beyond what might be called the natural price. The committee, of which General Garfield was chairman, characterized the combination as a conspiracy.

Technically and in a legal point of view the parties concerned could not be treated properly as conspirators. It does not appear that they contemplated the violation of any law, but only a policy by which gold might be advanced from time to time, and out of which advance large sums of money might be realized by those who were holders of gold.

Upon that theory Jay Gould and James Fisk, Jr., who were the leaders and organizers of the combination, with their a.s.sociates, made large purchases of gold at prices varying from thirty to thirty-five per cent premium. At the close of the month of April, the price of gold, not then, as far as known, under the influence of any speculative movement, was at a premium of about thirty-four per cent. The indications were that, during the months of May and June, the parties interested in the combination made large purchases. By the 20th of May the price had reached a premium of forty-four per cent. From that time onward, until the last of July, the premium diminished, and at that date the rate was thirty-six per cent.

When I entered the Treasury Department in March, there had not been sales of gold nor purchases of bonds by the Treasury Department as a policy, and but few transactions on either side had been made by my predecessors in office. As early as the 12th day of May I commenced the purchase of bonds for the sinking fund and for the reduction of the interest-bearing public debt. The total purchases during the year 1869 amounted to something more than $88,000,000, for which there was paid in currency $102,000,000 and a margin over. At that time, the customs receipts were in gold exclusively, and the purchase of bonds could only be made by a sale of gold or by a direct purchase of bonds to be paid for in gold. Suggestions were made by bankers and others in the city of New York, and perhaps elsewhere, that the purchase of bonds should be made in gold. This suggestion was not acceptable to me, and upon the ground that the sale of gold would be limited to those who had bonds, or who could procure bonds, for the payment of gold.

From the 29th of April, when the first sale of gold was made, until the 31st day of December, the sales amounted to something more than $53,000,000, and the proceeds to something over $70,000,000. The difference in the amount realized from the sale of gold and the amount paid for bonds purchased was met by the excess of receipts over the expenditures of the Government during that period.

As having some connection, and perhaps an important connection, with what is to be said hereafter touching General Grant's action in the days of September, when the speculation was going on, I think it proper to make a statement of my relations to the President. I had declined the office of Secretary of the Treasury, and on the morning of my nomination to the Senate I wrote a letter to Mr. Washburne, through whom the invitation of the President that I should accept the office was made, requesting him and urging him to say to the President that I was unwilling to accept the place. My nomination was sent to the Senate and confirmed, and as there seemed to be no alternative for me, I entered upon the duties of the office. Due in part to these circ.u.mstances, as I think, the President accepted the idea that the management of the Treasury Department was in my hands, and from first to last, during the four years that I was in his Cabinet, his acts and his conversation proceeded upon that idea. Moreover, he was influenced by a military view that an officer who was charged with the conduct of a business, or of a undertaking, should be left free to act, that he should be made responsible, and that, in case of failure, the consequences should rest upon him. It happened, and as a plan on my part, that neither the President nor the Cabinet was made responsible for what was done in the Treasury Department. Hence it was that I presented to the Cabinet but two questions. One of these was of no considerable consequence. The other related to the political effect that might follow a loan that I contemplated making upon certain terms in the year 1872, when the Presidential contest was pending. In the line of these views, it happened that I announced my purpose to purchase bonds in May, 1869, without conference either with the Cabinet or with the President. When the announcement was made, there was a slight advance in bonds. In order that the business interests of the country might not be influenced by an apprehension that changes might take place in the policy of the Department, I announced (as stated in Chapter x.x.xIII) at the beginning of each month the sales of gold and the purchases of bonds that were to be made during the coming month. Those announcements were sent out on the evening of Sunday, either the last Sunday of the closing month or the first Sunday of the opening month. The despatches were written by myself Sunday evening, and sent to the a.s.sistant Treasurer at New York. A copy was given to the agent of the a.s.sociated Press, that the public might be informed in the morning of the policy for the ensuing month, and that there should be no opportunity for speculation by persons who might obtain information in advance of the general public. Unhappily, this policy was made the basis of the proceedings in New York which culminated in "Black Friday." The parties interested--I do not call them conspirators--a.s.sumed that for thirty days the policy of the department as to the sale of gold and the purchase of bonds would remain unchanged, and on that basis they proceeded to make arrangements for the advance in gold. Not satisfied with that policy, which was designed to save the business community from unnecessary apprehensions, an attempt was made to induce me to make an announcement for two or three months. Such suggestions were made in letters that I received from interested parties in the city of New York.