CHAPTER XIX

THE PANIC OF 1893

THE silver dollar was worth sixty-five cents in gold when Cleveland was reinaugurated. In accordance with the Bland-Allison Act, and the Sherman Act which succeeded it, some 417,000,000 silver dollars had been coined since 1878. Of these, $362,000,000 were in Treasury vaults, in addition to uncoined silver worth $118,000,000, because of the inconvenience with which they were handled and a growing public reluctance to accept depreciated money. Unlike the greenbacks there was no promise to redeem the silver dollars in gold, and only the unwillingness of each National Administration since Hayes to force them upon the public, and the surplus revenue that made such action unnecessary, averted the catastrophe of a depreciated standard. Western farmers who demanded free silver showed no willingness to use the silver money already on hand. Leaders in the demand were frequently embarrassed by the exposure of the fact that while calling loudly for free silver, they wrote into their own mortgage contracts clauses calling for repayment in standard gold coin.

Treasury, 1893

When John G. Carlisle took over the Treasury Department the cash balance in the Treasury was a source of apState of the prehension. President Harrison and Secretary Foster, said the Nation in its issue preceding the inauguration, "are watching the dollars in the Treasury with unconcealed anxiety, and hoping against hope that March 4 will come without an actual crash." The decline in imports due to Western and Southern hard times had reduced the revenue from the tariff. The silver provisions of the McKinley Bill reduced it still further. Appropriations were consuming it more rapidly than ever before, and it seemed likely that in the fiscal year 1893 there would be an actual national deficit.

The quality of the money included in the Treasury balance was as discouraging as its amount. Silver dollars, which the public would not use willingly and which were in vicarious circulation (through silver certificates) only because the small denominations of Treasury notes had been withdrawn, became each month a larger proportion of the balance. The old custom of making most of the payments to the Treasury in the form of gold had ceased. Debtors of the Government everywhere took advantage of the unwillingness of Treasury officials to force silver into circulation and began to sort out from their currency on hand gold, which they hoarded, while they paid their silver and paper to the Government. The percentage of gold receipts was declining. The Sherman Act of 1890 was responsible for an aggravation of the currency troubles. Under this law the Treasury bought silver bullion, paying for it with legaltender Treasury notes. It immediately occasioned an inflation of the currency to the amount of the monthly purchase; as the bullion was subsequently coined into dollars the legal tenders were withdrawn in amounts to match the silver dollars that went into circulation, but before this date arrived the original holders of the legal tenders turned them into gold at the Treasury and carried off the gold.

Every month the Sherman Act not only increased the amount of cheap silver money as the Bland-Allison Act had done, but also reduced the gold balance in the Treasury upon which the stability of the inverted pyramid depended. The gold reserve which Secretary Sherman had put together in anticipation of resumption in 1879 was carried on the Treasury balance thereafter as a separate item. Amounting to about one hundred million dollars, it came to be accepted as a low-water mark below which the gold could not be allowed to fall without endangering the standard of currency. In the last months of the Harrison Administration the commercial world observed the decline of the Treasury balance and the decreasing proportion of gold that it contained, and before Harrison left office it was for some weeks a matter of chance alone whether he could preserve the

hundred-million-dollar gold reserve intact. A few weeks after Carlisle took over the Treasury the shrinking of the gold reserve below this mark became the visible index of financial panic.

The chief elements in the panic of 1893 were financial apprehension and over-investment. The former of these was inspired by the fear that the gold dollar Causes of the panic would cease to be the standard of value and that of 1893 in its place a depreciated silver dollar or, even worse, an issue of irredeemable paper, might force gold to a premium as had been done during the Civil War. The attempt at bimetallism was still a failure. The relative weight of the gold and silver dollars, fixed at sixteen to one in 1835, had no effect upon the market value of the metals. The bullion value of the silver dollar had declined steadily since 1873. Both dollars were still legal tender, but most of the silver was in the Treasury instead of in circulation. Every owner of invested capital had financial reason to fear the change from gold to silver standard which would reduce the value of his dollars in proportion to the depreciation of silver. Persons living on fixed salaries and all wage-earners were in a similar condition. If such a shift were produced unavoidably, it would cause irremediable catastrophe; if produced deliberately, it would be repudiation and a crime.

Nervousness as to the safety of the gold standard was most pronounced in the Eastern and Middle States, and was intensified after 1890 by two strong forces. The increase of silver money and the decline of the gold reserve were ominous external symptoms of weakness. The swelling Western demand for free silver, which stood at the head of the list of social panaceas, was still more ominous, as revealing a popular intent that might be successful. Fear of free silver, as it became more general, stimulated an increased hoarding of gold and by this accelerated the shift toward the silver basis.

Over-investment had by 1890 produced in the United States an unsound condition that would have compelled liquidation of debts and an ensuing depression even if there

had been no currency apprehensions to unsettle the nerves of business. Since 1873 the United States had passed through one of the economic cycles that revolved at irregular intervals through the nineteenth century. The years 1819, 1837, 1857, and 1873 marked the completion of earlier revolutions, and the United States was in 1890 rapidly approaching the end of another period and the need to balance its books and begin again.

With falling prices and rising wages typical of the period after 1873 the level of social welfare in America was higher than it ever had been. But with new inventions and greater ease in fulfilling old needs the demand for comfort and luxury was steadily growing. The farmer boy, bred to the simplicity of the country, expected to live better when he moved to town. The comforts of the city became available on the farm through the enticing advertising pages of the farm papers and the catalogues of the mail-order houses. There were better opportunities to educate the children in the State universities and the enlarged Eastern colleges. There were railroads to be built, farms to be paid for and stocked, cities to be extended into their suburbs. The increasing annual accumulation of wealth was met by more rapidly increasing demands for expenditure and investment. Nearly every year after 1879 saw heavier pressure upon the resources available for permanent investment, and brought nearer the date at which new projects would have to stop through lack of capital, at which going projects would be forced to get along upon smaller loans, and at which bankruptcy would confront not only speculative business, but every business that depended upon continued credit.

The cycles of prosperity and panic have always been determined by the ratio of production of wealth to its use and investment. They have been further modified by psychological conditions. In the years of business depression after 1873, men held themselves down to safe and sane business, and took few avoidable risks. The gains of business were small, but relatively sure. In the next five years the accumulated savings of a scared and frugal society be

gan to press for means of safe investment, and promoters of new ventures, assured by their avoidance of failure in the careful years, regained their nerve. About the date of resumption money became available for enterprises that were well endorsed. Men of good repute, like Henry Villard, could obtain funds even for unmentioned ends, and the enlarged profits of business both increased the available capital and encouraged the spirit to risk again. The failure of Grant and Ward in 1884 revealed the existence of speculators of doubtful honor, but did not check the movement for speculative investment. The rumors of great fortunes to be made in mines or in railroads, in manufacture or in cattle-raising, brought within reach of business the isolated savings of cautious individuals and kept filled up that fund out of which every new venture must be financed. In the long run no permanent investment can be made except it be paid for out of the capital that some one has produced and saved. That fund is not without limit, and after a dozen years of speculation society is warranted in suspecting that it may have approached the margin. When the margin is reached, and there is no longer capital available for the former scale of speculation or investment, something must yield. And if at this moment some financial accident scares the world, and men generally try to save some of their property by selling part of it at a forced sale, no one can foretell the extent of the panic that may ensue.

The panic of 1873 was precipitated by the failure of Jay Cooke. That of 1857 came after the collapse of the Ohio Life and Trust Company. In 1893, after three years of warning and agricultural depression, with fear as to the value of all property aroused by the danger of the silver basis, the panic was precipitated by the failure of the gold reserve to keep above the level of $100,000,000.

The Democratic Party, organized around the issue of tariff reform, was unprepared to meet the issue presented by a financial panic caused by dread of a silver currency. Like the Republican Party, it had avoided a clear expression of views upon the currency, and had adhered to safe