The avenging consequences of the Silver Purchase Act moved so rapidly that when John Griffin Carlisle took office as Secretary of the Treasury in 1893, the gold reserve had fallen to $100,982,410 only $982,410 above the limit indicated by the Act of 1882 and the public credit was shaken by the fact that it was an open question whether the government obligation to pay a dollar was worth so much or only one half so much. The latter interpretation, indeed, seemed impending. The new Secretary’s first step was to adopt the makeshift expedient of his predecessors. He appealed to the banks for gold and backed up by patriotic exhortation from the press, he did obtain almost twenty-five millions in gold in exchange for notes. But as even more notes drawing out the gold were presented for redemption, the Secretary’s efforts were no more successful than carrying water in a sieve.

Of the notes presented for redemption during March and April, nearly one-half were treasury notes of 1890, which by law the Secretary might redeem in gold or silver coin at his discretion. The public was now alarmed by a rumor that Secretary Carlisle, who while in Congress had voted for free silver, would resort to silver payments on this class of notes, and regarded his statements as being noncommittal on the point. Popular alarm was, to some extent, dispelled by a statement from President Cleveland, on the 23rd of April, declaring flatly and unmistakably that redemption in gold would be maintained. But the financial situation throughout the country was such that nothing could stave off the impending panic. Failures were increasing in number, some large firms broke under the strain, and the final stroke came on the 5th of May when the National Cordage Company went into bankruptcy. As often happens in the history of panics, the event was trivial in comparison with the consequences. This company was of a type that is the reproach of American jurisprudence the marauding corporation. In the very month in which it failed, it declared a large cash dividend. Its stock, which had sold at 147 in January, fell in May to below ten dollars a share. Though the Philadelphia and Reading Railway Company, which failed in February, had a capital of $40,000,000 and a debt of more than $125,000,000, the market did not break completely under that strain. The National Cordage had a capital of $20,000,000 and liabilities of only $10,000,000, but its collapse brought down with it the whole structure of credit. A general movement of liquidation set in, which throughout the West was so violent as to threaten general bankruptcy. Nearly all of the national bank failures were in the West and South, and still more extensive was the wreck of state banks and private banks. It had been the practice of country banks, while firmly maintaining local rates, to keep the bulk of their resources on deposit with city banks at two per cent. This practice now proved to be a fatal entanglement to many institutions. There were instances in which country banks were forced to suspend, though cash resources were actually on the way to them from depository centers.

Even worse than the effect of these numerous failures on the business situation was the derangement which occurred in the currency supply. The circulating medium was almost wholly composed of bank notes, treasury notes, and treasury certificates issued against gold and silver in the Treasury, coin being little in use except as fractional currency. Bank notes were essentially treasury certificates issued upon deposits of government bonds. In effect, the circulating medium was composed of government securities reduced to handy bits. Usually, a bank panic tends to bring note issues into rapid circulation for what they will fetch, but in this new situation, people preferred to impound the notes, which they knew to be good whatever happened so long as the Government held out. Private hoarding became so general that currency tended to disappear. Between September 30, 1892 and October 31, 1893, the amount of deposits in the national banks shrank over $496,000,000. Trade was reduced to making use of the methods of primitive barter, though the emergency was met to some extent by the use of checks and clearinghouse certificates. In many New England manufacturing towns, for example, checks for use in trade were drawn in denominations from one dollar up to twenty. In some cases, corporations paid off their employees in checks drawn on their own treasurers which served as local currency. In some Southern cities, clearing-house certificates in small denominations were issued for general circulation in Birmingham, Alabama, for sums as small as twenty-five cents. It is worth noting that a premium was paid as readily for notes as for gold; indeed, the New York “Financial Chronicle” reported that the premium on currency was from two to three per cent, while the premium on gold was only one and one half per cent. Before the panic had ended, the extraordinary spectacle was presented of gold coins serving as a medium of trade because treasury notes and bank notes were still hoarded. These peculiarities of the situation had a deep effect upon the popular attitude towards the measures recommended by the Administration.

While this devastating panic was raging over all the country, President Cleveland was beset by troubles that were both public and personal. He was under heavy pressure from the office seekers. They came singly or in groups and under the escort of Congressmen, some of whom performed such service several times a day. The situation became so intolerable that on the 8th of May President Cleveland issued an executive order setting forth that “a due regard for public duty, which must be neglected if present conditions continue, and an observance of the limitations placed upon human endurance, oblige me to decline, from and after this date, all personal interviews with those seeking office.”

According to the Washington papers, this sensible decision was received with a tremendous outburst of indignation. The President was denounced for shutting his doors upon the people who had elected him, and he was especially severely criticized for the closing sentence of his order stating that “applicants for office will only prejudice their prospects by repeated importunity and by remaining at Washington to await results.” This order was branded as an arbitrary exercise of power compelling free American citizens to choose exile or punishment, and was featured in the newspapers all over the country. The hubbub became sufficient to extract from Cleveland’s private secretary an explanatory statement pointing out that in the President’s day a regular allotment of time was made for congressional and business callers other than the office seekers, for whom a personal interview was of no value since the details of their cases could not be remembered. “What was said in behalf of one man was driven out of mind by the remarks of the next man in line,” whereas testimonials sent through the mails went on file and received due consideration. “So many hours a day having been given up to the reception of visitors, it has been necessary, in order to keep up with the current work, for the President to keep at his desk from early in the morning into the small hours of the next morning. Now that may do for a week or for a month, but there is a limit to human physical endurance, and it has about been reached.”

Such were the distracting conditions under which President Cleveland had to deal with the tremendous difficulties of national import which beset him. There were allusions in his inaugural address which showed how keenly he felt the weight of his many responsibilities, and there is a touch of pathos in his remark that he took “much comfort in remembering that my countrymen are just and generous, and in the assurance that they will not condemn those who by sincere devotion to their service deserve their forbearance and approval.” This hope of Cleveland’s was eventually justified, but not until after his public career had ended; meanwhile he had to undergo a storm of censure so blasting that it was more like a volcanic rain of fire and lava than any ordinary tempest, however violent.

On the 30th of June, President Cleveland called an extra session of Congress for the 7th of August “to the end that the people may be relieved through legislation from present and impending danger and distress.” In recent years, the fact has come to light that his health was at that time in a condition so precarious that it would have caused wild excitement had the truth become known, for only his life stood in the way of a free silver President. On the same day on which he issued his call for the extra session, President Cleveland left for New York ostensibly for a yachting trip, but while the yacht was steaming slowly up the East River, he was in the hands of surgeons who removed the entire left upper jaw. On the 5th of July they performed another operation in the same region for the removal of any tissues which might possibly have been infected. These operations were so completely successful that the President was fitted with an artificial jaw of vulcanized rubber which enabled him to speak without any impairment of the strength and clearness of his voice. Immediately after this severe trial, which he bore with calm fortitude, Cleveland had to battle with the raging silver faction, strong in its legislative position through its control of the Senate.

When Congress met, the only legislation which the President had to propose was the repeal of the Silver Purchase Act, although he remarked that “tariff reform has lost nothing of its immediate and permanent importance and must in the near future engage the attention of Congress.” It was a natural inference, therefore, that the Administration had no financial policy beyond putting a stop to treasury purchases of silver, and there was a vehement outcry against an action which seemed to strike against the only visible source of additional currency. President Cleveland was even denounced as a tool of Wall Street, and the panic was declared to be the result of a plot of British and American bankers against silver.

Nevertheless, on the 28th of August, the House passed a repeal bill by a vote of 240 to 110. There was a long and violent struggle in the Senate, where such representative anomalies existed that Nevada with a population of 45,761 had the same voting power as New York with 5,997,853. Hence, at first, it looked as if the passage of a repeal bill might be impossible. Finally, the habit of compromise prevailed and a majority agreement was reached postponing the date of repeal for twelve or eighteen months during which the treasury stock of silver bullion was to be turned into coin. Cleveland made it known that he would not consent to such an arrangement, and the issue was thereafter narrowed to that of unconditional repeal of the Silver Purchase Act. The Senators from the silver-mining States carried on an obstinate filibuster and refused to allow the question to come to a vote, until their arrogance was gradually toned down by the discovery that the liberty to dump silver on the Treasury had become a precarious mining asset. The law provided for the purchase of 4,500,000 ounces a month, “or, so much thereof as may be offered at the market price.” Secretary Carlisle found that offers were frequently higher in price than New York and London quotations, and by rejecting them he made a considerable reduction in the amount purchased. Moreover, the silver ranks began to divide on the question of policy. The Democratic silver Senators wished to enlarge the circulating medium by increasing the amount of coinage, and they did not feel the same interest in the mere stacking of bullion in the Treasury that possessed the mining camp Senators on the Republican side. When these two elements separated on the question of policy, the representatives of the mining interests recognized the hopelessness of preventing a vote upon the proposed repeal of the silver purchase act. On the 30th of October, the Senate passed the repeal with no essential difference from the House bill, and the bill became law on November 1, 1893.

But although the repeal bill stopped the silver drain upon the Treasury, it did not relieve the empty condition to which the Treasury had been reduced. It was manifest that, if the gold standard was to be maintained, the Treasury stock of gold would have to be replenished. The Specie Resumption Act of 1875 authorized the sale of bonds “to prepare and provide for” redemption of notes in coin, but the only classes of bonds which it authorized were those at four per cent payable after thirty years, four and a half per cent payable after fifteen years, and five per cent payable after ten years from date. For many years, the Government had been able to borrow at lower rates but had in vain besought Congress to grant the necessary authority. The Government now appealed once more to Congress for authority to issue bonds at a lower rate of interest. Carlisle, the Secretary of the Treasury, addressed a letter to the Senate committee of finance, setting forth the great saving that would be thus effected. Then ensued what must be acknowledged to be a breakdown in constitutional government. Immediately after a committee meeting on January 16, 1894, the Chairman, Senator Voorhees, issued a public statement in which he said that “it would be trifling with a very grave affair to pretend that new legislation concerning the issue of bonds can be accomplished at this time, and in the midst of present elements and parties in public life, with elaborate, extensive, and practically indefinite debate.” Therefore, he held that “it will be wiser, safer and better for the financial and business interests of the country to rely upon existing law.” This plainly amounted to a public confession that Congress was so organized as to be incapable of providing for the public welfare.

Carlisle decided to sell the ten-year class of bonds, compensating for their high interest rate by exacting such a premium as would reduce to three per cent the actual yield to holders. On January 17, 1894, he offered bonds to the amount of fifty millions, but bids came in so slowly that he found it necessary to visit New York to make a personal appeal to a number of leading bankers to exert themselves to prevent the failure of the sale. As a result of these efforts, the entire issue was sold at a premium of $8,660,917, and the treasury stock of gold was brought up to $107,440,802.

Then followed what is probably the most curious chapter in the financial history of modern times. Only gold was accepted by the Treasury in payment of bonds; but gold could be obtained by offering treasury notes for redemption. The Act of 1878 expressly provided that, when redeemed, these notes “shall not be retired, canceled, or destroyed, but they shall be reissued and paid out again and kept in circulation.” The Government, as President Cleveland pointed out, was “forced to redeem without redemption and pay without acquittance.” These conditions set up against the Treasury an endless chain by which note rédemptions drained out the gold as fast as bond sales poured it in. In a message to Congress on January 28, 1895, President Cleveland pointed out that the Treasury had redeemed more than $300,000,000 of its notes in gold, and yet these notes were all still outstanding. Appeals to Congress to remedy the situation proved absolutely fruitless, and the only choice left to the President was to continue pumping operations or abandon the gold standard, as the silver faction in Congress desired. By February 8, 1895, the stock of gold in the Treasury was down to $41,340,181. The Administration met this sharp emergency by a contract with a New York banking syndicate which agreed to deliver 3,500,000 ounces of standard gold coin, at least one half to be obtained in Europe. The syndicate was, moreover, to “exert all financial influence and make all legitimate efforts to protect the Treasury of the United States against the withdrawals of gold pending the complete performance of the contract.”

The replenishing of the Treasury by this contract was, however, only a temporary relief. By January 6, 1896, the gold reserve was down to $61,251,710. The Treasury now offered $100,000,000 of the four per cent bonds for sale and put forth special efforts to make subscription popular. Blanks for bids were displayed in all post-offices, a circular letter was sent to all national banks, the movement was featured in the newspapers, and the result was that 4635 bids were received coming from forty-seven States and Territories, and amounting to $526,970,000. This great oversubscription powerfully upheld the public credit and, thereafter, the position of the Treasury remained secure; but altogether, $262,000,000 in bonds had been sold to maintain its solvency.

Consideration of the management of American foreign relations during this period does not enter into the scope of this book, but the fact should be noted that the anxieties of public finance were aggravated by the menace of war. In the boundary dispute between British Guiana and Venezuela, President Cleveland proposed arbitration, but this was refused by the British Government. President Cleveland, whose foreign policy was always vigorous and decisive, then sent a message to Congress on December 17, 1895, describing the British position as an infringement of the Monroe Doctrine and recommending that a commission should be appointed by the United States to conduct an independent inquiry to determine the boundary line in dispute. He significantly remarked that “in making these recommendations I am fully alive to the responsibility incurred and keenly realize all the consequences that may follow.” The possibility of conflict, thus hinted, was averted when Great Britain agreed to arbitration, but meanwhile, American securities in great numbers were thrown upon the market through sales of European account and added to the financial strain.

The invincible determination which President Cleveland showed in this memorable struggle to maintain the gold standard will always remain his securest title to renown, but the admiration due to his constancy of soul cannot be extended to his handling of the financial problem. It appears, from his own account, that he was not well advised as to the extent and nature of his financial resources. He did not know until February 7, 1895, when Mr. J. P. Morgan called his attention to the fact, that among the general powers of the Secretary of the Treasury is the provision that he “may purchase coin with any of the bonds or notes of the United States authorized by law, at such rates and upon such terms as he may deem most advantageous to the public interest.” The President was urged to proceed under this law to buy $100,000,000 in gold at a fixed price, paying for it in bonds. This advice Cleveland did not accept at the time, but in later years he said that it was “a wise suggestion,” and that he had “always regretted that it was not adopted.”

But apart from any particular error in the management of the Treasury, the general policy of the Administration was much below the requirements of the situation. The panic came to an end in the fall of 1893, much as a great conflagration expires through having reached all the material on which it can feed, but leaving a scene of desolation behind it. Thirteen commercial houses out of every thousand doing business had failed. Within two years, nearly one fourth of the total railway capitalization of the country had gone into bankruptcy, involving an exposure of falsified accounts sufficient to shatter public confidence in the methods of corporations. Industrial stagnation and unemployment were prevalent throughout the land. Meanwhile, the congressional situation was plainly such that only a great uprising of public opinion could break the hold of the silver faction. The standing committee system, which controls the gateways of legislation, is made up on a system of party apportionment whose effect is to give an insurgent faction of the majority the balance of power, and this opportunity for mischief was unsparingly used by the silver faction.

Such a situation could not be successfully encountered save by a policy aimed distinctly at accomplishing a redress of popular grievances. But such a policy, President Cleveland failed to conceive. In his inaugural address, he indicated in a general way the policy pursued throughout his term when he said, “I shall to the best of my ability and within my sphere of duty preserve the Constitution by loyally protecting every grant of Federal power it contains, by defending all its restraints when attacked by impatience and restlessness, and by enforcing its limitations and reservations in favor of the states and the people.” This statement sets forth a low view of governmental function and practically limits its sphere to the office of the policeman, whose chief concern is to suppress disorder. Statesmanship should go deeper and should labor in a constructive way to remove causes of disorder.

An examination of President Cleveland’s state papers show that his first concern was always to relieve the Government from its financial embarrassments; whereas the first concern of the people was naturally and properly to find relief from their own embarrassments. In the last analysis, the people were not made for the convenience of the Government, but the Government was made for the convenience of the people, and this truth was not sufficiently recognized in the policy of Cleveland’s administration. His guiding principle was stated, in the annual message, December 3, 1894, as follows: “The absolute divorcement of the Government from the business of banking is the ideal relationship of the Government to the circulation of the currency of the country.” That ideal, however, is unattainable in any civilized country. The only great state in which it has ever been actually adopted is China, and the results were not such as to commend the system. The policy which yields the greatest practical benefits is that which makes it the duty of the Government to supervise and regulate the business of banking and to attend to currency supply; and the currency troubles of the American people were not removed until eventually their Government accepted and acted upon this view.

Not until his message of December 3, 1894, did President Cleveland make any recommendation going to the root of the trouble, which was, after all, the need of adequate provision for the currency supply. In that message, he sketched a plan devised by Secretary Carlisle, allowing national banks to issue notes up to seventy-five per cent of their actual capital and providing also, under certain conditions, for the issue of circulating notes by state banks without taxation. This plan, he said, “furnishes a basis for a very great improvement in our present banking and currency system.” But in his subsequent messages, he kept urging that “the day of sensible and sound financial methods will not dawn upon us until our Government abandons the banking business.” To effect this aim, he urged that all treasury notes should be “withdrawn from circulation and canceled,” and he declared that he was “of opinion that we have placed too much stress upon the danger of contracting the currency.” Such proposals addressed to a people agonized by actual scarcity of currency were utterly impracticable, nor from any point of view can they be pronounced to have been sound in the circumstances then existing. Until the banking system was reformed, there was real danger of contracting the currency by a withdrawal of treasury notes. President Cleveland was making a mistake to which reformers are prone; he was taking the second step before he had taken the first. The realization on the part of others that his efforts were misdirected not only made it impossible for him to obtain any financial legislation but actually fortified the position of the free silver advocates by allowing them the advantage of being the only political party with any positive plans for the redress of popular grievances. Experts became convinced that statesmen at Washington were as incompetent to deal with the banking problems as they had been in dealing with reconstruction problems and that, in like manner, the regulation of banking had better be abandoned to the States. A leading organ of the business world pointed out that some of the state systems of note issue had been better than the system of issuing notes through national banks which had been substituted in 1862; and it urged that the gains would exceed all disadvantages if state banks were again allowed to act as sources of currency supply by a repeal of the government tax of ten per cent on their circulation. But nothing came of this suggestion, which was, indeed, a counsel of despair. It took many years of struggle and more experiences of financial panic and industrial distress to produce a genuine reform in the system of currency supply.

President Cleveland’s messages suggest that he made up his mind to do what he conceived to be his own duty regardless of consequences, whereas an alert consideration of possible consequences is an integral part of the duties of statesmanship. He persevered in his pension vetoes without making any movement towards a change of system, and the only permanent effect of his crusade was an alteration of procedure on the part of Congress in order to evade the veto power. Individual pension bills are still introduced by the thousand at every session of Congress, but since President Cleveland’s time all those approved have been included in one omnibus bill, known as a “pork barrel bill,” which thus collects enough votes from all quarters to ensure passage.

President Cleveland found another topic for energetic remonstrance in a system of privilege that had been built up at the expense of the post-office department. Printed matter in the form of books was charged eight cents a pound, but in periodical form only one cent a pound. This discrimination against books has had marked effect upon the quality of American literature, lowering its tone and encouraging the publication of many cheap magazines. President Cleveland gave impressive statistics showing the loss to the Government in transporting periodical publications, “including trashy and even harmful literature.” Letter mails weighing 65,337,343 pounds yielded a revenue of $60,624,464. Periodical publications weighing 348,988,648 pounds yielded a revenue of $2,996,403. Cleveland’s agitation of the subject under conditions then existing could not, however, have any practical effect save to affront an influential interest abundantly able to increase the President’s difficulties by abuse and misrepresentation.