tomed to provide the major part of the gold required for export. The subtreasury was enabled to make these large gold settlements at the clearing house, first, from the local customs revenue, then received, as above shown, almost wholly in the form of gold, and from like collections at other points, most of which gravitated to the New York subtreasury; and, second, from various minor sources, but especially from receipts at the mints transferable to New York at pleasure.

This was an admirably conceived mechanism. It worked to the entire convenience and satisfaction of both the Government and the banks. It was attended by no awkward hitches, and it ran smoothly in periods of stringency and of crisis. The Treasury stood in no danger of drains, it was harassed by no export demand, its gold income was fixed and assured, and from January, 1880, and December, 1892, its net gold balance at the end of the month never fell below $118,000,000, and at one time reached over $218,000,000. Equally, the banks never had any cause for apprehension about their stocks of gold. They had always sufficient to provide for foreign remittances, and their chief concern attending a large export of specie related only to its possible effect upon their lawful money reserves, which are equally exposed under the present method of procuring export gold. All the gold wants of the Treasury and of the banks being thus regularly and safely provided for, there was no room for any unsettling "gold question," and the country was saved the anomalous spectacle of a gold famine in the presence of a national stock of $630,000,000 of the metal.

But this perfect system of settlements had the usual weakness of voluntary compacts. It could be broken at the pleasure of one man, provided he were a minister of finance. And the man for administering the fatal blow was not lacking. A Secretary of the Treasury who has not been trained to practical finance is capable of errors entailing very serious consequences. And hence it came to pass that, in the fiscal year 1891-92, the gold payments of the subtreasury at the clearing house were deliberately and from no necessity, but from mere misconceived prudence, cut down to 48 per cent of the sum of those of the preceding normal year. This startling substitution of paper for gold in the Treasury settlements came of no conference or agreement with the banks, and was attended by neither notice nor explanations. The only utterance of the Government that can be supposed to have any explanatory reference to this action came twelve months after the innovation, and was expressed in the following language from the annual report of Secretary Foster, bearing date December 5, 1892:

If $100,000,000 in gold was a suitable or necessary reserve in 1882 and in 1885, it would seem clear that a greater reserve is necessary now. It should be remembered that since 1882 we have added to our silver circulation the sum of $259,016,182 in standard silver dollars coined under the old silver act of 1878. These dollars are nearly all outstanding and largely represented by silver certificates. We have also increased the legal-tender paper circulation by issuing about $120,000,000 of the Treasury notes authorized by the act of July 14, 1890, and to this we are adding about four millions each month in payment of silver bullion purchased. In view, therefore, of these increased and increasing liabilities, the reserve in the Treasury for the redemption of the Government obligations should, in my opinion, be increased to the extent of at least 20 per cent of the amount of Treasury notes issued and to be issued under the act of July 14, 1890.

*

From this expression of opinion it is to be inferred that the Secretary had become alarmed at the possible inflatory consequences of the Sherman act of July 14, 1890, and that he inferred it to be his duty to endeavor to increase the gold reserve by largely substituting legal tenders for gold in his payments at the clearing house. Mr. Foster appears to have adopted this course as a settled policy, and, accordingly, he had

continuously, during the fiscal year 1891-92, curtailed his gold payments to the banks by more than one-half. It was a daring step, evidently intended to be heroic; but, as too often happens in the case of courageous therapeutics, the treatment was fatal. At the end of the first twelve months of this policy the gold reserve was less than at the beginning; but that did not prevent the Secretary from pushing his experiment to greater lengths; with what results, the facts will show. As the Secretary withheld from the banks half of his customary supply of gold, the banks had no recourse but to diminish correspondingly their gold payments to the Treasury; and, consequently, the proportion of customs duties paid in gold in 1891-92 was only 28 per cent of the whole, against (as already shown) 80 per cent in the preceding year and 92.1 per cent in 1889-90. The banks showed much forbearance, however, in the matter of furnishing gold for export, for while $50,194,000 was shipped during the year, they appear to have drawn only $6,794,000 of that sum from the subtreasury by the conversion of legal tenders.

The Treasury having become to such a large extent committed to this policy of restriction, there was to be no retracing of its steps; and during the next fiscal year (1892-93) the subtreasury paid only $10,500,000 of gold into the clearing house, or 5 per cent of the payments made in 1890-91. This was a challenge to the banks to which they could respond in but one possible way. The Treasury had given them virtually no gold, and they, therefore, had none to give it. Their payments for customs duties consequently included only 6 per cent in gold. They had to provide $108,687,000 of gold for export; and, to satisfy that demand, they were compelled to draw $102,094,000 of coin from the subtreasury, through the conversion of legal tenders.

With a change of administration there came a temporary check to this perilous drift; but whether from design or from an accidental necessity is a question on which opinion may allowably differ. The extraordinary scarcity of legal tenders, and the premium paid for them during the unprecedented bank panic of 1893, compelled both the banks and the Treasury to pay out considerable amounts of gold where otherwise they would have paid in paper. The result was that during the few months for which that paper stringency existed the subtreasury paid $98,300,000 of gold to the clearing house; and, in return, the banks materially augmented their gold disbursements for customs duties, so that for the fiscal year their payments on that account were 22 per cent in gold and 78 per cent in paper. During that year the exports of gold amounted to $76,978,000, which is shown to have been procured wholly from the Treasury by the fact that the redemptions of legal tenders within the same period were $84,839,000. The difference of $7,861,000 between the gold exports and the redemptions of notes was due to withdrawals of gold for paying subscriptions to the first fifty millions loan.

This intermission of the perilous drift soon ceased. During the year 1894-95 the Treasury did not pay one dollar of gold into the clearing house, and therefore the banks could pay out no gold for customs duties. The sum of $66,125,000 of gold had to be provided for export, and it could be procured only from the subtreasury. The total redemptions of notes during that year amounted to $116,532,000. Of those conversions $50,407,000 was for other purposes than to procure gold for export. The records of the Treasury show that nine-tenths of this latter sum was withdrawn in connection with subscriptions for the Treasury loans. The small remainder was for miscellaneous purposes. In the second and third borrowings of the Government a very large proportion of the gold turned into the Treasury was either procured in advance through conversion of notes, or withdrawn immediately after by the same proc

ess, so that the Treasury's net gain of gold from the second and third loans was only about 60 per cent of the amount of the accepted subscriptions. To that very important extent, therefore, those loans wholly failed of their purpose.

The following statement will show the facts as to

(1) The Treasury payments of gold to the New York banks;

(2) The percentage of customs duties paid in gold;

(3) The exports of gold at New York; and

(4) The Treasury redemptions of legal tenders during the normal years 1889-90 and 1890-91, and during the succeeding four abnormal years, respectively:

Fiscal year.

NORMAL YEARS.

This exhibit shows the extent to which the working relations between the Treasury and the New York banks have been revolutionized within the last four years. For the two normal fiscal years 1889-90 and 1890-91, the Treasury net payments of gold to the banks averaged $221,100,000; for the four subsequent abnormal years they averaged $51,500,000; and since March, 1894, they have been nil. The payments of gold by the banks for customs duties during the normal years averaged 85.8 per cent, and during the four abnormal years 14.1 per cent, while for the last nineteen months they have wholly disappeared. The average redemptions of legal tenders for the two years preceding these troubles were $2,859,000, and for the last four years $77,500,000. The connection of cause and effect here stands out so conspicuously as to reveal its own conclusion to the most cursory observer. The suspension of gold payments by the Treasury has deprived the banks of the means for either paying out gold for customs duties or providing it for export. The disabilities thus imposed upon those institutions have in turn deprived the Treasury of the specie income which had enabled it to settle in gold at the clearing house, and has put upon it the exhausting necessity of supplying the gold needed for export. Mainly to procure the $302,000,000 of gold needed for export during this four years, $310,214,000 of legal tenders have been concurrently presented at the Treasury to be exchanged for the yellow metal. This perilous derangement began solely with the official contraction of gold payments. It has been consummated by the complete suspension of those payments. The Treasury paralyzed the banks, and as a consequence nothing could prevent the banks from paralyzing the Treasury. The subtreasury and the clearing house were coherent parts of a joint mechanism; united they could effect a large economy in the use of gold with highly beneficent results, and with the advantage of greatly strengthening each the other's status; but with the conditions of union disrupted, the power of each is impaired, and the affairs in which they were mutually supportful are thrown into a confusion which imperils all financial interests.

IV.

This perfectly regulated machine having been shattered, we have had to provide an artificial supply of gold for the Treasury through borrowing it to the extent of about $100,000,000 per year. Each year's borrowing will have cost the nation $120,000,000 for interest when the loans mature. The total interest obligations already incurred on this account amount to $315,000,000, and, judging from the enormous bids for the February loan, there seem to be no reasons connected with the possibilities of borrowing why that liability may not be swelled to a much larger sum if a more rational way of protecting the reserve should not be provided. Moreover, as has been already shown, the net gold derived from most of the loans has not exceeded 60 per cent of the sum nominally paid into the Treasury; so that even if borrowing were a legitimate expedient under the circumstances, nearly half the help in this way purchased is lost in the process of getting it.

Are we to rest satisfied with such costly and inexpert methods of keeping up the reserve? Is the legal tender basis of our currencyindeed, of our whole financial structure to repose indefinitely upon props that thus melt away in a few months and have to be perpetually renewed at this most wasteful outlay? Has ever a nation of wealth and population like ours so little understood its resources as to resort to such farfetched makeshifts in order to effect the solution of a really simple problem of working finance?

For, after all, what is it the Treasury so vitally needs? It may be answered-a permanent stock of gold. And that is true, so far as it goes; but tenfold more it needs a fixed and unfailing gold income. To supply its outward current, it must be fed by an inward current of equal value. It once had both these; they were kept at an equilibrium and in steady circulatory motion by an arrangement which made their joint stocks of gold available for the reciprocal use of the Treasury and the banks. That relation was the same in its nature, in its economy in the use of money, and in its mutuality of support as that which exists between bank and bank. It consisted in an exchange of gold under which each party was dependent upon its receipts from the other for making its settlements; it was a perpetual give and take of the fundamental money, and these exchanges were so proportioned as between them that neither one would drain away the cash resources of the other. It was the union of the two great gold funds of the country-that of the Treasury and that of the metropolitan banks-and as such it constituted an impregnable defense of the gold basis of our currency system. This is the institution that operated with perfect safety and regularity until, in 1892, Mr. Foster broke it up utterly by suspending gold payments; and therein lies the real and virtually the sole cause of the present troubles of the Treasury. There is and there can be but one natural and sure way out of this confusion, and that is through returning to the working relations between the subtreasury and the clearing house, so unfortunately then disrupted.

This conclusion, however, is more easily reached than executed. Nearly four years have elapsed since the normal relations between the banks and the Government were broken; and time, effort, and adroit negotiations will be needed for their restoration. The inaction of the banks may have been construed as implying an over-easy toleration of dangers which admit of ready remedy. There are, however, facts and considerations which absolve them from such an imputation. They are

not, in any sense, responsible for the origin of the situation. They could not escape the results of official imprudence, however much they might desire. Their ordinary transactions have not suffered from the adoption of paper settlements by the subtreasury, and to that extent they could afford to wait until the Treasury saw fit to repair its error. Only a small minority of them are specifically concerned in the changenamely, those having accounts with importing merchants and with exporters of gold, and even they suffer neither loss nor inconvenience. from the innovation, in other respects so full of danger. There has, therefore, been no immediate working motive for their urging action. Not the less, however, they have the very urgent motive that only by a return to gold payments at the clearing house can the legal tenders on which their interests so largely depend be maintained on a parity of gold. Moreover, it has always, and very properly, been the wont of the banks to avoid the appearance of interference with Treasury poli cies, and they are quite conscious that, as the Government was the primary party to the abandonment of gold payments, it scarcely rests with them to take the initiative in the revocation of the original error. From an intimate knowledge of the facts, the writer feels warranted in expressing. the opinion that the inaction of the banks would be misconstrued were it attributed to any real unwillingness on their part to return to their old method of settlements with the subtreasury. With but nominal exceptions, the men who make opinion and who lead action in the clearing house concede that the present troubles admit of no remedy which does not include a return to the normal method of gold payments. This is certainly the attitude of the New York banks, and yet it may require much counsel, some pressure, and some diplomacy to develop this sentiment into action.

What may be the disposition of the Treasury in this matter admits of no positive prediction. The present Administration inherited the exist ing derangements from its predecessors, and therefore is not responsi ble for the origin of the troubles. But that fact does not absolve the Secretary of the Treasury from accountability for any unnecessary prolongation of conditions so full of peril. There is no obvious reason for supposing that Mr. Carlisle would be unwilling to restore the broken relations between the subtreasury and the banks; on the contrary, there have been occult but real indications that he approves of such a policy and would be willing to cooperate for its adoption. Had the Secretary made distinct and open advances to the banks, instead of timidly feeling the pulse of clearing house notables in an indefinite way, the loan of $100,000,000 might have been needless, and to-day the gold reserve might have been reinvested with its old stability. This matter is wholly at the discretion of the head of the Treasury Department. He needs no authorization in the premises from Congress, and it is to the last degree important that such an arrangement should be undertaken apart from legislative compulsion and regulation. It is the more important that Mr. Carlisle should take immediate action toward this normal method of readjustment, because the new contribution of $100,000,000 to his reserve furnishes the most essential condition precedent to such an achievement. There appears to be reason for hoping that the Secretary appreciates this view, but for some inscrutable reason he fails to take courageous action upon it.

VI.

In view of the probabilities above indicated, that the two parties on whom remedy supremely depends would be found willing to cooperate, the question arises, What steps may be deemed necessary and most