Part 8
Thereupon the Secretary of the Treasury invited to a conference, in the city of New York, a number of bankers and presidents of moneyed institutions, which resulted in so arousing their patriotism, as well as their solicitude for the protection of the interests they represented, that they effectively exerted themselves, barely in time to prevent a disastrous failure of the sale. The proceeds of this sale, received from numerous bidders large and small, aggregated $58,660,917.63 in gold, which so increased the reserve that on the sixth day of March, 1894, it amounted to $107,440,802.
It was hoped that this measure of restoration and this exhibition of the nation’s ability to protect its financial integrity would allay apprehension and restore confidence to such an extent as to render further bond sales unnecessary. It was soon discovered, however, that the complications of our ill condition were so deep-seated and stubborn that the treatment resorted to was only a palliative instead of a cure.
On the last day of May, 1894, less than three months after its reinforcement, as mentioned, the gold reserve had been again so depleted by withdrawals that it amounted to only $78,693,267. An almost uninterrupted downward tendency followed, notwithstanding constant efforts on the part of the Government to check the fall, until, on the fourteenth day of November, 1894, the fund had fallen to $61,878,374. In the meantime, the inclination of our timid citizens to take gold from the reserve for hoarding “had grown by what it fed on,” while large shipments abroad to meet foreign indebtedness or for profit still continued and increased in amount.
In these circumstances the inexorable alternative presented itself of again selling Government bonds for the replenishment of its redemption gold, or assuming the tremendous risk of neglecting the safety and permanence of every interest dependent upon the soundness of our national finances. An obedient regard for official duty made the right path exceedingly plain.
On the day last mentioned a public proposal was issued inviting bids in gold for the purchase of additional five per cent. bonds to the amount of $50,000,000. Numerous bids were received under this proposal, one of which, for “all or none” of the bonds, tendered on behalf of thirty-three banking institutions and financiers in the city of New York, being considerably more advantageous to the Government than all other bids, was accepted, and the entire amount was awarded to these parties. This resulted in adding to the reserve the sum of $58,538,500.
The president at that time of the United States Trust Company, one of the strongest and largest financial institutions in the country, rendered most useful and patriotic service in making both this and the previous offer of bonds successful; and his company was a prominent purchaser on both occasions. He afterward testified under oath that the accepted bid for “all or none,” in which his company was a large participant, proved unprofitable to the bidders.
The payment of gold into the Treasury on account of this sale of bonds was not entirely completed until after the 1st of December, 1894. Then followed a time of bitter disappointment and miserable depression, greater than any that had before darkened the struggles of the Executive branch of the Government to save our nation’s financial integrity.
The addition made to the gold reserve by this completed transaction seemed to be of no substantial benefit, if, on the contrary, it did not actually stimulate the disquieting factors of the situation. In December, 1894, during which month $58,538,500 in gold, realized from this second sale of bonds, was fully paid in and added to the reserve, the withdrawals from the fund amounted to nearly $32,000,000; and this was followed in the next month, or during January, 1895, by a further depletion in the sum of more than $45,000,000.
In view of the crisis which these suddenly increased withdrawals seemed to portend, the aid of Congress was earnestly invoked in a special presidential message to that body, dated on the 28th of January, 1895, in which the gravity and embarrassment of the situation were set forth in the following terms:
The real trouble which confronts us consists in a lack of confidence, widespread and constantly increasing, in the continuing ability or disposition of the Government to pay its obligations in gold. This lack of confidence grows to some extent out of the palpable and apparent embarrassment attending the efforts of the Government under existing laws to procure gold, and to a greater extent out of the impossibility of either keeping it in the Treasury or canceling obligations by its expenditure after it is obtained....
The most dangerous and irritating feature of the situation, however, remains to be mentioned. It is found in the means by which the Treasury is despoiled of the gold thus obtained (by the sale of bonds) without canceling a single Government obligation, and solely for the benefit of those who find profit in shipping it abroad, or whose fears induce them to hoard it at home. We have outstanding about $500,000,000 of currency notes of the Government for which gold may be demanded, and, curiously enough, the law requires that when presented, and, in fact, redeemed and paid in gold, they shall be reissued. Thus the same notes may do duty many times in drawing gold from the Treasury; nor can the process be averted so long as private parties, for profit or otherwise, see an advantage in repeating the operation. More than $300,000,000 of these notes have been redeemed in gold, and, notwithstanding such redemption, they are still outstanding.
After giving a history of the bond issues already made to replenish the reserve, and of their results, it was further stated:
The financial events of the past year suggest facts and conditions which should certainly arrest attention. More than $172,000,000 in gold have been drawn out of the Treasury during the year for the purpose of shipment abroad or hoarding at home.
While nearly $103,000,000 was drawn out during the first ten months of the year, a sum aggregating more than two-thirds of that amount, being about $69,000,000, was drawn out during the following two months, thus indicating a marked acceleration of the depleting process with the lapse of time.
Following a reference to existing differences of opinion in regard to the extent to which silver should be coined or used in our currency, and the irrelevancy of such differences to the matter in hand, the message continued:
While I am not unfriendly to silver, and while I desire to see it recognized to such an extent as is consistent with financial safety and the preservation of national honor and credit, I am not willing to see gold entirely banished from our currency and finances. To avert such a consequence I believe thorough and radical remedial legislation should be promptly passed. I therefore beg the Congress to give the subject immediate attention.
After recommending the passage of a law authorizing the issue of long-term bonds, bearing a low rate of interest, to be used for the maintenance of an adequate gold reserve and in exchange for outstanding United States notes and Treasury notes for the purpose of their cancelation, and after giving details of the proposed scheme, the message concluded as follows:
In conclusion, I desire to frankly confess my reluctance to issue more bonds in present circumstances and with no better results than have lately followed that course. I cannot, however, refrain from adding to an assurance of my anxiety to co-operate with the present Congress in any reasonable measure of relief, an expression of my determination to leave nothing undone which furnishes a hope for improving the situation, or checking a suspicion of our disinclination or disability to meet, with the strictest honor, every national obligation.
This appeal to Congress for legislative aid was absolutely fruitless.
On the eighth day of February, 1895, those who, under the mandate of Executive duty, were striving, thus unaided, to avert the perils of the situation, could count in the gold reserve only the frightfully low sum of $41,340,181; and it must be remembered that this was only two months after the proceeds of the second sale of bonds had been added to the fund. In point of fact, the withdrawals of gold during the short period mentioned had exceeded by more than $18,000,000 the amount of such proceeds; and several million dollars more had been demanded, some of which, though actually taken out, was unexpectedly, and on account of the transaction now to be detailed, returned to the Treasury.
This sudden fall in the reserve, and the apparent certainty of the continuance of its rapid depletion, seemed to justify the fear that before another bond sale by means of public notice and popular subscription could be perfected the gold reserve might be entirely exhausted; nor could we keep out of mind the apprehension that in consequence of repeated dispositions of bonds, with worse instead of better financial conditions impending, further sales by popular subscription might fail of success, except upon terms that would give the appearance of impaired national credit.
Notwithstanding all this, no other way seemed to be open to us than another public offer of bonds; and it was determined to move in that direction immediately.
In anticipation of this action it was important to obtain certain information and suggestions touching the feeling and disposition of those actively prominent in financial and business circles.
I think it may here be frankly confessed that it never occurred to any of us to consult, in this emergency, farmers, doctors, lawyers, shoe-makers, or even statesmen. We could not escape the belief that the prospect of obtaining what we needed might be somewhat improved by making application to those whose business and surroundings qualified them to intelligently respond.
Therefore, on the evening of the seventh day of February, 1895, an interview was held at the White House with Mr. J. P. Morgan of New York; and I propose to give the details of that interview as gathered from a recollection which I do not believe can be at fault. Secretary Carlisle was present nearly or quite all the time, Attorney-General Olney was there a portion of the time, and Mr. Morgan and a young man from his office and myself all the time. At the outset Mr. Morgan was inclined to complain of the treatment he had received from Treasury officials in the repudiation of an arrangement which he thought he had been encouraged to perfect in connection with the disposal of another issue of bonds. I said to Mr. Morgan, whatever there might be in all this, another offer of bonds for popular subscription open to all bidders had been determined upon, and that there were two questions I wanted to ask him which he ought to be able to answer: one was whether the bonds to be so offered would probably be taken at a good price on short notice; and the other was whether, in case there should be imminent danger of the disappearance of what remained of the gold reserve, during the time that must elapse between published notice and the opening of bids, a sufficient amount of gold could be temporarily obtained from financial institutions in the city of New York to bridge over the difficulty and save the reserve until the Government could realize upon the sale of its bonds. Mr. Morgan replied that he had no doubt bonds could be again sold on popular subscription at some price, but he could not say what the price would be; and to the second inquiry his answer was that, in his opinion, such an advance of gold as might be required could be accomplished if the gold could be kept in this country, but that there might be reluctance to making such an advance if it was to be immediately withdrawn for shipment abroad, leaving our financial condition substantially unimproved. After a little further discussion of the situation he suddenly asked me why we did not buy $100,000,000 in gold at a fixed price and pay for it in bonds, under Section 3700 of the Revised Statutes. This was a proposition entirely new to me. I turned to the Statutes and read the section he had mentioned. Secretary Carlisle confirmed me in the opinion that this law abundantly authorized such a transaction, and agreed that it might be expedient if favorable terms could be made. The section of the Statutes referred to reads as follows:
_Section 3700._ The Secretary of the Treasury 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.
Mr. Morgan strongly urged that, if we proceeded under this law, the amount of gold purchased should not be less than $100,000,000; but he was at once informed that in no event would more bonds be then issued than would be sufficient to provide for adding to the reserve, about $60,000,000, the amount necessary to raise the fund to $100,000,000.
Not many months afterward I became convinced that on this point Mr. Morgan made a wise suggestion; and I have always since regretted that it was not adopted.
III
It can hardly be necessary to state that any plan which would protect from immediate withdrawal the gold we might add to our reserve could not fail to be of extreme value. Such of these withdrawals as were made for hoarding gold could be prevented only by a restoration of confidence among those of our people who had grown suspicious of the Government’s financial ability; but the considerable drain from the reserve for the purchase of the very bonds to be sold for its reinforcement, and the much larger drain made by those who profited by the shipment of gold abroad, could be, measurably at least, directly arrested. Thus to the extent that foreign gold might be brought here and used for the purchase of bonds, the use for that purpose of such as was held by our own people or as was already in the reserve subject to their withdrawal would not only be decreased, but the current of the passage of gold would be changed and would flow toward us instead of away from us, making the prospect of profit in gold exportation less alluring. An influx of gold from abroad would also have a tendency to decrease the sentimental estimate of its desirability which its unrelieved scarcity was apt to create in timid minds. It was especially plain that so far as withdrawals from our reserve for speculative shipment abroad were concerned, they could be discouraged by the efforts of those whose financial connections in other countries enabled them to sell gold exchange on foreign money centers at a price which would make the actual transportation of the coin itself unprofitable.
The position of Mr. Morgan and the other parties in interest whom he represented was such in the business world that they were abundantly able, not only to furnish the gold we needed, but to protect us in the manner indicated against its immediate loss. Their willingness to undertake both these services was developed during the discussion of the plan proposed; and after careful consideration of every detail until a late hour of the night, an agreement was made by which J. P. Morgan & Co. of New York, for themselves and for J. S. Morgan & Co. of London; and August Belmont & Co. of New York, for themselves and for N. M. Rothschild & Son of London, were to sell and deliver to the Government 3,500,000 ounces of standard gold coin of the United States, to be paid for in bonds bearing annual interest at the rate of four per cent. per annum, and payable at the pleasure of the Government after thirty years from their date, such bonds to be issued and delivered from time to time as the gold coin to be furnished was deposited by said parties in the subtreasuries or other legal depositories of the United States. At least one half of the coin so delivered was to be obtained in Europe, and shipped from there in amounts not less than 300,000 ounces per month, at the expense and risk of the parties furnishing the same; and so far as it was in their power they were 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.”
Four per cent. bonds were selected for use in this transaction instead of ten-year bonds bearing five per cent. interest, because their maturity was extended to thirty years, thus offering a more permanent and inviting investment, and for the further reason that $100,000,000 of shorter five per cent. bonds had already been issued, and it was, therefore, deemed desirable to postpone these further bond obligations of the Government to a later date. The price agreed upon for the gold coin to be delivered was such that the bonds given in payment therefor would yield to the investor an annual income of three and three fourths per cent.
It has already been stated that the only bonds which could be utilized in our efforts to maintain our gold reserve were those described in a law passed as early as 1870, and made available for our uses by an act passed in 1875. The terms of these bonds were ill suited to later ideas of investment, and they were made payable in coin and not specifically in gold. Nothing at any time induced the exchange of gold for these coin bonds, except a reliance upon such a measure of good faith on the part of the Government, and honesty on the part of the people, as would assure their payment in gold coin and not in depreciated silver.
It was exceedingly fortunate that, at the time this agreement was under consideration, certain political movements calculated to undermine this reliance upon the Government’s continued financial integrity were not in sight; but it was, nevertheless, very apparent that the difficulties of the situation would be greatly lessened if, in safeguarding our reserve, bonds could be used payable by their terms in gold, and bearing a rate of interest not exceeding three per cent. Accordingly, at the instance of Secretary Carlisle, a bill had been introduced in the House of Representatives, some time before the Morgan-Belmont agreement was entered upon, which authorized the issue of bonds of that description. A few hours before the agreement was consummated this sane and sensible legislation was brought to a vote in the House and rejected.
When, in our interview with Mr. Morgan, the price for the gold to be furnished was considered, he gave reasons which we could not well answer in support of the terms finally agreed upon; but he said that the parties offering to furnish the gold would be glad to accept at par three per cent. bonds, payable by their terms in gold instead of in coin, in case their issue could be authorized. He expressed not only a willingness but a strong desire that a substitution might be made of such bonds in lieu of those already selected, and readily agreed to allow us time to procure the necessary legislation for that purpose. He explained, however, that only a short time could be stipulated for such a substitution, because in order to carry out successfully the agreement contemplated, the bonds must be offered in advance to investors both here and abroad, and that after numerous subscriptions had been received from outside parties the form and condition of the securities could not be changed; and he added that, but for this, there would be no objection to the concession of all the time desired. It was finally agreed that ten days should be allowed us to secure from Congress the legislation necessary to permit the desired substitution of bonds. A simple calculation demonstrated that by such a substitution the Government would save on account of interest more than $16,000,000 before the maturity of the bonds. It was further stipulated on the part of the Government that if the Secretary of the Treasury should desire to sell any further bonds on or before October 1, 1895, they should first be offered to the parties then represented by Mr. Morgan. This stipulation did not become operative.
When our conference terminated it was understood that Secretary Carlisle and Attorney-General Olney should act for the Government at a meeting between the parties early the following day, at which the agreement we had made was to be reduced to writing; and thereupon I prepared a message which was submitted to the Congress at the opening of its session on the following day, in which the details of our agreement were set forth and the amount which would be saved to the Government by the substitution of three per cent. gold bonds was plainly stated; but having no memorandum of the agreement before me, in my haste I carelessly omitted to mention the efforts agreed on by Mr. Morgan and his associates to prevent gold shipments. The next morning a contract embodying our agreement was drawn and signed, and a copy at once given to the chairman of the Ways and Means Committee of the House, so that the delay of a demand for its inspection might be avoided. A bill was also immediately introduced again giving authority to issue three per cent. bonds, payable by their terms in gold, to be substituted in place of the four per cent. bonds as provided in the contract--to the end that $16,000,000 might be saved to the Government, and the public welfare in every way subserved.
The object of this message was twofold. It was deemed important, considering the critical condition of our gold reserve, that the public should be speedily informed of the steps taken for its protection; and in addition, though previous efforts to obtain helpful legislation had resulted in discouragement, it was hoped that when the saving by the Government of $16,000,000 was seen to depend on the action of Congress there might be a response that would accord with patriotic public duty.
Quite in keeping with the congressional habit prevailing at that time, the needed legislation was refused, and this money was not saved.
The contract was thereupon carried out as originally made. In its execution four per cent. bonds were delivered amounting to $62,315,400, and the sum of $65,116,244.62 in gold received as their price. The last deposit in completion of the contract was made in June, 1895, but additional gold was obtained from the contracting parties in exchange for United States notes and Treasury notes until in September, 1895, when the entire amount of gold received from them under the contract and through such exchanges had amounted to more than $81,000,000. The terms of the agreement were so well carried out, not only in the matter of furnishing gold, but in procuring it from abroad and protecting the reserve from withdrawals, that during its continuance the operation of the “endless chain” which had theretofore drained our gold was interrupted. No gold was, during that period, taken from the Treasury to be used in the purchase of bonds, as had previously been the case, nor was any withdrawn for shipment abroad.