Part 9
It became manifest, however, soon after this contract was fully performed, that our financial ailments had reached a stage so nearly chronic that their cure by any treatment within Executive reach might well be considered a matter of anxious doubt. In the latter months of the year 1895 a scarcity of foreign exchange and its high rate, the termination of the safeguards of the Morgan-Belmont contract, and, as a result, the renewal of opportunity profitably to withdraw gold for export with a newly stimulated popular apprehension, and perhaps other disturbing incidents, brought about a recurrence of serious depletions of gold from the reserve.
In the annual Executive message sent to Congress on the second day of December, 1895, the situation of our finances and currency was set forth in detail, and another earnest plea was made for remedial legislative action. After mentioning the immediately satisfactory results of the contract for the purchase of gold, the message continued:
Though the contract mentioned stayed for a time the tide of gold withdrawals, its good results could not be permanent. Recent withdrawals have reduced the reserve from $107,571,230 on the eighth day of July, 1895, to $79,333,966. How long it will remain large enough to render its increase unnecessary is only a matter of conjecture, though quite large withdrawals for shipment in the immediate future are predicted in well-informed quarters. About $16,000,000 has been withdrawn during the month of November.
The prediction of further withdrawals mentioned in this message was so fully verified that eighteen days after its transmission, and on the twentieth day of December, 1895, another Executive communication was sent to Congress, in contemplation of its holiday recess, in which, after referring to the details contained in the former message, it was stated:
The contingency then feared has reached us, and the withdrawals of gold since the communication referred to, and others that appear inevitable, threaten such a depletion in our Government’s gold reserve as brings us face to face with the necessity of further action for its protection. This condition is intensified by the prevalence in certain quarters of sudden and unusual apprehension and timidity in business circles.
The real and sensible cure for our recurring troubles can only be effected by a complete change in our financial scheme. Pending that, the Executive branch of the Government will not relax its efforts nor abandon its determination to use every means within its reach to maintain before the world American credit, nor will there be any hesitation in exhibiting its confidence in the resources of our country and the constant patriotism of our people.
In view, however, of the peculiar situation now confronting us, I have ventured to herein express the earnest hope that the Congress, in default of the inauguration of a better system of finance, will not take a recess from its labors before it has, by legislative enactment or declaration, done something, not only to remind those apprehensive among our own people that the resources of this Government and a scrupulous regard for honest dealing afford a sure guarantee of unquestioned safety and soundness, but to reassure the world that with these factors, and the patriotism of our citizens, the ability and determination of our nation to meet in any circumstances every obligation it incurs do not admit of question.
Perhaps it should not have been expected that members of Congress would permit troublesome thoughts of the Government’s financial difficulties to disturb the pleasant anticipations of their holiday recess; at any rate, these difficulties and the appeal of the President for at least some manifestation of a disposition to aid in their remedy were completely ignored.
On the sixth day of January, 1896, the gold reserve having fallen to $61,251,710, its immediate repair became imperative. Though our resort to the expedient of purchasing gold with bonds under contract had been productive of very satisfactory results, it by no means indicated our abandonment of the policy of inviting offerings of gold by public advertisement. It was rather an exceptional departure from that policy, made necessary by the dangerously low state of the reserve on account of extensive and sudden depletions, and the peril attending any delay in replenishing it. We had not lost faith in the loyalty and patriotism of the people, nor did we doubt their willingness to respond to an appeal from their Government in any emergency. We also confidently believed that if the bonds issued for the purpose of increasing our stock of gold were widely distributed among our people, self-interest as well as patriotism would stimulate the solicitude of the masses of our citizens for the welfare of the nation. No reason for discouragement had been found in public offerings for bonds, so far as obtaining a needed supply of gold and a fair price for our bonds were concerned. The failure of their wide distribution among the people when so disposed of seemed to be largely owing to the fact that the bonds themselves were so antiquated in form, and bore so high a rate of interest, that it was difficult for an ordinary person to make the rather confusing computation of premium and other factors necessary to a safe and intelligent bid. In a transaction of this sort, where the smallest fraction of a cent may determine the success of an offer, those accustomed to the niceties of financial calculations are apt to hold the field to the exclusion of many who, unaided, dare not trust themselves in the haze of such intricacies. If Congress had provided for the issuance of bonds bearing a low rate of interest, which could have been offered to the public at par, I am convinced that the plain people of the land would more generally have become purchasers. Another difficulty that had to some extent prevented a more common participation by the people in prior public sales arose, it was thought, from their lack of notice of the pendency of such sales, and want of information as to the advantages of the investment offered, and the procedure necessary to present their bids in proper form.
In view of the fact that the gold then in the reserve amounted to $20,000,000 more than it contained eleven months earlier, when the Morgan-Belmont contract was made, and because, for that reason, more time could be allowed for its replenishment, there was no hesitation in deciding upon a return to our original plan of offering bonds in exchange for gold by public subscription.
Having determined upon a return to this method, it was deemed wise, upon consideration of all the circumstances, to make some modification of prior action in such cases. Instead of short-term five per cent. bonds, the longer-term bonds bearing four per cent. interest were substituted, as, on the whole, the best we could offer for popular subscription. Since two offerings of $50,000,000 each had proved to be of only very temporary benefit, it was determined to double the amount and offer $100,000,000 for subscription. Nearly a month was to be given instead of a shorter time, as theretofore, between the date of notice of the offer and the opening of the bids; and extraordinary efforts were to be made to give the most thorough publicity to the offerings--to the end that we might stimulate in every possible way the desire of the masses of our people to invest in the bonds. Especial information and aid were to be furnished for the guidance of those inclined to subscribe; and successful bidders were to be allowed to pay for the bonds awarded to them in instalments. The lowest denomination of the bonds was to be fifty dollars, and the larger ones were to be in multiples of that sum. In point of fact, it was resolved that nothing should be left undone which would in any way promote the success of this additional and increased offer of bond subscription to the public.
Accordingly, on the sixth day of January, 1896, a circular bearing that date was issued, giving notice that proposals would be received until the fifth day of February following for gold coin purchases of $100,000,000 of the four per cent. bonds of the United States, upon the terms above mentioned. These circulars were extensively published in the newspapers throughout the country. Copies, together with a letter of instruction to bidders, containing, among other things, a computation showing the income the bonds would yield to the investor upon their purchase at prices therein specified, and accompanied by blanks for subscription, were sent to the postmasters in every State and Territory with directions that they should be conspicuously displayed in their offices. The Comptroller of the Currency prepared and sent to all national banks a circular letter, urging them to call the attention of their patrons to the desirability of obtaining the bonds as an investment, and to aid in stimulating subscriptions; and with this was forwarded a complete set of papers similar to those sent to the postmasters. These papers were also sent to other banks and financial institutions and to bankers in all parts of the country, and, in addition, notice was given that they could be obtained upon application to the Treasury Department or any of the subtreasuries of the United States. Soon afterward, in view of the large amount of the bonds offered, and as a precaution against an undue strain upon the general money market, as well as to permit the greatest possible opportunity for subscription, the terms of the original offer of the Secretary of the Treasury were modified by reducing in amount the instalments of the purchase price and extending the time for their payment.
On an examination of the bids at the expiration of the time limited for their presentation, it was found that 4635 bids had been received, after rejecting six which were palpably not genuine or not made in good faith. The bidders were scattered through forty-seven of our States and Territories, and the aggregate amount represented by their bids was $526,970,000. The number of accepted bids upon which bonds were awarded was only 828, and of these ten were forfeited after acceptance, on account of non-payment of the first instalment of the purchase price. Several of the bids accepted were for a single fifty-dollar bond, and they varied in amount from that to one bid made by J. P. Morgan & Co. and several associates for the entire issue of $100,000,000, for which they offered 110.6877 on the dollar. To all the other 827 accepted bidders who offered even the smallest fraction of a farthing more than this the full number of bonds for which they bid were awarded.
The aggregate of the bonds awarded to these bidders, excluding the Morgan bid, amounted to $62,321,150. The remainder of the entire offering, including more than $4,700,000 of the awards which became forfeited for non-payment as above mentioned, were awarded to Mr. Morgan and his associates, their bid being the highest next to those on which bonds had been awarded in full, as already stated.
The aggregate of the prices received for these bonds represented, by reason of the premiums paid, an income to the investor of a trifle less than three and four tenths per cent.
As a result of this large sale of bonds, the gold reserve, which, on the last day of January, 1896, amounted to less than $50,000,000, was so increased that at the end of February, in spite of withdrawals in the meantime, it stood at nearly $124,000,000.
It will be observed that, notwithstanding all the efforts made to distribute this issue of bonds among the people, but 827 bids out of 4641 were entitled to awards as being above the Morgan bid; and that more than one third of all the bonds sold were awarded on the single bid of Mr. Morgan and his associates.
The price received on this public sale was apparently somewhat better for the Government than that secured by the Morgan-Belmont contract; but their agreement required of them such labor, risk, and expense as perhaps entitled them to a favorable bargain. In any event, the advantages the Government derived from this contract were certainly very valuable and should not be overlooked. On every sale of bonds by public offering, not excluding that just mentioned, large amounts of gold were withdrawn from the Treasury and used in paying for the bonds offered. In the execution of the contract of February, 1895, no gold was withdrawn for the purchase of the bonds, and the reserve received the full benefit of the transaction. Each sale by public advertisement made prior to the time of the contract had been so quickly followed by extensive and wasting withdrawals of gold from the reserve, that scarcely a breathing-time was allowed before we were again overtaken by the necessity for its reinforcement. Even after the notice given for the last sale on the eighth day of January, 1896, and between that date and the 1st of June following, these withdrawals amounted to more than $73,000,000, while during the six months or more of the existence of the Morgan-Belmont contract the withdrawals of gold for export were entirely prevented and a season of financial quiet and peace was secured.
Whatever may be the comparative merits of the two plans for maintaining our gold reserve, both of them when utilized were abundantly and clearly justified.
Whether from fatigue of malign conditions or other causes, ever since the last large sale of bonds was made the gold reserve has been so free from depletion that its condition has caused no alarm.
Two hundred and sixty-two millions of dollars in bonds were issued on its account during the critical time covered by this narrative; but the credit and fair fame of our nation were saved.
I have attempted to give a detailed history of the crime charged against an administration which “issued bonds of the Government in time of peace.” Without shame and without repentance, I confess my share of the guilt; and I refuse to shield my accomplices in this crime who, with me, held high places in that administration. And though Mr. Morgan and Mr. Belmont and scores of other bankers and financiers who were accessories in these transactions may be steeped in destructive propensities, and may be constantly busy in sinful schemes, I shall always recall with satisfaction and self-congratulation my association with them at a time when our country sorely needed their aid.
THE VENEZUELAN BOUNDARY CONTROVERSY
I
There is no better illustration of the truth that nations and individuals are affected in the same manner by like causes than is often furnished by the beginning, progress, and results of a national boundary dispute. We all know that among individuals, when neighbors have entered upon a quarrel concerning their division-line or the location of a line fence, they will litigate until all account of cost and all regard for the merits of the contention give place to a ruthless and all-dominating determination, by fair means or foul, to win; and if fisticuffs and forcible possession are resorted to, the big, strong neighbor rejoices in his strength as he mauls and disfigures his small and weak antagonist.
It will be found that nations behave in like fashion. One or the other of two national neighbors claims that their dividing-line should be defined or rectified in a certain manner. If this is questioned, a season of diplomatic untruthfulness and finesse sometimes intervenes for the sake of appearances. Developments soon follow, however, that expose a grim determination behind fine phrases of diplomacy; and in the end the weaker nation frequently awakens to the fact that it must either accede to an ultimatum dictated by its stronger adversary, or look in the face of war and a spoliation of its territory; and if such a stage is reached, superior strength and fighting ability, instead of suggesting magnanimity, are graspingly used to enforce extreme demands if not to consummate extensive conquest or complete subjugation.
I propose to call attention to one of these unhappy national boundary disputes, between the kingdom of Great Britain and the South American republic of Venezuela, involving the boundary-line separating Venezuela from the English colony of British Guiana, which adjoins Venezuela on the east.
Venezuela, once a Spanish possession, declared her independence in 1810, and a few years afterward united with two other of Spain’s revolted colonies in forming the old Colombian federal union, which was recognized by the United States in 1822. In 1836 this union was dissolved and Venezuela became again a separate and independent republic, being promptly recognized as such by our Government and by other powers. Spain, however, halted in her recognition until 1845, when she quite superfluously ceded to Venezuela by treaty the territory which as an independent republic she had actually owned and possessed since 1810. But neither in this treaty nor in any other mention of the area of the republic were its boundaries described with more definiteness than as being “the same as those which marked the ancient viceroyalty and captaincy-general of New Granada and Venezuela in the year 1810.”
England derived title to the colony of Guiana from Holland in 1814, by a treaty in which the territory was described as “the Cape of Good Hope and the establishments of Demerara, Essequibo, and Berbice.” No boundaries of those settlements or “establishments” were given in the treaty, nor does it appear that any such boundaries had ever been particularly defined.
It is quite apparent that the limits of these adjoining countries thus lacking any mention of definite metes and bounds, were in need of extraneous assistance before they could be exactly fixed, and that their proper location was quite likely to lead to serious disagreement. In such circumstances threatening complications can frequently be avoided if the adjoining neighbors agree upon a divisional line promptly, and before their demands are stimulated and their tenacity increased by a real or fancied advance in the value of the possessions to be divided, or other incidents have intervened to render it more difficult to make concessions.
I shall not attempt to sketch the facts and arguments that bear upon the exact merits of this boundary controversy between Great Britain and Venezuela. They have been thoroughly examined by an arbitral tribunal to which the entire difficulty was referred, and by whose determination the boundary between the two countries has been fixed--perhaps in strict accord with justice, but at all events finally and irrevocably. Inasmuch, however, as our own country became in a sense involved in the controversy, or at least deeply concerned in its settlement, I have thought there might be interest in an explanation of the manner and the processes by which the interposition of the United States Government was brought about. I must not be expected to exclude from mention every circumstance that may relate to the merits of the dispute as between the parties primarily concerned; but so far as I make use of such circumstances I intend to do so only in aid and simplification of the explanation I have undertaken.
This dispute began in 1841. On October 5 of that year the Venezuelan minister to Great Britain, in a note to Lord Aberdeen, Principal Secretary of State for Foreign Affairs, after reminding the secretary that a proposal made by Venezuela on the 28th of January, 1841, for joint action in the matter of fixing a divisional boundary, still awaited the acceptance of Great Britain, wrote as follows:
The Honorable Earl of Aberdeen may now judge of the surprise of the Government of Venezuela upon learning that in the territory of the Republic a sentry-box has been erected upon which the British flag has been raised. The Venezuelan Government is in ignorance of the origin and purport of these proceedings, and hopes that they may receive some satisfactory explanation of this action. In the meantime the undersigned, in compliance with the instructions communicated to him, urges upon the Honorable Earl of Aberdeen the necessity of entering into a treaty of boundaries as a previous step to the fixation of limits, and begs to ask for an answer to the above-mentioned communication of January 28.
Lord Aberdeen, in his reply, dated October 21, 1841, makes the following statement:
Her Majesty’s Government has received from the Governor of British Guiana, Mr. Schomburgk’s report of his proceedings in execution of the commission with which he has been charged. That report states that Mr. Schomburgk set out from Demerara in April last and was on his return to the Essequibo River at the end of June. It appears that Mr. Schomburgk planted boundary posts at certain points of the country which he has surveyed, and that he was fully aware that the demarcation so made was merely a preliminary measure, open to further discussion between the Governments of Great Britain and Venezuela. But it does not appear that Mr. Schomburgk left behind him any guard-house, sentry-box, or other building having the British flag.
With respect to the proposal of the Venezuelan Government that the Governments of Great Britain and Venezuela should conclude a treaty as a preliminary step to the demarcation of the boundaries between British Guiana and Venezuela, the undersigned begs leave to observe that it appears to him that if it should be necessary to make a treaty upon the subject of the boundaries in question, such a measure should follow rather than precede the operation of the survey.
In a communication dated the 18th of November, 1841, the Venezuelan minister, after again complaining of the acts of Schomburgk and alleging that he “has planted at a point on the mouth of the Orinoco several posts bearing Her Majesty’s initials, and raised at the same place, with a show of armed forces, the British flag, and also performed several other acts of dominion and government,” refers to the great dissatisfaction aroused in Venezuela by what he calls “this undeserved offense,” and adds: “The undersigned therefore has no doubts but that he will obtain from Her Majesty’s Government a reparation for the wrong done to the dignity of the Republic, and that those signs which have so unpleasantly shaken public confidence will be ordered removed.”
No early response having been made to this communication, another was addressed to Lord Aberdeen, dated December 8, 1841, in which the representative of Venezuela refers to his previous unanswered note and to a recent order received from his government, which he says directs him “to insist not only upon the conclusion of a treaty fixing the boundaries between Venezuela and British Guiana, but also, and this very particularly, to insist upon the removal of the signs set up, contrary to all rights, by the surveyor R. H. Schomburgk in Barima and in other points of the Venezuelan territory”; and he continues: “In his afore-mentioned communication of the 18th of last month, the undersigned has already informed the Honorable Earl of Aberdeen of the dissatisfaction prevailing among the Venezuelans on this account, and now adds that this dissatisfaction, far from diminishing, grows stronger--as is but natural--as time goes on and no reparation of the wrongs is made.”
These two notes of the Venezuelan minister were answered on the eleventh day of December, 1841. In his reply Lord Aberdeen says: