Cornell University Library HG 501.R89 The financial and monetary situation in 3 1924 013 815 943 l>tatc (BoUege of Agtkultute atljata, ». S- ffiihcarg THE FINANCIAL AND MONETARY SITUATION IN THE UNITED STATES. BY C. ROZENRAAD. LONDON : H. HENRY & CO., LIMITED, 93, ST. MARTIN'S LANE, W.C. 1896. HGc50\ y /^- c 3 01 rr OF "■ A, MOORC The Financial and Monetary Situation IN THE United States, A FEW days only separate us from the time when the citizens of the United States will be called upon to elect a new President, and although every American Presidential election brings with it its stirring agitation, we must go back to the year 1860, when the great Civil War was impending, to find anything to equal the passionate struggle at present in progress in the. United States between the Eepublican and Democratic parties. One of them is for " sound money," but backed by a strong protectionist programme ; the other for the free coinage of silver. Whichever party carries off the victory at the polls, it is obvious that strongly protective legislation, or the adoption of the free coinage of silver will have an important influence upon the economic future of the United States ; and as the commercial relations of that country with Europe are very extensive, more especially so with England, I have thought it expedient to make a special study of the financial and monetary situation in America. It has been a long and arduous, but very fascinating study ; the numerous documents aind statistics I have had to consult, were at times almost bewildering. I propose, however, to lay before you to-night the result of my inquiry, and the inferences I have been able to draw therefrom. Gentlemen, in order to understand the present financial and monetary situation in the United States, it becomes necessary in the first place to go back a few years, and to examine the A3 banking and currency system of the country. That system will be found to materially differ from what we are accustomed to in Europe. I will afterwards endeavour to show how the American position, once so brilliant, has become so highly critical ; how the years of prosperity and of credit balances in the national budgets have been followed by years of deficits, as the consequence of a fiscal and monetary policy which may have enriched a few, but which has undoubtedly inflicted heavy losses upon the bulk of the nation, culminating in the disastrous crisis of 1.893. To that policy may also be traced the bitterness of the present contest. Whilst the war against the Southern rebellion lasted, from 1860 to 1865, the Washington Government was, naturally enough, in constant want of money. This want was supplied by the issue of loans and paper money having a forced currency. The loans, it may be easily understood in the light of tircum- stances, met with but little success, and as the Government desired not merely to issue its bonds, but also to place them perma- nently, an Act was passed on the 25th of February, 1863, which provided that a large portion of these Government bonds should be taken over by National Banks, to be created or reorganized under governmental control. The bonds were to constitute a security for the notes issued by the Banks. These institutions might be founded in all towns, their capital not to exceed : (^50,000 in places of 6,000 inhabitants. 1^100,000 ,, ,, „ 6,000 to 10,000 inhabitants. ^200,000 „ „ „ more than 50,000 „ . The note issue of these Banks was to be proportionate to their capital within the following limits : A maximum note issue of 90% of a capital of (^500,000. „ 80% „ „ ^1,000,000. ,, ,, ,, 70% ,, ,, jgl to 3 millions. „ 60% „ ,, more than ^3,000,000, In no case, therefore, could the circulation lawfully exceed 90 per cent, of the American State Debt, reckoned at par. On the other hand, the Banks were not allowed to keep in their safes the securities they had bought; these were to be pledged to the Comptroller of the Currency, who is entrusted with the super- vision of the National Banks, as a cover for the notes issued. No legal enactments exist as to that cover, but, in the seventeen chief cities of the United States, the National Banks must always have in hand 25 per cent, of the deposits entrusted to them in gold, silver, or legal tender notes. In less important centres, this cover need only be 15 per cent., and part of the latter may also be deposited with the Banks in the said seventeen cities, called Eedemption Cities. The New York Associated Banks, which form so important a factor in the appreciation of the American Money Market, belong to the first group. Then there are the State Banks, not Banks of the State, as might be inferred from the name, but institutions subject to the different prescriptions in the States where they are established. The part they play is but an insignificant one, and their number has much decreased since they have had to pay a tax of ten per cent, on the amount of their circulation. Indeed, many State Banks have been made into National. Banks. The latter numbered 3,712 on 31st October, 1895, having an aggregate capital of 657 million dollars, and a circulation of 182|^ million dollars. At the same time their deposits attained the considerable total of 1,715 million dollars. It will be seen that the system of the National Banks differs in two material points from the system followed by the Banks of Issue in Europe. The latter issue tbeir notes against gold and silver, except the Bank of England which only issues notes against gold when the amount of £16,450,000, fixed by the Act of 1844 is exceeded, and they increase their circulation, when trade and industry require it, or reduce their circulation, when such require- ments decrease. The American National Banks, on the other hand, issue notes against Bonds of the United States Government, and Ihe issue must not exceed ninety per cent, of their capital. It is true that the American Government attained its object of placing its Bonds at a time when the placing was difficult, by- forcing the National Banks to take them over during the Civil War, but it simultaneously deprived the circulation of the Banks of that elasticity which is its first and foremost condition. With regard to the issue of paper currency during the war, as already mentioned by me, it consisted of greenbacks, so named because of the green colour on their backs. Only 50 million dollars were issued at first (on the 17th of July, 1861), but 150 million dollars more on the 25th of February, 1862. As the struggle went on, and imposed fresh burdens, new issues of paper money became necessary, until, on the 3rd of January, 1864, the huge total of ^449,338,902 was reached. The result of this incessant flow of greenbacks was a fluctuating premium on gold. In 1862, the premium reached 34 per cent., in 1864, 185 per cent., in 1865, 184 per cent., and it was, of course, seen that it must be stopped. An Act of Congress was thsrefore passed in 186(5 which enacted the gradual withdrawal of the greenbacks. Not more than ten million dollars were to be retired from circulation within the six months following the date at which the Act came into operation, and thereafter not more than four millions monthly. As a consequence of this legislation the aggregate of paper dollars in circulation gradually diminished, viz., to 400 millions on June 30, 1867, and to 356 millions on December 31, 1837. It had, therefore, been a move in the right direction, and if this sound financial policy had been maintained, the country would have gradually reverted to its normal condition. It is very natural that States should issue paper money whenever there is a great political crisis, a foreign war, or an internal convulsion, which cause gold and silver to leave the country. At such critical periods in the history of a nation, the Government, in concerting the necessary measures, has only to look to the salvation of the national interests, and the inconvenience which ensues under such circumstances is simply the consequence of evil conditions, not the cause of the evil itself. With crises of that kind the use of paper money is not only permissible but even sanctioned by the most rigid political economy. But it remains the foremost duty of governments to retire the paper money as soon as the country has returned to its normal condition. At the time of the French War, towards the end of last century, the Bank of England had issued paper money to such an extent, under the pressure of the British Government, that it had to suspend specie payments in 1797. In Prance, whilst the war of 1870 with Germany was in progress, the Banque de France was compelled to lend the Government nearly 1^ million francs, after the cours force had been decreed on the 12th of August of that year. Yet both countries were enabled to resume specie payments England in 1819, France in 1874 ; and whilst in the former country all the paper money which had been issued under the stress of circumstances was withdrawn by 1821, the French Government had repaid the Banque de France by 1879. I could give you other instances as proofs that there is no objection to issue paper money in times of national danger, so long as it is withdrawn from circulation as soon as practicable. But in the United States, where political passions are more violent than elsewhere, where personal interests, as I mean to show you further on, so often predominate, a campaign against the withdrawal of the greenbacks was initiated. Discarding the principles of sound Finance, neglecting the fundamental truth, that an excessive paper currency leads, and must lead, to a morbid and artificial inflation of prices, to an unhealthy state of things, the Congress of the United States, by an Act of February 4, 1868, decreed that the retirement of the greenbacks must be stopped. This Act was not approved by the President of the 8 United States; but, on the 18th of March, 1869, Congress passed another Act by which the people of America solemnly pledged themselves to repay the said greenbacks in coin, or its equiva- lent. The latter Act was, however, never put into force. On the contrary, the American paper money was further increased, for during the crisis of 1873 27 million dollars of greenbacks were issued, making the total amount then outstanding p82,979,815. It is true that a new Act was passed on January 14, 1875, enacting the withdrawal of greenbacks against coin, and also that such a withdrawal did take place, but it is likewise true that Congress afterwards decreed not only the cessation of all with- drawals as from May 31, 1878, but actually authorised the Treasury to re-issue those greenbacks that had been retired. At that time, the amount of paper money in circulation was ^346,681,016, and it still remains at this figure. It is obvious, therefore, that the United States of America now have, thirty years after the end of the Civil War, a paper money debt of 846 millions, issued in times of national danger, without the American Government feeling called upon to discharge this State debt by withdrawing such an enormous mass of paper money. The policy of the United States in this matter is all the more remarkable, because the finances of the country, as we shall see presently, have shown a great and permanent improvement for twenty eight years following the war, so much so, indeed, that the Consolidated debt has been enormously during that period reduced. We have seen that in 1878 Congress decided not to with- draw the greenbacks. But it enacted, at the same time, that their forced currency should cease ; that is to say, it authorised the Treasury to exchange them against gold. It was virtually a resumption of specie payments, which had been decided upon in 1875, and which took effect on the first of January 1879. :in order to carry out the law, 95|^ millions of dollars of Government Bonds wefe issued: These, added to the gold already in the Treasury, would be sufficient, it was thought, to constitute the special fund to enable that Department to cash all the greenbacks that might be presented for payment in gold. The said Fund was thenceforward called the gold reserve. Its minimum was to be one hundred million dollars ; but on the first of January, 1879, the day on which specie payments were to commence, it contained an aggregate of ||I114,193,360 in gold. The public being now assured that it could obtain gold for its greenbacks at any time, did not hurry to get them changed. This was not unexpected ; and we have seen a similar occurrence when Italy renewed her specie payments on April 12, 1883. In the month of January, 1879, only ^1,571,725 in paper money was tendered to the Treasury for gold, and as greenbacks were equal in value to the yellow metal that Department commenced to accept them in payment of taxes, import duties, etc. Gradually the gold reserve grew. In October, 1879, it amounted already to 157 million dollars, and in November, 1881, even to 173 millions. From 1882 to 1886 it varied between 168 and 119 millions, but in March, 1888, it attained 218J- millions ; being the highest figure ever reached by the gold reserve of the United States Treasury. After that period the reserve began to fall however, and in March, 1889, it sank again to 197 millions ; in August of the same year to 180 millions ; in 1890, to 147 ; in 1891, to 117; in 1892, to 110 millions. In April, 1893, it had even shrunk to (^97,011,330, that is to say, for the first time, to below the minimum of One Hundred Millions referred to. At that time, the premonitory signs of the long expected crisis — out- come of the pernicious fiscal and silver policy, adopted by the United States — commenced to show themselves. That fiscal policy and silver policy were closely connected. Eelying upon a period of great prosperity, of colossal develop- ment and progress which had prevailed in their country, so A 2' 10 highly favoured by a- bountiful nature, the Americans strove not only to free themselves from the old world, but even to compete with it oil its own markets. These tactics were particularly pointed at England. The indisputable commercial superiority of Great Britain created many jealousies in -the United States. They knew there that England would never give up free trade, no matter what protective policy were initiated in America. The Americans were among her best customers, and the former thereupon resolved to impede her trade by means of the MoKinley Bill which, it will be in everybody's recollection, un- doubtedly damaged Continental and English commerce immensely. America said it was a case of tit for tat. Had not Europe persistently refused to give to one of her principal products, namely silver, the rank devolving upon it ? Had not the countries of the old world closed their mints to the white metal? Had not England, the country with which Americans traded most, con- stituted herself the main champion of the gold standard? Was it not principally through the dogged opposition of the English that every effort to rehabilitate silver had failed ? And if all this were so, then it would be well to punish Europe, to -castigate especially England, by means of the MoKinley BiU. As for silver, well, the Americans would show that they were powerful enough, and rich enough to take all the necessary measures for its protection ; but in accord with their true interests. Well, gentlemen. Brother Jonathan, as I shall presently show you, has learned wisdom from folly by finding out to his cost that the natural laws, however long they may be trampled upon, sooner or later take revenge. They do not bow before the rash decrees of an excited assembly of representatives of the people, they know how to triumph over all obstacles, how in the long run to bend down every thing artificial that is opposed to them. It is as if they were directed by an iron hand and will. By enforcing an uncompromising protective fiscal policy, the Americans wanted to damage Europe, especially England, and they succeeded to a 11 certain extent, they also wanted to maintain the price of silver artificially, but in the end, it was the Americans themselves that suffered most from tliis fiscal and silver policy, it was Uncle Sam who had to pay the piper. His prohibitive fiscal policy has paralysed the development of his country's industries by a series of heavy inaport duties on the principal raw materials, and by fostering the establishment and growth of trusts and corners, the purport of these being to inflate prices, especially of goods that might otherwise have been found useful for export, if they had been left to themselves. In that case they would have maintained the balance of trade in favour of the United States and thus would have tended to check gold exports, reflected in the statistics of the gold reserve of the Treasury already referred to, and mainly the result of Uncle Sam's silver policy. It was the latter, gentlemen, rather than the fiscal policy which proved so disastrous for the United States, which inflicted such heavy losses upon the country. After having had the double standard from 1792 till 1873, first of all (1792—1834) with a ratio of 1 to 15.03 ; then (from 1834 to 1837) with a ratio of 1 to 16.002 ; finally (from 1837 to 1878), with a ratio of 1 to 15.9884, the Act of 1873 established the gold doUar as the monetary unit of the States. The Eepublic, in other words, adopted the gold standard, and silver only remained legal tender up to an amount of five dollars. Up to that time it had been found possible to maintain the above named ratio of 1 to 15-9884, a ratio which is equivalent to a price of 59 pence per ounce of bar silver. Between the years 1833 and 1872 the white metal quotations had fluctuated between 58i and 62| pence, but after the years 1872-1873 it began to sink gradually. Various European countries adopted the gold standard, or closed their mints to the coinage of silver, during a period when A 2** 12 the output cf the white metal was increasing and the demand for India was diminishing. From 60 |d. in 1872 silver fell in 1873 to 69id. ; in 1874, to SSj-^d. ; in 1875, to 56id.; in 1876, to 52|d.; with a momentary improvement in 1877 to 54||d., and in 1878, after violent fluctuations, to 52j''g^d. All this was, of course, anything but soothing to the owners of silver mines. Supported by the party of inflationists and farmers, who had been persuaded to believe that high silver prices, also meant hither grain prices for them, they contended that the State was bound to protect silver against depreciation, and in 1878, that is, prior to the resumption of specie payments. Congress was made to pass a new Law, since called the Bland Act. Under this Act, the Treasury had to buy every month at least two and not more than four million dollars worth of silver to be coined into dollars of 1837. In accordance with this Act, an aggregate sum of 378,166,795 of silver dollars was coined. The latter could, of course, only be used in the United States for purposes of currency, because abroad their value, based on the market price of silver, would be materially less. The American public seemed little disposed to take these heavy coins, and in order to induce them to do so more conveniently, silver certificates were issued against the silver dollars. These certificates amounted to j|i387 million dollars on June 30, 1894. But silver continued in its downward course, the heavy purchases by the Treasury notwithstanding. In 1879 the price still averaged 51^, in 1883 50^9^, but in 1885 it shrank to 48f, in 1887 to 44|; in 1888 to 42| ; in 1889 to 42-iJ. Yet the silverites remained unabashed by this severe depre- ciation. They contended that the Treasury ought to do, and to buy more, and they contrived to force through a. new Act, known as the Sherman Act. It was passed on July 14, 1890, and it provided that the Treasury should purchase not 20^ million 13 ounces of silver yearly, but 54 million ounces (4J million ounces a month), that is to say about the aggregate production of all the silver mines in the United States. These purchases were to be made at market prices, the price not to exceed one dollar for 371J grains of fine silver. As against these purchases, the Treasury was authorized to issue Treasury notes, which were to be considered legal tender in the payment of import duties, and which could form part of the reserve of the National Banks. It was left to the discretion of the Secretary of the Treasury to repay the notes either in gold or silver, which virtually amounted to a payment in gold. For the same Sherman Act also contained a clause to the effect that the United States Government meant to maintain the existing ratio between gold and silver at 1 to 15.9884, or, let us say, 1 to 16. If the Secretary of the Treasury, therefore, had ever refused to give gold for the notes, if he had ever attempted to change them for silver, he would have admitted officially what the Government had always avoided, namely, that in the eyes of the Government the ratio between gold and silver was no longer on the basis of 1 to 16. Virtually, therefore, those Treasury notes became gold notes, and the sellers of silver to the Government, under the Sherman Act, were paid in gold ; that is to say, they really sold their silver at the rate of 59 pence (ratio of 1 to 16). "Whilst it lasted, it was not a bad business for the mine owners, and it led, of course, to a rise in silver. In March, 1890, the white metal was still quoted 43f , but it then jumped to 50^ in July, and to 54^ in August. In September, the top price was reached, namely 54f ; it subsequently re-aoted to 48|- in October, and even to 45 in November, in consequence of offers on German, Eussian, and Eoumanian account. It was easily understood in those countries that the determination of the United States Government to maintain the price of silver by artificial means could not possibly succeed, and that it was wise to profit h\ 14 the abnormally high prices to sell out. Consequently the price of silver declined to 43^ in 1891, and in the Spring of 1892, it fell to 39d. Matters commenced to assume an ugly look, and it was perceived that things could not last. Yet the silverites did not give themselves up for lost altogether, and they determined to make a final effort to rehabilitate silver. By the desire of the American Government an International Monetary Conference was again convoked, this time at Brussels. But like its three predecessors held in Paris, one in 1878 and two in 1881, it remained without result. What is more, as if to dissipate more completely any illusions America might still have, the Indian Government suspended, on the 26th of June, 1893, the free coinage of silver in British India. This measure gave silver a severe shock. Before its announcement the price still was STJd., but, in a short time it tumbled to 35, 34, 32, SO^d. In the United States where the gold reserve had fallen more and more below the fixed minimum of one hundred million dollars, the long-expected crisis at last burst, and a panic followed, which is still being talked about in the present day. The well-known author, Mr. Allen Eipley Foote, estimates the losses, occasioned by that crisis at more than two thousand millions of dollars. The catastrophe was indeed a terrible one. According to an official statement, dated July 27, 1894, no less than 585 Banks and Trust Companies had to suspend payments, their liabilities aggre- gating 180 million dollars, whilst 5,000 smaller establishments failed, and 11,000 failures were recorded. And when, in consequence of their bad and reckless management, several Eailway Companies collapsed in July and August, at a time when the crisis was most ■ acute, the fall in American Eailway securities assumed unprece- dented dimensions, inflicting enormous losses upon the European holders. Fortunately, the undoubted common sense of the majority 15 of the American people at last prevailed. The President oi the United States, and the majority of the House of Eepre- sentatives at Washington, saw that the disastrous silver policy- must cease, or fresh calamities would ensue. They _ came at last . to the conclusion that they could not go on enriching the owners of silver mines at the expense of the Nation and the Lower House, thereupon, by a vote of 239 against 110, passed a law repealing the Sherman Act. And on the 30th October, 1893 , the American Senate concurred with that decision, although in a somewhat modified form. This gave breathing time. But although numerous banks resumed their payments, and many industrial undertakings recommenced to work ; although part of the gold that had been hoarded during the crisis came again into circulation, the wounds inflicted by the disasters were far too serious to be healed in a short space of time. The Eate of exchange was, as always, the true barometer of the situation. The protectionist policy of the United States had seriously retarded the development of her international trade, whilst her silver policy had raised doubts in Europe as to whether America might always be able to discharge her obligations in gold. The desperate condition of many American Eailway Companies caused sales of their securities by dispirited European holders, and last, though not least, produce prices remained at a low level.. Everything, in fact, seemed to conspire to further intensify the un- favourable economic condition of the country, to cause the rate of exchange to remain against America, and to render possible continuous exports of gold to Europe. The latter, indeed took place, upon a verylarge scale. According to the report of the Director of the Mint, the excess of exports over imports of gold in the United States in the fiscal year ending June 30, 1894, amounted to ;^4,172,665, and for the same period of 1895, ^30,117,376. The gold exports to Europe since that date may be safely reckoned at about 75 million dollars. Let me 16 here interpolate the remark that these large gold import's contributed to supply the Governments of Eussia and Austria with the necessary yellow metal to carry out the intended abolition of forced currency, without disturbing the international money market. The incessant drain of gold from the United States not only demonstrated the unfavourable economic condition of that country, but also proved that the burden imposed upon the United States Treasury of securing at all times the exchange for gold of 1^346,000,000 greenbacks and of ^141,092,280 Treasury notes, issued against purchased silver (in accordance with the Act of July 14, 1890), was far too heavy a one, with only a gold reserve of One Hundred Millions. It must indeed be self-evident to any- one that the proportion of but One Hundred Million Dollars in gold to 1^487,773,296 in notes, viz. of not more than 20f per cent. is much too low to furnish a guarantee to the public and to the commercial community, that the said notes would at all times be exchanged against gold. That is not all. With us in Europe, whenever gold is required of a Bank of Issue for export, the governors of such establishments have the power to protect their gold reserve by raising the rate of discount. Such an expedient may not always be generally approved, but experience has undoubtedly shown that a prompt and adequate rise in the rate of discount is the most effective way of forcing the rates of exchange below the gold point. But how is the United States gold reserve to be shielded ? The American Treasury, not only does not discount any bills, but it is even compelled to put into circulation again every note exchanged for gold, whilst it is well-known that the Bank of England and other Banks of Issue destroy every bank-note, once it is paid. It is obvious that the United States Treasury is powerless against demands for gold on a large scale. It cannot seek to modify the tendency of the rates of exchange by raising the rate of discount ; it cannot protect Itself in any other way against gold exports. It has to allow its 17 gold to be taken away. If in consequence of this; the gold reserve should fall below the adopted minimum, the Government has no other resource but to sell United States Bonds for gold, thereby increasing the National debt ; or to obtain ^old through bankers' operations. Experience has shown that these systems work unfavourably. On many occasions, latterly, Cleveland, the actual President of the United States, was obliged to issue new State loans, or to sanction exchange operations with Bankers, in order to maintain the gold reserve at the adopted minimum ; more than once the reserve went much below that minimum. In January, 1894, it fell to 65 millions; in August following to 55 millions, and in January, 1895, even to 44 million dollars. No means indeed existed other than those named, to enable the Government to strengthen the reserve. This only shows more forcibly how badly the law works, which enacts that notes once paid, can be put into circulation again. It happened several times that the Treasury had scarcely received the proceeds of United States Loans when it had to part with a portion of them again in exchange for the very notes that it had already redeemed. Is it then surprising that the United States Government, under such circumstances, sought to devise methods to remedy a legislation, which thus violated the first principles underlying' a sound financial policy ? Is it surprising that Cleveland wanted to put an end to the continuous exhaustion of the gold reserve ; that he became reluctant to resort to the same artificial measures to maintain the latter ; that he proposed to Congress to retire the United States paper debt of thirty years ago, the 346 millions of greenbacks ; that he desired to contract the paper currency ; that he wished to introduce proper proportions between the National Currency, consisting of gold, silver and paper money, and the wants of the whole population ? 18 On August 1st, 1896. that circulation was composed as follows : — Amount. In the Treasury. In Circulation. Gold 564,665,228 119,371,284 445,293,944 Silver Dollars 431,852,041 879,852,244 51,999,797 Subsidiary Silver ... 75,667,706 16,004,145 59,668,561 Greenbacks 346,681,016 109,270,478 237,410,588 Treasury Notes 128,343,280 34,394,748 93,948,532 (Act of July 14, 1890) Notes of the National Banks 226,080,042 11,933,422 214,096,620 Gold Certificates 40,687,189 1,393,710 39,293,479 Silver Certificates ... 344,032,504 12,375,838 331,656,671 Mint Certificates 42,150,000 610,000 685,205,864 41,540,000 Totals 2,200,109,006 1,514,908,142 On the 1st of August, 1896, the population of the United States was 71,548,000. Therefore, the above circulation is equal to .18 per head, which appears to be very high. The above figures show that paper money and silver play a prominent part in the United States currency. Cleveland, there- fore, acted entirely in the interest of his country in proposing the withdrawal of the greenbacks, not only because the stipulations concerning the exchange of notes for gold constituted a permanent danger to the Treasury, but likewise because the Government was compelled to go beyond its province. A Government may issue loans, it may undertake the coinage, but it must never attempt to play the part of a Bank of Issue. Such a task it ought to delegate to an independent and strong establishment which, if well managed, can but tend to the well-being of the country. But State inter- vention in currency matters is most dangerous. By repeatedly binding itself to maintain a ratio between gold ami silver of 1 to 16 ; by charging the Treasury with the exchange of greenbacks against gold, the Government has assumed a responsibility, the pernicious consequences of which show themselves every day. 19 Besides, the 346 million dollars in greenbacks already mentioned constitute a currency which can neither contract nor expand, which must remain stationary, and which, therefore, does not fulfil the main condition of a sound currency any more than the- circulation of the National Banks, viz., the condition of being elastic. The withdrawal of the greenbacks remained so far within the scope of the pia vota. The inflationists contrived to get Cleveland's Bill rejected, and everything therefore remains as of old. The position of affairs is consequently still uncertain and unfavourable. It is uncertain, because no one knows whether it will be found possible to go on exchanging greenbacks and Treasury notes against gold, and it is unfavourable because the constant renewal of the gold reserve, by means of foreign loans, or of operations with bankers, must necessarily press hard upon a budget which has a perpetual struggle against deficits, as the consequence of diminished Customs' receipts, due to pro- tectionism, and as the consequence, also, of the exorbitant demands made by Congress. This Congress is mainly composed of Eepublioans and other opponents of Cleveland, who are constantly allowing new grants, without taking the less prosperous condition of the country's finances into account, thereby frustrating Cleveland's endeavours to balance the budgets. Moreover, the Debt charges had increased following upon an increase of the National Debt, occasioned by the issue of loans, the proceeds of which were, as I have already shown, used for the strengthening of the gold reserve. The budget of 1885 still showed a surplus of ^111,343,273, that of 1889, a surplus of ^87,961,080, that of 1890, a surplus of ^85,040,271. But the budget of 1891 already betrayed the unfavourable consequences of the McKinley tariff, which had come into operation on October 1, 1890. It showed but a surplus of J26,838,541, compared with- a surplus of 1185,040,271 in the previous fiscal year. The following budget year had only to boast of a surplus 20 of ^9,914,453, which further shrank in the following year to 12,341,674. As from that moment, the United States Minister of Finance could exclaim, like his predecessor in the French Parliament, the Baron Louis: — " Gentlemen, you see that surplus. Well, you should look at it most intently, for you will not see another very soon again." The golden times, in other words, were over for America as for several other countries, when budgets showed a surplus. The period of deficits had now set in for the United States. The import duties which yielded ^223,832,742 in 1889, had fallen to |1131,818,530 in 1894, at a time when the McKinley tariff was still in force. He had meant to damage European competition by higher import duties. He had succeeded, but at the expense of the Treasury, which collected less duty because imported goods had diminished. In the fiscal year ending June 30, 1894, the budget indicated a deficit of ^69,803,260. The abrogation of the McKinley Act followed on August 28, 1894, and a more liberal tariff took its place, under which the import duties commenced to increase again. In the fiscal year ending June, 1895, they had risen to ^152,158,617, and in the budget of that year the deficit was reduced to ^42,805,223, whilst it amounts to ^^25,203, 245 in the current fiscal year ending June 30, 1896. Probably the latter deficit would have been even less but for the increase in the Debt charges, as a consequence of the new loans, to which I have already referred. In 1894 the said Debt charges were ^27,841,406 ; in 1895 they had risen to |i30,978,030, whilst they amount to |!35,386,488 in the current fiscal year. The pensions, granted to those who have distinguished them- selves during ihe great Civil War, still play an important part in the expenses of the nation ; they are truly enormous. 21 Prom 1872 to 1879 the annual amount required for State pensions was only 30 million dollars. In 1889 they had gone up to 87 millions, in 1895 to 141 millions, but this year they have decreased somewhat (to 139 millions) as a consequence of many old veterans going over to the majority. As regards the National Debt, at the end of the Civil War in 1865, it amounted to 2,674 million dollars. Gradually it was reduced, so that it aggregated 2,090 million dollars in 1875 ; 1,375 million dollars in 1885 ; 9.75 million dollars in 1889, and but 852 millions in 1893. As from that date, the improvement ceased, as I have already shown. By the issue of the new loans, the sum total of the National Debt rose again to 913 millions in 1894 and to 946 millions in 1895, whilst by the end of September last it had once more reached ^980,303,230.80. What a difference this marks with those days, when the budget closed with a surplus of over One Hundred Million dollars, when the Secretary of the Treasury, not knowing what to do with the gold that came streaming in to him from all sides, paid the coupons of the United States Debt before they had matured, and invited the holders of the United States Bonds to make him offers for the sale of the 4| per cent. Debt, and paid it off with a premium of ten per cent. Gentlemen, the history of nations can be read in their budgets. The national glories, but also the national mistakes, are mirrored in the budgets. After the fat years then came the lean ones, which were the result of Uncle Sam's temerity, thus demonstrating once again that it is one thing to be wealthy, quite another to be strong and wise with the wealth. Uncle Sam, by his exaggerated protectionism, by his frantic endeavours to keep up an abnormal price for silver, has made the financial position worse, has increased the evil consequences of a wrong-headed currency system, and has flooded 22 the country with vast quantities of silver, which, at market prices, would inflict serious losses. According to an ofiicial statement, made by Mr. E. Preston, Director of the Mint, on July 21, 1895, the follovring quantities of silver were purchased by the United States Government : — Ounces fine at a cost of Under the Bland Act 291,272,018-56 ||!308,279,260-71 (February 28, 1878). Under the Sherman Act 168,674,682-53 155,931,002-25 (July 14, 1890). Total 459,946,701-09 TS'of 11464,210,262-96 The silver bought under the Bland Act, therefore, cost 111 -0583 an ounce, on an average, and the silver brought under the Sherman Act ^0-9244 an ounce. Silver stood at ^0-69212 an ounce on July 1, 1895. Therefore the quantities of silver purchased by that date represented a loss of ^145, 871,952-25, as compared with the actual market value of silver, or even a greater loss, taking silver as it now stands (^0-6525). It might have been reasonably expected that an intelligent nation like the Americans would now turn over a new leaf, after all the sad experiences of the past in fiscal matters ; that they would now see the ruinous folly of their silver craze, and would try to end this protectionist policy, and endeavour, by means of wiser economic laws and strong measures to place their paper currency upon a sounder basis, to balance their budgets, in a word to remove all obstacles to the development of a country so naturally wealthy. But the still numerous friends of America who have reasoned thus, must have been sadly disappointed that neither the candidate for the highest position in the State of one party, nor the candidate of the other party, says a word about these financial reforms. McKinley speaks again of raising the tariff in order to protect S3 nsitibnail industry. And their disappointment cannot have been lessened by the fact that his greatest opponent is Bryan, the advocate of free silver coinage, whose paramount ambition it is to lower the United States, whose credit, notwithstanding many crises is still first-class, to the level of a silver nation. And this at a moment when all the great commercial nations of the world are basing their monetary systems upon gold as the one metal that best answers their requirements, recognising that a well regulated currency should not be subject to heavy fluctuations. England, Germany, Scandinavia, and Eoumania have already possessed the gold standard for a long time. Austria and Eussia have made careful preparations for the abolition of forced currency upon a gold basis, its accomplishment is merely a question of weeks, of days. Even Japan, the foremost commercial nation of the future in the Par East, is concerting the necessary measures to follow suit. And it is at such a moment that a Bryan, supported even by quasi serious people in America, is thinking of forcing the United States into the free coinage of silver, of proposing that the dollar shall henceforth be based upon the commercial commodity silver. In that case the lessons of the past, the fruitless sacrifices of the Americans to maintain the ratio of 1 to 16, and to discharge its liabilities in gold, have been wasted. It would be again a splendid future for the owners of silver ; a magnificent prospect for the silver Kings ; but, a sad destiny for the United States. The present agitation in favour of free coinage of silver is not entirely new. Already in 1894 the silverites attempted to force through a measure with that object, but Cleveland frustrated their efforts by Hs strong opposition to them. Experience has told us, that in America the silverites never lose courage. Beaten in Congress, they brought on the same Free Silver Bill in the Senate, among whose numbers were several silver Kings, and there 24 they succeeded in carrying it, in February of this year, bj a vote of 42 aga,inst 35. Of course, the Lower House again threw the Bill out with 216 against 91 votes. But now the American Democratic party, as we know, has adopted free coinage of silver as the main plank of its platform. That Party does not merely consist of silver mine owners, but likewise includes the population of the silver mine districts, mainly labourers, who think that their wages will be higher the moment their employers get a better price for the white metal. But not only those who have a direct interest in the rise of silver advocate its free coinage, many farmers also support the latter, under the theory I have already mentioned, that higher prices for silver mean higher prices for grain, thereby enabling the farmers to pay off the debts wherewith they have become, saddled, in consequence of the decline in agriculture. These grievances of the agriculturists, are not new to us, Gentlemen. , Until a few weeks ago, they have . been heard all over Europe; and it follows then, that the usual stage representation of peasants, male and female, dancing and singing, is anything but correct. Agriculture, that backbone of a country's prosperity, has indeed passed through evil times lately. The debts of the American farmers, however, date from the seventies, when girain prices stood high, and when farming was in a prosperous condition. The farmers then executed mortgages upon their lands, on the strength of high prices for grains, never thinking that a lower range of prices might follow upon a higher range, by a natural reaction. That reaction, you are aware, had assumed serious dimensions until a few weeks back. In America, the sad condition of the farmer had become the more conspicuous, because the greatest prosperity of American agriculture was attained immediately after the great Civil War. At that time the United States had paper money, and. the price of the dollar was about 40 cents in gold. All debts in those days were, therefore, contracted for in paper money, worth less than gold coin; consequently, when paper dollars, by the resumption 25 of specie payments on January 1, 1879, had become equal to gold dollars in value, this . meant to all those who had contracted debts in paper dollars, when the gold premium stood high, a very serious increase in their liabilities —in many cases a duplication of them. In other words, those who had borrowed 145 dollars in greenbacks at the time when they represented 100 dollars in gold, owed 145 dollars in gold after the resumption of specie payments. All this might, of course, have been avoided if the said resumption of specie payments had taken place, not upon the basis of the original value of the dollar, but upon the basis of the price of the day for paper money, as Austria and Eussia have done. The dissatisfaction of the American farmer can be easily understood ; but if he thinks that free coinage of silver will raise the price of his corn, then I am afraid this illusion of his will not be realised. I am well aware that many, not only in America, but likewise in Europe, see an intimate connection between the price of silver and that of cereals. The last rise of the latter against a fall in silver proves that these illusions are not confirmed by facts. To my way of thinking, the prices of grain are entirely independent of those of silver. They are all determined by demand and supply, like those of any other commodities. The fact that America has been able, these last weeks, to sell her cereals at a higher figure is due to deficient crops in Eussia and British India, also to a less fierce competition from Argentina. In Argentina there exists neither a gold nor a silver standard, but only paper. Last year, for one hundred gold dollars, one could obtain as many as 337 paper dollars. Since then, the gold premium has reacted considerably, because there has been a marked material improvement, and the Argentine exporter now gets from the buyers in Europe but 280 paper dollars for S6 every hundred gold dollars. Obtaining less for his money in Europe, he was obliged to raise the price of his wheat, and, in doing so, he could no longer compete with America. No longer threatened by competition from Eussia and British India, and the competition from Argentina having subsided, America could export cereals to Europe upon a large scale. But not only cereals, all manner of produce, and especially cotton, have risen in price, and America became a large seller. As we know, we import from the States, every jeax^ cereals, cotton, petroleum, metals, and, formerly on a larger scale than now, also American Eailway Securities, whilst we send, on the other hand, to the States the coupons of those securities for encashment, and manufactured goods. The balance of trade is also affected in our favor, in consequence of the many American tourists who visit Europe every year. Mr. Carlisle, the American Secretary of the Treasury, has calculated that 120 million dollars per annum is spent by those tourists, while Mr. Heidelbach thinks they spend only 75 million dollars. Yet even the-reduced amount cannot be considered trifling. The freights which European ships, more particularly English bottoms, obtain in America, are also an important factor. According to the report just to hand of Mr. James A. Donelly, the acting British Consul at New Orleans to the Marquis of Salisbury, dated September 9, 189C, the goods imported by America from Europe in the year ending 30th of June last, amounted to £160,764,820, against £150,925,643, in the same period of 1895, whereas America exported to Europe : In 1895 to the value of £166,502,578, and „ 1896 „ „ £181,980,665. The goods shipped by Europe to the States in 1895 were sent in American ships only to the extent of £22,315,367, in European (mostly British) bottoms, to the value of £121,764,511. In 1896 these figures were £24,181,936 and £129,256,070 respectively. 2? On the other hand, America sent her goods to Europe as follows : — 1895. 1896. In American Ships . . . . £12,840,727 . . £14,509,927 In European „ (mostly English) £143,289,311 .. £154,862,246 It is obvious, therefore, that freights form a very important element in the balance of trade between Europe and America. The statistics concerning imports and exports, quoted by Mr. Donelly, also show that the balance of trade was already tending in favour of the States on June 80, 1896. It should be kept in view, however, that imports and exports are only parts of a much greater whole, and that it is given to nobody to know that greater aggregate in all its details, for these statistics mention neither freights nor transactions in securities, coupons, &c. I repeat therefore, that, a trade balance never contains complete, consequently reliable, figures. These statistics show that America has advanced during the last few months. For nine months, ending September, 1896, America imported less to the value of ;|1143,971,24:2 than she exported, a great difference compared with last year, when American imports exceeded exports by |^43j000,000. Under these circumstances, it was natural that the rate of exchange should tend in favour of America, should fall to a point at which the export of gold to the States would become profitable. America was namely a large exporter of produce, the sending of which necessitated the drawing of numerous bills on Europe. Europe, on the other hand, had but few articles to send in exchange for the produce received, consequently few bills to draw on America. Hence Europe had to pay America in gold. England has upon this occasion, like upon many previous occasions, played the part of cashier for all Europe, and the Bank 28 of England almost alone has furnished the M?hole of the gold required to piy America for her goods. On the Continent rates of exchange have tended against England for a long time, and as therefore, no financial help arrived from either Berlin, Paris, or Amsterdam, it was almost England alone that remitted the necessary gold to the States. It was these remittances in gold that have forced the Bank of England to raise its minimum rate of discount, from 2 to 4 per cent., within a very short space of time. Gold usually leaves England for America, whenever the exchange on London reaches ^4'84 per pound sterling, whereas Europe exports gold from America whenever that rate is Ji4-90. Clever arbitragists naturally find it possible already to operate within fractions of the stated rates, but for the general public they may suffice as a guidance. As a matter of course, so large an export has not remained without its influences upon the American money market. This is clearly proved by the last weekly statements of the Associated Banks of New York. The said statements constitute for the commercial world the barometer for gauging the condition of the American money market. As I told you in the. beginning of this paper, the Banks of the Eedemption Cities, to which the Associated Banks of New York belong, must keep 25 per cent, of the deposits in legal tenders, that is to say in coin or greenbacks. If such a reserve does not exist, the Banks have to contract their engagements, until they can show such a " cover '' again, as indicated by the Law. If the weekly statements aforementioned show that the establishments dispose of sufficient means beyond the 25 per cent, then the position is normal, but if the desirable resources are not existant, or are only existant to a limited extent, the Banks are obliged to reduce their commitments, and money becomes dearer. T-his state of afifairs usually happens towards the end of the year. The wants of the interior then make themselves felt, for crops have 29 to be garnered and to be forwarded to the different ports. The provincial banks whicli usually have large sums on call in the chief banking centre of the States, viz., New York, begin at that period to draw back their surpluses from the Association Banks, and this, of course, influences the general situation. The greater demand for money in New York, which is occasioned by. the operations referred to, presses upon the exchange, and the more so, when bills on Europe are drawn immediately after the exports of produce. This circumstance has again now happened, as I have already indicated. Large amounts of gold have consequently arrived in New York, or are on their way thither. The large imports of gold into America cannot of course fail to exercise a favourable influence on the general condition of affairs, particularly on the gold reserve of the Treasury, and in the resources of the Banks, both of which will show much more strength soon. For the moment, gold is still being transacted with a small premium, as many people, looking towards the possibility of Bryan, the free Silverite candidate, being elected after all, are hoarding gold, but every day the telegrams from the other side point more and more towards the victory of McKinley. Still, America is the land of surprises, and so long as the actual election has not taken place, it will be wiser not to be too optimistic as to who will remain the victor in this struggle, so important for the United States and the whole world alike. For the rest, the triumph of McKinley cannot be altogether palatable to us, friends of free trade, and living as we do in a country which owes by far the greater part of its prosperity to the maintenance of free trade principles, but with' the election of McKinley the crisis at least will be avoided, which would break forth when at - the moment Bryan was elected, the holders of greenbacks and treasury notes were to present them at the Treasury for payment in gold. If such an event were to occur the resources 30 of the Treasury would soon be exhausted, and it would not even be able to exchange all greenbacks and notes presented. The con- sequences then resulting it would be impossible to gauge. In no case could the free coinage of silver be immediately commenced, even if Bryan were to be elected contrary to all ex- pectations. First of all President Cleveland will remain in power till the 4th of March, 1897, and the new Congress will not meet before the end of December of next year. Even if the President elect were to convoke an extra session of Congress before that time the discussions, which would truly be more important than ever, would take weeks and weeks before a conclusion was reached, and it is highly improbable that any result could be attained before the end of 1897. But, in the meantime, what a strain for the holders of debt contracts in America, for the holders of policies in American Life Insurance Companies with their many ramifica- tions in Europe, and for all who have any business relations with America. Bryan may pledge himself to discharge all debts con- tracted for in gold, in the yellow metal, but the question is, whether his party, flushed with victory, would allow him to do so. Besides, how could Bryan effectuate the necessary payments in gold, if the Treasury became denuded of that metal by incessant payments for greenbacks and Treasury notes ? Would he, in that case, resort to loans or to bankers operations, after having criticised so sharply that mode of increasing the gold reserve ? Such questions most naturally arise within us at the present moment, but we had better not go too far. The future to all is a sealed book, but seeing that the election of McKinley is nearly certain, we should rather look at the results of such a choice. McKinley will also require the sanction of Congress in order to carry out his protectionist plans, and we cannot take it for granted that the American Parliament will be induced so easily to adopt once more a fiscal policy for the States, which has had such a paralysing effect on American trade and industry, such a disastrous influence on the national budgets, 31 We have already seen that a President's proposals do not always meet with a ready acceptance in Congress ; on the contrary, more than once they have been rejected, and it remains our fervent hope that the new American Congress will have enough patriotism, enough power and energy, to defeat a poUcy which may enrich a few but which must damage the bulk of the Nation materially. A much nobler, a much more comprehensive, task awaits that Congress than the mere patchwork of eternally raising the tariffs, namely the reform of American Banking and of the paper currency, by placing both upon a safer basis than at present provided ; also the removing of all obstacles which still impede the economic development of the United States, that grand and wealthy Eepublic of the New World. No headstrong policy against Europe, against England, who has contributed so much towards American prosperity, no trying to be in- dependent quand meme in financial and monetary matters, but a desire to bring National Finance in harmony with the Nation's resources, to diminish expenditure, to reduce budgets to the level of the period, when they closed with a good surplus, to place the monetary system upon a sound basis. Such the task which the New Congress will be called upon to fulfil. There should be no further interference by the State in currency matters ; these should be entrusted to a strong central Bank of Issue, with its chief offices in the leading centre of American Finance, New York, and with agencies at Chicago, San Francisco, Boston, Philadelphia, etc. No doubt the trade of America is very large, and this is proved already by the returns of the Clearing House at New York, which often outstrip those of the London Clearing House. American commerce and the whole American people have a right to insist that the sword of Damocles be at last removed from above their Treasury ; that one and all shall be assured that the notes and greenbacks which they received, shall at all times be exchangeable for gold, without the necessity. of increasing the National Debt, or of invoking the assistance of bankers, without causing anxiety the whole world over. Should it be found that the formation of a Central Bank of Issue is impossible or difficult, owing to the jealousies existing between the different States of the Union, then, in that case, the National Banks should be re-organised, by granting to them that elasticity in their note issue, which is in harmony with the requirements of trade and industry. Would that the undoubted common sense of the American people, that the patriotic and combined action of the leading citizens of the great Commonwealth, were to initiate the reforms which circumstances require ; that the work were taken seriously in hand immediately after the elections, so that American finance and American currency might be settled upon a firm and sound basis within a measurable period, and in order that the United States should continue to occupy an honourable place among the principal commercial nations of the world, and participate in the great economic developments which are taking place in the Far East. I have now reached the end of my task, and it remains for me to thank you, gentlemen, for the kind and undivided attention with which you again have followed me. It will indeed be an encouragement for me to continue to appear before you to speak on the economic and financial problems of the day. Those problems and questions, gentlemen, are more and more coming to the fore ; more and more they require to be carefully examined. But they offer, also, more and more points of view, and more and more they contribute to the enlightenment and experience of those who make them the subjects of their special studies. It is obvious that much time is required for a careful treatment of the financial and monetary affairs of the United States, and I am afraid that I have had to trouble you with many figures. Yet, I have tried to bring some interesting matters before you in as popular and clear a manner as I could. And if I have succeeded, I shall consider myself fully rewarded for the time and pains I have bestowed upon my task. Smith & Ebbs, Printers, Noi'thnmT>erland Alley, Fenchurch Street, London, E,C.