This does not give the true effect upon the bank, for there is a large internal movement to be considered. The par of exchange between London and Paris is 25.224; with Germany 20.43, and with the United States 4.867. A fraction above these rates will bring gold to London, and a variation on the other side will take gold from London. In the six months July to December, 1894, the exchange in London on Berlin and Paris ruled low, and gold went to these centres; in the succeeding six months the rates ruled high, beginning with the month of February, 1895. The course of exchange with the United States can best be studied from the rates in New York on London. Before passing to this, attention may be called to the distribution of gold in the leading State banks in Europe, of especial interest as showing the remarkable accumulations.

THE REAL CAUSE OF TROUBLE IN THE UNITED STATES.

I have now shown that throughout Europe there was no condition calling for gold in such quantities as could exert pressure on the market and so act upon the exchanges; and further, that gold was accumulating in European centres at a rate almost unequaled in the past, and apparently in defiance of a trade demand. No country has experienced trouble in securing gold, and even Chili, asserting its wish to take advantage of existing conditions to adopt a gold standard, offers a gold loan of about $10,000,000, which is subscribed many times over. Only in the United States were to be met stress and anxiety and most doleful predictions for the future. All this points to some local causes requiring a special remedy.

INDEBTEDNESS TO FOREIGNERS.

In any year the United States are indebted to Europe for a large sum that has been variously estimated from $100,000,000 to $350,000,000. This item is made up of freights, money taken by tourists, interest on foreign capital invested here, etc. Exactly what the amount is can hardly be determined, and many of the estimates are so loosely constructed as to merit no confidence in their accuracy. A recent and very intelligently framed estimate places this sum at $145,700,000, and, on the evidence submitted, it is impossible not to believe it is the nearest approach yet made to solve the question. To pay this debt, commodities must be exported, or American securities given in settlement, or gold. With the great advantages offered in this country for investment of capital, it is not strange to find us indebted each year in a large sum to foreigners, or to find certain American securities obtaining a ready market in foreign money centres. Until 1892 it was generally believed this aggregate of American securities in foreign hands was each year largely increasing, and after the costly experience English and German investors (and they only have ventured largely in American stocks and bonds) had had in South American and Eastern paper, it was natural for them to take their capital where the certainty of some return was greater. Toward the end of 1892, through 1893 and during the first half of 1894, large amounts of these securities were thrown back upon us, leading to depressed markets, a crisis, and a heavy indebtedness to Europe. The extent of the movement can not be measured, as there is no system by which this silent import and export of securities can be ascertained. To the usual debt due to Europe in 1893 was suddenly added a very large sum, supposed to be between $200,000,000 and $300,000,000, due for securities returned. This doubtless contributed to the exports of gold in 1893, but could not have been of lasting influence; as confidence was soon in a measure restored, and American paper became once more acceptable in the European markets.

WITHDRAWAL OF INVESTMENTS.

Coming in a period of unrest, such a demand added greatly to the anxieties and general distrust. As the crisis for which the beginnings were laid in 1878 was known to be impending, the foreigner would take no chances, but demanded gold; while the shrewd and far-sighted business man in the United States also recognized the danger of the situation, and looked to gold for safety. A double movement ensued. Gold was required on the one hand for export, and on the other for banking reserves and even personal hoarding. The banks, free and natural commercial agents, have the power to obtain the metal and to keep it; but the Treasury, under its load of paper obligations, could neither easily obtain the metal, nor could it retain what it did get in the face of a rising demand. Any holder of a legal-tender note or of a Treasury note of 1890 (issued, be it remembered, for the purchase of silver bullion) could demand gold for it over the Treasury counter. These notes were collected in great quantities to be presented for redemption" in a crisis.

The Treasury gold was thus the only stock which could be easily obtained for export or any other purpose. I have already pointed out the condition of this gold in June, 1894, and it only remains to follow the movement through the succeeding fifteen months. The fluctuations in the stock speak more plainly of what was impending than can any words.

Under a heavy demand and rapidly diminishing reserve the Treasury had no recourse but replenish its gold by a sale of bonds. It could only use the power conferred by an act passed nearly twenty years before-the Act of January 14, 1875-when conditions were entirely different. Further, this act was a resumption measure, and the description of the bonds was fixed in 1870-a quarter of a century ago, when the interestbearing debt was $2,046,455,722, of which $1,765,317,422 were paying six per cent., and all but $60,000,000 of what remained was at five per cent. Under this somewhat antiquated law the Secretary could sell at not less than par, for coin, a five per cent. bond, to run ten years; a four and a half per cent. bond to run fifteen years; or a four per cent. bond the life of which was thirty years. For obvious reasons the short term bond promised the best results, and in February, 1894, the Treasury gold was replenished by a sale of $50,000,000 in five per cent. bonds, at such a price as to make them yield to the investor three per cent., and thus netted to the Government $58,661,000. The reserve now stood at $106,527,068 (February), and at once began to flow out, as was to be expected in the spring.

CONTINUED DRAIN ON THE RESERVE.

Instead of keeping within moderate bounds, however, the outflow grew rapidly, until in June every benefit of the loan had been lost, and the demand was still unsatisfied. Throughout July the drain was continued, and on August 7 the Treasury could show only $52,189,500 as a gold reserve. Fortunately a short spell of rest ensued, during which some gold was obtained from the banks in exchange for notes (the money needed to move the crops creating some demand for the more convenient paper), and other gold was received in payment of dues, so that in October the reserve had reached $61,361,826. The future was unpromising, and it was only wisdom to repeat the loan of February. In November, 1894, $50,000,000 of five per cent. bonds were offered, bid for three times over, and the price taken yielded $58,538,500 to the Treasury.

The subsequent events were dramatic.

In November the gold reserve stood at $105.424,569; in February, 1895, less than two months later, it had fallen to $44,705,967. A veritable run on the stock had ensued, and less than half of what was taken was for export. The rising tide of an extreme silver agitation, and a remembrance of the very recent proof of want of confidence in the ability of Government to protect its reserve, gave occasion to belief that the crisis so long anticipated was at hand. Evidently it was useless to repeat the experiences of the February and November loans, necessary and judicious as these measures had been. It was doubtful if, in the conditions then existing, a further bond sale could be negotiated except at great disadvantage to the Government. Certainly, there was no assurance that the gold would remain in the Treasury. Every circumstance pointed to the contrary. The export movement was heavy at the very time an import was to be looked for; exchanges were ruling against the United States, and in no two months had such heavy demands for gold been made on the Treasury. All this indicated an actual "panic," and every dollar of gold taken from the Treasury aggravated the crisis, and produced a "moral" effect that was harmful to a degree. Congress was appealed to and the crisis fully explained, but refused to give any assistance; and the Treasury, struggling against a deficit, and apparently weakened beyond repair, was left to its own resources. In the darkest days of the Civil War, the credit of the nation never received such a blow as threatened it in the first week of February, 1895.

THE BOND SYNDICATE.

A remarkable transaction, unequaled in my belief in financial history, was entered upon. On February 8 an agreement was concluded with a syndicate by which 3,500,000 ounces of gold were to be purchased by an issue of $62,317,500 in "coin" bonds. As an ounce of gold was valued under this arrangement at $17.80, while the true value was $18.604, the difference represented the premium paid for the four per cent. bond, making the price of the bond $104.49. For the $62,317,500 bonds issued gold to the value of $65,117,500 was obtained. At least one-half of the gold was to be bought in from abroad, and the Government reserved the right to substitute a three per cent. gold bond for the four-thirties—an operation which would save $16,174,770 in interest. But the issue of a three per cent. bond required the authority of Congress; and as that body, with a wisdom that needs no characterization, refused to give the authority, the substitution could not be made. The original agreement therefore remained unchanged, and its merits must be determined and measured by the effects it produced upon the Treasury reserve and upon the public mind.

It may be stated at the outset that the task undertaken by the syndicate had more factors opposed to its success than were in its favor. The experiment was a novel one, and not since 1860 had any studied attempt been made to regulate foreign exchanges in such a manner as to prevent a movement of gold in itself natural and to all appearances inevitable. The getting of the gold was a simple business transaction; but the retention of it in the Treasury was a complex and tentative performance, having important political as well as economic features. The summer months would naturally

call for an export of gold, as in many years past; and it was assured this export must fall upon the Treasury holding.

The excited condition of money circles, kept alive by the sudden disappearance of the proceeds of the bond sale of November, and made even more sensitive and fearsome by the attitude of Congress, was the greatest obstacle to success, for it had found expression in the rapid presentation of notes in unprecedented quantities for redemption in gold. It was necessary to allay the panic already in sight, and to so play upon exchanges as to render an export of gold unnecessary or of small amount. The Treasury was powerless to do either. The announcement of a sound financial policy was insufficient in the want of authority to act up to it. To urge such a policy upon Congress, only to be met with a flat refusal, was not calculated to restore confidence, for the deed impressed the people more than the will. As a department, the Treasury can act only with the law, and nothing was more clearly proven than the inefficacy of existing legislation to afford even a partial relief.

To call in such assistance as best promised to give relief was good policy, and has been justified by the results. What these results are may be summarized as follows: restoration of confidence, the Treasury reserve maintained, and little exports of gold in spite of exchange rates that would permit them. On the first, there is little need of proof, as it is apparent on all sides. Of the second, the following table showing the "redemptions" for gold is conclusive, and proves the immediate effect produced by the February, 1895, negotiations. Let the summer months of 1895 be set against the summer months of 1894, and the altered situation becomes at once apparent.

RATE OF EXCHANGE AND INFLUENCE OF SYNDICATE.

Finally, as to the rate of exchange; although it has ruled high, little gold has gone out of the country. The markets have been well supplied with bills by the syndicatewhenever the export of gold was imminent, and the success attained in thus manipulating or regulating the exchanges points to a source of power hitherto regarded as among the impossibilities. In April, May and June, 1894, the United States lost $45,000,000 of gold; in the corresponding months of 1895, the country gained $7,242,963. Before 1 Prepared by Hon. D. N. Morgan, United States Treasurer.

February the tendency of gold was from London to the Continent; and to London from the United States; after that month the current was changed, the gold tended toward London from the Continent, but not from the United States. Was it more than a mere coincidence, and is it not reasonable to believe that the operations of the syndicate influenced the exchanges among the nations of Europe by its control of exchange in the United States? In the first six months of 1895 exchange on London has been more in favor of that centre, and against the United States, than it had been in the corresponding months of 1894; yet there have been the small exports of $75,000 in 1895 to London in the three months of March, April and May, 1895, against $13,737,500 in the same months of 1894. Not a dollar of gold is recorded in these months of 1895 as going to France and Germany; but in 1894 France received $14,200,000, and Germany $26,600,000. Certainly such comparisons vindicate the policy of the Government, prove the success of the syndicate, and, when carefully studied, convey some idea of the novelty and magnitude of the experiment. The profits of the syndicate must be measured by the risks it assumed. Few were so bold in February to predict a successful issue; there should be few in July to carp at the agreement, or to cry out that any sum was too great to pay for the maintenance of national faith and the restoration of confidence.

THE CONTRACT AND WORK OF THE SYNDICATE.

The final payment into the Treasury by the syndicate on the original contract was made in the last week of June, and left the Treasury gold on June 30 at $107,512,362, or higher than at any monthly period since January, 1893. With that payment the

"contract" was virtually closed, and the immediate connection of the syndicate with the Government was terminated. The requirements of the terms of the contract had been fully met, except in the unimportant item of making half the deposit in foreign gold. The development of the financial situation made this requirement as unnecessary as it might prove mischievous, for every ounce of gold obtained from abroad constituted an additional obligation which must be settled at some later time. The immediate object had been attained; the Treasury reserve of gold was above the $100,000,000 mark.

The plan of the syndicate involved such operations as should render unnecessary a heavy export of gold during the summer months. To accomplish this end only two modes could be considered; (1) to meet the local needs for exchange, and (2) to sell American securities abroad in such amounts as would offset the necessity for exporting gold in settlement of this exchange. From one point of view this was only meeting natural influences with natural forces to suspend or modify their action; from another, it was an unnatural condition, created in the expectation of postponing for a time the settlement of foreign balances. Could the summer months be tided over, and the regular outward movement of gold deferred or made less than the average, that operation would tell greatly in favor of confidence. When the crops began to move, and bills for cotton, wheat and other exported produce came into the market, the demand for gold to be exported would cease, for these bills are able in a normal year to satisfy the needs of the exchange market, and turn the rates of exchange in favor of the United States. The coming forward of the crops could be anticipated, and exchange sold against this movement to be liquidated when the exports of produce began; or the securities of American corporations could be sold in Europe, as were one-half of the bonds issued to the syndicate, and exchange drawn against the sales. From February to the end of July these measures proved efficient, and would further have proved efficient but for an unforeseen contingency -the delayed movement of the crops, which did not begin till nearly three weeks after the usual time, and then proceeded so slowly as to have little effect on the exchange rates. Some bankers had sold exchange in the expectation of settling in commercial bills on exported produce, and now found the market almost bare of such bills; they demanded bills or gold, and the rates of exchange moved upward.

In the week ending July 13 the rates of foreign exchange showed the "highest points of the year for nominal rates, while those for actual business in long and short sterling have been the highest on record. Prime commercial sterling is quoted at higher