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rates than sixty-day bankers' bills ruled at during the latter part of April, when exchange was at the highest points." The publication a few days later of the preliminary returns of the foreign commerce of the United States for the fiscal year created some uneasiness, as the result showed an excess of exports of merchandise and silver over imports to the value of $102,024,254, and yet an excess of exports of gold over imports of $30,984,449. London Exchange on New York. January-June, 1895-1894.

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Rates of Exchange at New York, and Net Movement of Gold, Jan., 1894, to June, 1895.

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Rate of exchange is that for the first Friday of the month. The quotation on London is for " Prime bankers Sterling bills."

This could not be explained by trade conditions. In 1894 there was an apparent balance in merchandise and silver in favor of this country of $275,000,000, and not gold sufficient came in to offset the exports. In two years we had exported $377,000,000 more than had been imported, and gold had gone out to the amount of $35,500,000. Clearly the trouble was financial, not commercial.

At the end of July the situation of the exchange market was strained. The syndicate had sold exchange freely to such as needed it, but had not met all the demand.

There followed some demand for gold, and in the week ending August 3 an export of some moment was made, the gold being taken from the Treasury. The export continued under this pressure for exchange, but the syndicate coming forward, deposited gold in the Treasury, and thus maintained the reserve at or near the full point. In the month of July, $3,826,795 in gold was taken from the Treasury; in August, $16,563,627, and in September, $19,847,754. Yet the Treasury reserve was $107,512,362 at the end of June, and $92,911,973 at the end of September, having lost nearly $15,000,000, though the withdrawals of gold through the redemption of notes had been more than twice as great. Over and above the terms of their contract the syndicate had deposited gold to such an extent as to leave the Treasury in a safe position, and thus maintain public confidence, in the face of a demand which might easily have developed into a crisis through the exaggerated fears of the timid. This was in itself a great gain and had been very cheaply purchased by the Government. The widespread disturbance, financial and commercial, which would otherwise have been precipitated, is one of the heaviest penalties the body social can suffer for "playing" with the circulating medium; and the effects are not only felt for a year, but for a generation. In "sound money" alone is safety to be found. In the last three months, then, there was a slight recurrence of gold exports, readily explained and due to natural causes. In July the net exports were $3,296,067; in August, $15,133,175, and in September $16,674,609, making a total of $35,103,851. At this writing (October) the situation has changed. Crops are coming forward, commercial bills are "making" exchange, and the rates of foreign exchange have fallen below the exporting point of gold. The crisis has been met, its action modified and the elements of safety now outnumber those of danger As a financial operation, the assistance obtained by the Government from the syndicate has been great in the immediate results--incalculably great in its indirect results.

THE PROBLEM NOT YET SOLVED.

So far as the Treasury is in question, the problem has been solved only for a time, and it must again come up for a determination. The fear of silver excess is removed by the repeal of the purchase acts and by the waning of the silver movement. Agitation there will always be, at home and abroad, until some international agreement either "makes a place" for silver on some basis, or proves the impossibility of any general experiment in favor of that metal. One great source of anxiety has thus been set aside, and need not again be introduced, unless either party again "compromises" with silver. There remain other factors of mischief. So long as the business of issuing a credit paper circulation is performed by the government, and this has become by act of Congress and by decision of the Supreme Court a recognized part of the financial system, so long must a reserve be kept against that issue. It must further be a reserve far larger than any ordinary banking concern carries, and even were it three times the present amount, it would still be too small for reasonable safety. Ricardo believed he had devised a circulation which would need only five per cent. in specie to preserve its credit and redeemability. The national banks are required by law to maintain a "reserve" equal to 25 per cent. of their circulation and deposits; but the Treasury finds one of nearly 29 per cent. unsatisfactory. In ordinary times the limit of Ricardo would be sufficient, for specie enters into the settlement of balances to an even less proportion than in his day; so the waste of keeping 29 per cent. is great, and, as it is now kept, constitutes a demand for gold by the side of which the demands of Europe are small and easily satisfied.

The amount of gold in the country was estimated to be on July 1, 1894, $627,293,201, of which $131,316,471 were in the Treasury; $190,635,167 in the national banks, and $305,341,563 in the private banks and in the hands of individuals. The banks may command what gold they wish, as they are free to so discount as to bring gold to them when needed. A private individual is also free to buy or sell gold according to his need, and it is safe to say his needs will not be large save in a period of uncertainty. But the Treasury has not this command over its gold; it is obliged to " redeem" on call its notes, and this process is anything but redemption. A demand note is paid in gold, and, instead of being canceled as paid, retains its full quality as a demand note, and as such again enters into circulation to be again "redeemed" for gold. A legal-tender or a Treasury note of 1890 is considered to be as good as gold, and is sc just as far as the Treasury has gold to meet it. They are held by the banks as reserve, and, when a demand for gold arises, they are presented at the Treasury counters, as the experience of the last two years proves; the legal-tender and Treasury note are thus a standing charge against the gold reserve. Both forms should be

retired.

LOCATION OF CURRENCY INFLATION.

In July, 1878, the condition of the currency in circulation was what it had become through war legislation. Nearly equal amounts of "greenbacks" and national bank notes, a little gold circulating on the Pacific coast, and fractional currency and subsidiary silver, gave a total of $729,132,634. The "fiat" money agitation had been met and the resumption of specie payments assured. There was a greater quantity of money in

circulation than at any time since the country had been flooded with notes of state banks, and greater than had been needed to carry on the exchanges through the years of kite-flying and speculation which ended in the panic of 1873. In short, the circula

tion had been tested in fair weather and in foul, and found not wanting.

In July, 1895, there was a total circulation of $1,604,131,968, composed of the following elements:

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The increase in the gold since 1879 is ample proof that the country can obtain that metal in any needed quantity under natural conditions. The mere increase in that element of the currency would have been sufficient to meet all the demands of trade. In 1879 the average daily clearings at New York were $82,015,540. They touched a maximum in 1881 with $159,232,191. In no year since has there been such activity, and what was sufficient currency in 1881 should have been sufficient in 1894 to meet everything except the extraordinary demands in the spring and fall. The circulation of 1881 ($1,114,238,119) represented an increase of more than 50 per cent. over the money of 1878, and it accomplished more than twice as great exchanges as $1,660,808,708, an increase of 50 per cent. over the circulation of 1881, accomplished in 1894.

Dangerous experiments may be made in currency without immediately entailing the expected results. If it be granted that the silver circulation (standard dollars and silver certificates) has been absorbed by the country without disturbance, the same concession cannot be made to the Treasury notes of 1890. The silver certificate replaced the retiring national bank notes; with gold it has supplied whatever real need there has been for additional circulation; it has in part found legitimate work to do. Not so the Treasury notes. Issued in payment of pig silver, redeemable in gold on demand, it has been a vagrant paper, turning up only when it can do mischief, and with the greenback constitutes a menace to the gold reserve of the Treasury. With the first issue of that form of note gold began to go out of the Treasury. In the trying months of 1893 $29,000,000 were presented for redemption in six months, and since October, 1891, when the first exchange for gold was made, the redemption had amounted to $76,000,000, or one-half the total issue. Every note issued under this law of 1890 was uncalled for; every note in circulation is a source of danger, and the entire issue should be suppressed. Nor is there any more excuse for the continuance of the legal-tender note. The chief claim made in its favor is that it constitutes a loan to the government without interest. It has necessitated the keeping of a reserve, which exists as idle capital, and it is the idle instrument for taking gold from the Treasury.

Had every note redeemed in gold since the resumption of specie payment been canceled, as it should have been, less than $40,000,000 of this form of note would be in existence. In other words, the country has paid more than $306,000,000 in gold on these notes, and instead of being credited for that payment, still finds itself indebted to the amount of the full issue, $346,000,000.

As a mere charge against the government the legal tender represents an indebtedness since 1879 of more than $650,000,000. Further, it violates what is an established principle of government finances, as with the Treasury note of 1890, it constitutes under existing laws a perpetual debt. The entire debt of the country is $1.729,000,000, of which $500,000,000 is a debt which has no time of maturity, and is not payable at the option of the United States. If the legal-tender and Treasury notes of 1890 be taken out of the circulation the aggregate money in circulation would still be greater than it was in 1886. There is nothing radical in such a measure.

TREASURY RESERVE.

The intimate connection between this problem of the legal-tender and Treasury note circulation and the gold in the Treasury needs no explanation. With a larger cash balance in the Treasury than at any time since July, 1891, the main constituent is paper, and gold is retained with uncertainty and difficulty whenever a moment of anxiety intervenes. This fact is brought out in the diagram, which shows the cash balance and the net gold in the Treasury at the beginning of each quarter since July, 1891. chase of gold by the issue of bonds or by the exchange for legal tenders is reflected in the lines; but every legal-tender note so issued creates, as it were, a lien against the gold, for it may be presented at any time for redemption. And in the natural process

The pur

of currency reduction, or an attempt at currency reduction-that protest against inflation which is implied in the continued redemption of notes-it is only gold that goes out of the Treasury and country. Nobody will export silver coin, because the artificial value conferred by the legal tender makes them of greater value here than in any other country. Even the demand for silver in the arts cannot affect the supply of coin, as the coin melted is worth nearly 50 per cent. less than the coin itself. The quantity of silver coin will remain as it is; the amounts of legal-tender and Treasury notes issued are invariable, for the cancellation of the latter is done under conditions which make it unusual. It is gold and the national bank notes which constitute the elastic elements of the currency. With gold on the point of export at every flurry, and with the difficulty of increasing the national bank circulation, it is easy to recognize the weak points of our currency

CHART SHOWING CASH BALANCE AND NET GOLD IN TREASURY SINCE 1891.*

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system. These weak points affect the position of the Treasury directly, and even more indirectly, by obliging it to incur new indebtedness to make good its weakness as a banking institution,

THE NEEDS OF THE TREASURY.

But if these government issues are to be continued, the Treasury should have ample power to maintain a reserve for redeeming them. No government is safe unless it has at command a revenue equal to the necessary and ordinary expenditures, and as a corollary, a revenue that is sufficiently elastic to expand to meet an extraordinary demand, or to contract so as to take only what is needed from taxpayers. To leave it exposed to a condition approaching destitution, and to so jealously guard its borrowing power as to allow only a disadvantageous and usurious loan in a time of want, are surely outcomes of an inexperienced and shortsighted policy. Such had been the national revenues that "deficit" legislation has been an almost unknown element, and what laws were on the statute books had been framed to meet such conditions as resumption of specie payments, refunding of the debt, and paper certificates issued on specie reserves. After years of an overflowing Treasury, a deficit was created almost intentionally it might seem, by destruction of revenue, and a reckless increase of expenditure. I have shown how the Treasury was obliged to have recourse to a bond issue framed in 1870; and the gold purchased in February, 1895, was under the authority of a law enacted in 1862, a year when the financial policy of the government offers much more for blame and severe criticism than for praise and imitation. In its necessity the Treasury cannot issue a temporary note-answering to the exchequer bill of Great Britain or the bons de trésor of France-a convenient instrument of finance, and not capable of abuse where publicity of operations is as great as with the United States Treasury. Some such instrument should be placed at the disposition of the Treasury, and until a permanent system of financial management, better suited to the times, is devised.

* This chart is here used by courtesy of Bradstreet's.

SOUND CURRENCY.

PUBLISHED SEMI-MONTHLY BY THE SOUND CURRENCY COMMITTEE OF THE REFORM CLUB. ENTERED AS SECOND-CLASS MATTER AT THE NEW YORK, N. Y., POST-OFFICE. Publication Office, No. 52 William St., New York City.

Vol. II., No. 24.

NEW YORK, NOVEMBER 15, 1895.

SUBSCRIPTION,
SINGLE COPIES, 5 CENTS

$1.00

Each number contains a special discussion of some Sound Currency question.

Coinage of Gold and Silver in the United States, 1792-1894, by Periods.

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INTRODUCTION AND GENERAL REFERENCES.
BANKS-NATIONAL, GENERAL STATISTICS, 1863-1895...

STATE BANKS-GENERAL STATISTICS, 1833-1863 AND 1893-4
WORLD'S BANKS OF ISSUE.

BONDS, UNITED STATES. PRICES OF. IN 1894 AND 1895.
CIRCULATION-AGGREGATE AND PER CAPITA, 1860 TO 1895 INCLUSIVE.

TOTAL COIN AND PAPER, 1860-1895...

PAPER MONEY OUTSTANDING, 1860-1895.

WORLD'S STOCKS OF MONEY, 1893...

CLEARING HOUSES OF U. S, 1893 AND 1894...

CLEARING HOUSES-NEW YORK CLEARING HOUSE, 1854-1895.

COINAGE UNITED STATES MINTS, 1792-1894, ANNUALLY AND BY PERIODS..
OF THE WORLD...

GOLD-CURRENCY VALUE OF, 1862-1878.

CREDIT INSTRUMENTS..

NET GOLD IN TREASURY AND CUSTOMS RECEIPTS, 1879-1895.

GOLD AND SILVER-PRODUCTION, 1493-1894

OWNERSHIP IN THE U. S..

IMPORTS AND EXPORTS, 1864–1895.

PRICES AND WAGES-IN THE UNITED STATES, 1860-1891.

PUBLIC DEBT OF THE UNITED STATES..

SILVER-PURCHASES, ETC.. 1878-1894.

RATIO OF SILVER TO GOLD, 1687-1894..

PRICE SINCE 1833 AND BULLION VALUE OF DOLLAR.,.

PAGE.

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