THE MONETARY SITUATION in 1897.
THE MONETARY SITUATION
G-. Iwï. BOXSSKV^AXM.
Translated from the Dutch.
Ln ynuule oeuvre (accomplie par Ja niu-
narchie en France) c'est le remplacement
des murailles qui se'pareni par les ckemins
qui rapprochent et imissent. La civilisation
moderne est un aplanissement.
Hist, ilii Cardinal dc Richelieu.
MACMILLAN AND CO., Limited
NEW YORK: THE MACMILLAN COMPANY
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Printed by J. H. de Bussy. Amsterdam.
The Presidential Election in the United States in 1896 1
The Situation in Europe 49
THE PRESIDENTIAL ELECTION IN THE
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UNITED STATES IN 1896.
In November of last year a great danger was averted from
the commercial community.
If William J. Bryan and not McKinley had been elected
President of the United States a commercial and financial
crisis would assuredly have followed of such magnitude, so
disastrous and far-reaching in its consequences, as has never
been experienced before.
This opinion was shared by the commercial centres of
America and Europe alike. The excitement and anxiety pre-
vaihng everywhere before the result of the election was known,
furnish an undeniable proof of this. With very few exceptions
the daily press and a great number of periodicals also gave
expression to the fears that were universally entertained.
AVe may ask, however, if these fears were not exaggerated.
Would the reopening of the Mint of the United States to
the fj-ee coinage of silver at the old ratio of 1 to 16 have
indeed been such a dangerous experiment? For, as a matter
of fact, this was the paramount issue in Bryan's platform,
the issue on which the whole campaign turned and which
caused such universal indignation abroad.
The subject is, in itself, of sufficient importance, to submit
it, even now that the Presidential Election is a thing of the
past, to a careful examination. We have besides, another reason
for doing so, which we will state hereafter.
A few weeks before the election there appeared in Tlie
Times ^) a letter from Messrs Close Brothers & C"^ of Chicago,
originally addressed to their London house. In this letter
they admitted that in case Bryan should l)e elected great
uneasiness would prevail, followed by a depression in business,
but at the same time they argued that the actual influence
on the state of affairs would be felt to a less degree than
the public seemed to anticipate. The Economist ~) opposed
this argument, and in a letter to the Editor of the same
paper ^) Messrs Close Brothers & C". brought forward other
arguments in support of their views.
We will make this controversy the starting point of our
The views of Messrs Close Brothers & C^ on the subject
may be summarized as follows. They claim that even if
Bryan were elected "no actual changes in the legal status of
the currency could occur for some time after the election".
In the meantime, it is true, there would naturally be a rush
on the Treasury for the gold deposited there. Now, assuming,
they wrote, that the Treasury paid out this gold as long as
the supply would last, and that this gold (with as much as
possible of the metal in circulation) could be withdrawn from cir-
culation so that later on advantage might be taken of the premium
which, in the opinion of everybody, would result from the re-
opening of the mint to the free coinage of silver, at the ratio of 1
to 16, then the immediate result of this measure would be a
contraction of the currency and consequent faUing off in the
prices of commodities. This falling off in prices would, in its
turn, cause a considerable increase in the export of all sorts
of commodities. Of course, payment would be required for
>) The Tinvs, 14»" Oct. 1896.
3) The Economist, l?'" Oct. ]896.
») The. Economist, ?'»• Nov. 1896.
these goods and as America would discontinue buying European
goods, no other payment would he possible except in gold.
Fresh imports of gold into the United States would inevitably
follow and in this case there would be, in all likelihood, an
end to the withdrawal of this money from circulation. Conse-
quently, before long the first result of the fears of the effects
of Bryan's election would no longer be felt.
And as to the subsequent results, viz. those that would make
themselves felt when the changes in the legal status of the
currency should have been brought about, it was the opinion
of Messrs Close Brothers & C^. that no more gold would be
withdrawn from circulation than could conveniently be replaced
by silver. At present, they said, there was 600 million dollars
of gold in circulation, and it would take years and years before
silver to this amount could find its way to America. And so
long as this had not occurred to the fuU extent of this amount,
America would continue exchanging gold for silver at the
ratio of 1 to 16, and a premium on gold would be out of the
question. They further added that much was said about a
probable return of American securities into the United States in
case Bryax should be elected, but as a matter of fact, this had
happened already some time before, and on a large scale too,
and it was far from improbable that a reaction would follow
in the event of a new order of things becoming an accom-
Now all these arguments are based on three hypotheses
unsupported by proofs and of which it will not be difficult
to show the fallacy.
These hypotheses are:
In the first place, that the 600 milhon dollars of gold money
that are said to be in the United States, are really all used
in the circulation;
Secondly that a premium on gold would result in an export
of commodities which could be counterbalanced only by fresh
imports of gold ;
And thirdly that the re-opening of the Mint in the United
States to the free coinage of Silver at the ratio of 1 to 16
would cause a rise in the gold-price of silver to the par of
Granted that the quantity of gold money in the United States
really amounts to 600 milhon dollars — although the correct-
ness of this estimate is called in question by many and The
Economist also refused to admit it — it is however a fact
that of this amount only a very small portion is actually in
circulation. Strictly speaking it is only in California that
gold is used as a real circulating medium. And the question
arises if in this State people would not eventually continue
making their payments in gold just as they did before when
the United States were under the regime of a paper currency.
But setting this aside, in addition to California, gold is to be
found only in the Treasury, in the banks and with a certain
number of private individuals ; in the latter case, however, it
is as a kind of reserve rather than as part of their cash.
"Now, the first question is this : Would the Treasury in the
event of Bryan having been elected, have continued redeeming
the different State- and Treasury-certificates in gold ? If not,
the Treasury might have retained the gold, even if this metal
had gone to a premium, to cover the paper still in circulation,
paying out silver only if paper was offered for redemption.
In this manner, at any rate, the banks might have acted.
And consequently, so far at least, a contraction of the
currency would not have occured. Private individuals would
probably have retained their hoards, but this would not have
affected the position. Contraction of the currency would
have occurred only in case private individuals could have
obtained gold money and ])Ut it aside as fresh hoards. It cannot
be denied however that many people would have had a strong
desire to do so, and this circumstance alone would indubitably
have been sufficient to cause gold to go to a premium at once.
But let it be granted that, whether the quantity had been
large or small, at all events a certain amount of gold would
have been withdrawm from circulation. Now^ assuming that
this amount had been sufficiently large to bring about, by itself, a
falling off in the prices of merchandise, this could only have
occurred if this withdrawal had caused a stringent money-market.
But this stringency could not have been counteracted by supplies
of gold when there was a premium on gold, which would have
prevented every body from paying it out at its par-value.
The currency would thus be reduced to the following singular
position: There would be a depreciation of the value at which
it was maintained before, owing to prospects of silver coinage
at the ratio of 1 to 16, and at the same time it would
experience a temporary appreciation in consequence of the
withdrawal of a certain amount of gold money from circulation,
which would have brought about an artificial scarcity in this
circulating medium, a scarcity which neither a fresh supply
of silver could have met (because the re-opening of the Mint
to the coinage of silver had not yet taken place), nor a
fresh supply of gold, because this metal had appreciated
even more than the circulating medium. The escape from
this singular condition of things, which would assuredly have
caused a more or less grave crisis in the money-market, would
probably have been the issue by the banks of Clearing-house-
certificates, or some similar expedient, by which the scarcity
of the circulating medium might have been met.
So far we have left one factor out of consideration in our argu-
ments viz: the return of American securities from Europe. Surely,
the assertion of Messrs Close Brothers & C^., that the movement
would have come to a termination at Bryan's election, is
utterly groundless. For let us see what would have happened.
So long as the currency in the united States was maintained
at its gold-par, every claim on this country could be realized
at the exchange of $ 4.87 or thereabouts per pound sterling,
but the dollar in the United States being made a silver dollar
at the ratio of 16 to 1, about § 10 would have to be paid in
New-York, at the present gold-price of silver, for one pound sterling.
It is obvious that in consequence, any one having a claim
on the United States — and all holders of American securities
and all sorts and conditions of people in Europe having lent
money to America would belong to this category — would
have hastened to realize that claim, if redeemable at once,
or at any rate have sold it so long as this could have been
done on not too unfavourable conditions. A sale, then, would
inevitably have ensued of American securities for European account
to an extent heretofore not experienced, and this, together
with the realization of other claims, would have caused in
Europe a great supply of bills on the United States and on
the other hand, a demand for bills in this country on Europe.
In other words the balance of payment in the United States
would have become unfavourable to a degree. And in this
condition of affairs no change would have taken place unless
in the United States the rates of exchange on England, and, as a
necessary accompaniment, the premium on gold had risen so high
as to render further operations impossible, or if there had been
a great fall in American securities, together with the inability
on the part of American debtors to meet their engagements.
It is of course difficult to conceive what turn matters
would have taken with these influences brought to bear on
them. But it will be admitted that the fear in America itself
and in all tlic European countries having commercial relations
with the United States, of a disastrous crisis as the immediate
result of Bryan's election, was fully warranted.
So much for the first two hypotheses that formed the basis
of the arguments of Messrs Close Brothers & C", and their
anticipations of what would occur, should the legal status of
the currency in the United States he changed.
Let us now examine the third part of their contention viz :
that the re-opening of the Mint in the United States to the
free coinage of silver at the ratio of 1 to 16 would cause the
gold-price of silver to rise to the parity of that ratio.
It seems to me that their arguments on this pomt are fal-
lacious in every respect.
They argue as follows: In the circulation in the United
States 600 milhon dollars of gold money would have to be
replaced by an equal amount of silver money. There is at
present no unused stock of silver. To obtain this 600 milhon
dollars of silver money the United States would therefor have
to depend entirely upon the future production of this metal.
This production they estimate at 250 million dollars annually,
aUowing for an increase that will result from an enhancement
in the gold-price of the metal. After deducting 50 mil-
lion dollars annually used in the arts there would be 200
milhons left for coinage purposes. Assuming that one half of
this amount would be at the disposal of the United States,
it would take at least six years to replace the 600 million dollars
of gold. But at the same time the annual growth of the population
and the accompanying necessity of an increase of the currency
ought to be taken into account. Hence an additional amount
of 50 million dollars would be required and taking this into
consideration twelve years would be needed to replace all the
gold, and only after the lapse of that time would the demand
for silver caused by a change in the legal status of the cur-
rency in the United States be no longer sufficient to maintain
the ratio of 1 to 16, that is, supposing that in other coun-
tries the condition of things had remained the same. It is
however more probable that under the influence of this change
a new demand for silver would have sprung up in other
countries also, and that, in the first place, British India would
soon have re-opened its Mint to the free coinage of silver,
in which case a permanent maintenance of the ratio of 1 to
16 might be counted upon.
Now, in the first place, objections may be raised to the
contention that a demand would be created in the united
States for 600 million dollars of new silver currency. This
is obvious from what has been said already concerning the 600
milhon dollars gold, that would have to be replaced by this
new silver money.
In the second place the amount of silver used annually in
the arts has been rather over-estimated, luit we shall leave
this out of consideration.
Serious doubts however may be entertained as to the cor-
rectness of the estimate according to which, in the event of
an enhancement in the gold price of silver — supposing that only
in the United States the currency should be changed and
that bimetalUsm should not be adopted by the other nations
as well — there would be, outside the United States, an annual
employment for silver for coining purposes to the amount
of 100 million dollars.
It will not be generally admitted either, that in case of a
rise in the gold-price of silver, the production would not increase
to more than 250 million dollars, as is supposed.
And surely, given such a condition of things, countries with
the limping standard would be very likely to melt down a more
or less considerable part of their silver and put it on the market.
However, let us assume for the sake of argument, that the
anticipations of Messrs Close Brothers & Co, with regard to
all the points under discussion, were realized, even then their
calculations would be utterlv wrong.
Their argument that in consequence of a change in the
legal status of the currency in the United States the gold in
that country would not go to a premium, and that the ratio
of the metals would be brought to 1 to 16, would imply a
rise in the gold-price of silver to about 59 d, i. e., double the
present price. But to render this possible not only the silver
still to be produced would have to bring this price, but aU
the silver at present in circulation as standard coin — token
money, so far as it were not melted down, being left out of
consideration — would also have to rise in the same proportion in
value. Now, this amount is estimated at 2000 million dollars.
This includes the silver money circulating in British India, it
being assumed that England were to repeal the law of
1893 concerning the Indian currency. Should England not do
so, the situation would become more unfavourable still, for
then all the British Indian silver would come to the market
at as low a rat.e as 43 d. We will therefore, adhere to the
sum of 2000 milhon dollars. The contention of Messrs Close
Brothers & Co wiU then amount to this: that in replacing 600
million dollars of gold by silver, which moreover in their
opinion it would take 12 years to accomplish, the value of these
2000 million dollars of silver would be doubled.
Can anything be more absurd ?
But what would have been the course of events then?
Again I hold that it is utterly impossible to say, with any
degree of certainty, what would have taken place, except that
in the first place the change in the legal status of the cur-
rency in the United States above referred to could not have
doubled the gold-price of silver nor indeed have caused a rise in
this price at ah approaching this, and secondly that, in conse-
quence, the difference between the ratio of American gold money
and silver money and the present ratio would chiefly have ma-
nifested itself in a more or less considerable premium on gold.
Again if under the influence of that change the general gold-
price of silver had risen, the effect of this would have heen
in the silver countries a falling off in the prices of commo-
dities, and besides a decrease in the imports, and perhaps
exports of this metal. At the same time, of course, the prices
of all commodities in the United States would have had to
undergo an equally great change — rise in the dollar-price.
And this twofold change in prices would perforce have affected
the whole commercial community, bringing in its train fluctua-
tions without end.
It was then indeed not without good reasons that fears were
entertained by the whole commercial world of the consequences
of Bryan's election, and that as much anxiety and uneasiness
was felt about what would happen in the interim between
Bryan's election and the moment at which his platform
should be carried into effect, as about the later effects them-
selves. A disatrous financial crisis would have resulted from
this election, pubhc credit would have been shaken to its
very foundation, and the whole commercial machinery would
have been thrown out of gear.
The danger, however, has been averted, but for how long?
As soon as the result of the election was definitely known
to Bryan he sent, on Nov. 5tli, the following memorable
telegram to McKinley:
"Senator Jones has just informed me that the returns indi-
cate your election and I hasten to extend my congratulations.
We have submitted the issue to the American people and
their will is law."
And to whatever pitch the political passions had been
roused in the campaign, however widely the two parties dif-
fered on the point at issue, there was no opposition to the
verdict of f]\o. nation, no disturbances of any kind. It must
not be supposed, however, that Beyax or the three parties
whose candidate he was, while submitting to the popular ver-
dict, relinquished all intention of further fight.
"No question is ever settled
Until it is settled right."
AVith these words, borrowed from the poetical effusion of
one of his female admirers, who was inspired by this sentiment
to which he gave utterance in his Baltimore speech, Bryan
concludes his very interesting book "The First Battle"', in
which he gives a detailed account of the Campaign of 1896.
It is his unalterable conviction that the question involved
in this contest has not been "settled right". He intimates his
intention of continuing to discuss and elucidate it, and he
exhorts all his partisans to act in the same spirit, admonishing
them to organize themselves better and to find the means of
being universally heard and understood. He feels confident
that in the end the principles advocated by him will triumph.
This confidence is shared by many others. We have been
told by friends fahy competent to judge of the situation, more
especially by Americans who voted this time for McKinley,
that if the situation against which the campaign was directed
by Bryan and his partisans does not undergo a thorough
change before the termination of the new President's term of
office, Bryan's platform will be sure to triumph in the year 1900.
As a matter of fact Bryan's vote fell but very httle
short of the number that would have secured his victory. The
returns show that the electoral vote cast for McKinley was
271, the popular vote being 7.107.822, and for Bryan respecti-
vely 176 and 6.511.073. One glance at these figures will show
that, in proportion, the plurality of the electoral votes is far in excess
of that of the popular votes. Besides in many of the States that
voted for Mc. Kinley, his majority was so small that a change
of 14001 votes distributed in five States would have given
Bryan a majority of three. It is also worthy of notice that of
the popular vote McKinley had a plurality of 596749 which is
less than the plurality given by the three States, Pennsylvania,
New- York and Massachusetts.
When we stated in the opening lines of these pages that
we had a special reason for examining what would have been
the consequences of Bryan's return, we had in view the
possibihty, or according to others, the probabiUty, that four
years hence the Bryan ticket will win, unless in the meantime
the causes be removed that gave birth to his party. It will,
besides, not be devoid of interest to institute inquiries as to
what formed the nucleus of the recent campaign.
Bryan was the candidate of the majority of the Democrats,
the Populists and the Silver party ; McKinley of the majority
of the Republican party. It must not escape our notice that
on the occasion of the election, there occurred a split in the two
political parties hitherto existing in the United States. This
breach was not fortuitous but sprang from the paramount
issue of the contest : adoption in the United States of free
silver coinage at the old legal ratio with gold of IG to 1, or
maintenance of the dollar at its parity with gold and conti-
nuance of the currency policy followed under the Presidency
of Cleveland, unless a bimetallic currency could be obtained
as the result of international agreement.
The adoption of the free coinage of silver formed part of
the platform of the Populists party and was the whole plat-
form of the Silver party. The Democratic party were not at
one on this head. In pursuance of a call issued by the
Bimetallic Democratic National Committee, the leading silver
Democrats met in Chicago on June 30^^, for the purpose of
deciding upon the course to be pursued in the National Con-
vention. Here the platform was drawn up that would be recom-
mended in the name of their section of the Democratic party.
In this platform the currency question was declared to be the
paramount issue, and its settlement was desired by a resolu-
tion on the part of the Government in favour of the free
coinage of both silver and gold at the rate of 16 tot 1,
independently of the co-operation of other nations. At the
National Convention of the party held on July 9^'^ in Chicago
this platform was adopted with a majority of 326; 628 voting
for the adoption and 302 against and hereupon Beyan was
nominated candidate for the Presidency with a majority of
652; five other candidates obtained 116 votes and 162 mem-
bers abstained from voting. The Popuhsts and the Silver party
then resolved to nominate Bryan as their candidate also.
Since 1890, when he was nominated for Congress in Nebraska,
Beyan had taken an active part in the contest about the
currency question in Congress and elsewhere.
The Nebraska platform adopted by the Nominating Convention
contained the following silver plank written by himself: "We
demand the free coinage of silver on equal terms with gold
and denounce the effort of the Republican party to serve the
interests of Wall street as against the rights of the people".
Beyan has ever since he formulated this demand, held the
same views as. those set forth in it. His unremitting zeal in
the cause of free coinage has ever been a protest against the
abolition of the double standard, which was decided upon in