Part III, Chapter XV, Operation of the Act of 1878

By the preceding legislation the Government itself became the purchaser of silver bullion, and gained all the profit arising from the seigniorage, or the difference between the market price of the metal in the coin and its overvalued face value. There was no free coinage of silver. No private person could have silver bullion coined into dollars. The coined dollars belonged to the Treasury, and were parted with in no other way than was gold or any other money. Our experiment was radically different from the contemporary use of silver by Germany or the Latin Union. In those countries the silver coins were not owned by the governments, for they did not buy any bullion. They only coined silver for those who presented it at their mints; and after the mints were entirely closed to silver, it was the country as a whole that owned the depreciated silver, and not the Treasury. The old thalers and five-franc silver pieces of full legal-tender power in use had come into circulation before free coinage ceased, and still remained a part of the currency. Closing the mints to silver in Europe did not disturb the existing legal-tender silver coins in circulation.

§ 2. The introduction of a new kind of money necessarily touches very closely the institutions dealing in capital which hold large sums of cash. The attitude of the banks toward silver is essential to an understanding of the practical operation of the Act of 1878. The banks also form the connection between the business public and the Treasury; and the relation between the two has a very important influence upon our monetary situation. Banks are always debtors as much as they are creditors; hence the invariability of the standard is a vital matter to those they represent—the depositors as well as the borrowers; and, of course, they early showed suspicion toward silver because of its uncertain value.

The banks, however, do not refuse to receive silver currency on deposit, but they make every legitimate effort to prevent it from accumulating on their hands. Silver certificates equally with silver dollars are receivable for customs, and such banks as have importers for customers are able to pass out to them silver currency which is intended for paying duties. The silver is thus turned in again to the Treasury, to the obvious disadvantage of the Government balances, although it is a method adopted from the lack of a proper system of redemption (see § 6). And if the Treasury is cut of to this extent from the supply of gold needed to maintain gold payments, it must secure the gold elsewhere. Hence, in the end, so long as silver is receivable equally with gold for customs, the Treasury must in all probability provide as much gold as it would have needed had it established direct redemption of redundant silver dollars in gold.

The United States Treasury receives and makes its largest payments at its principal office in New York, the Sub-Treasury in Wall Street. For its own convenience, in order to save the transfer of large sums of specie, the Sub-Treasury at New York has become a member of the New York Clearing-House Association, composed chiefly of national banks. The kind of money the Treasury pays out at this principal office in New York, is therefore closely watched, as indicating its general condition. As its dealings are with the Clearing-House, the moment it should begin to pay the Clearing-House balances against it in other money than that equal to gold, we should have evidence of the abandonment of the gold standard.

Some months after the passage of the Bland bill the Clearing-House Association (November 15, 1878) decided to refuse silver dollars for balances. But July 12, 1882, in an act extending the charters of the national banks, this decision of the New York banks was met by further legislation,
*55 which forbade any national bank to join a clearing-house association that refused to accept silver certificates for balances. Inasmuch as the largest number of banks in the association were national banks, they were obliged to rescind their rule (July 14, 1882); and nominally they do not refuse to accept silver certificates, although none are offered. By common consent, silver is not offered between banks, and no legislation can compel them to do it. Their purpose, however, is to hold as little silver as possible.
*56

§ 3. The operation of the new silver legislation of 1878 may be best studied by inspection of
Charts XVIII and
XIX. In line A of Chart XVIII it will be seen at once that the circulation of silver-dollar pieces is relatively small, and partakes of the nature of subsidiary coins. Since 1886 the amount in use has fluctuated about the line of $60,000,000; silver-dollar pieces beyond that sum can not be retained in circulation. Being a denomination of larger value than subsidiary coins, of course, the amount of dollars which can be kept out is about the same as the total of fractional silver; but the quantity required is fixed by the same general demand for small change in retail transactions, which fixes the output of the smaller denominations of silver coins (even though the dollar piece is an unlimited legal tender). Relatively to the total silver currency, however, as indicated by line B, the silver-dollar pieces (line A) are unimportant. Congress appropriated the means to pay for shipping the silver-dollar pieces free of express charges to any part of the United States to all who called for them. This, however, did not prevent their returning, through the banks in which they were deposited, to the Treasury in payment of dues. After certificates in denominations less than five dollars were issued, in 1886, there was no reason for this means of urging silver-dollar pieces on the public.
*57

Unless the silver certificate had been devised, the Act of 1878 would have had a very different history. The denominations of the silver certificates, moreover, have very much to do with the amount kept out. Line B indicates the total silver currency (including silver-dollar pieces, silver certificates, and, in and after 1890, Treasury notes) in circulation outside of the Treasury. The fundamental fact must be remembered that by this act the Government became the purchaser of silver bullion and the owner of all the silver coined from it. The question of importance to our currency, therefore, is how the Treasury could dispose of this form of money which it owned; whether it could get it out into circulation at par with other forms of money. The novelty of the Act of 1878 is seen when it is recalled that never before in our history did the Government buy gold or silver bullion outright with its income; it never has done for gold what it did for silver. Gold bullion was never bought to be coined. The purchase of silver bullion, with intent to buoy up its price, is unique in monetary history. Gold has always been left to take care of itself under the regulation of ordinary commercial laws. Free coinage of gold is in no sense whatever a purchase of gold.

Since the Government was taking from taxes upon the property of its citizens about $30,000,000 a year, and with it buying the product of a special mining industry, the country must necessarily be rich to afford it, and its income must be largely in excess of its outgo, in order to do this with impunity. Hence we shal see that the Act of 1878 is involved with our fiscal policy; when deficits come, the heavy burden of silver purchases will be recognized.

The Act of 1878, moreover, intimately concerned the character of the existing currency. Was there a vacuum for this new-coming silver? Could the Treasury dispose of it? or would it remain stored up in its vaults? Naturally, the mixing of two kinds of coin, both unlimited legal tender, would create difficulties. It was solely a question as to how much silver could be put out without choking up the Treasury, and driving out its gold (for in 1878 gold had been collected in preparation for resumption on January 1, 1879). Line B in Chart XVIII shows how this succeeded, while line A in Chart XIX shows when and in what quantities silver collected in the Treasury, and line B of Chart XIX indicates the condition of the gold reserves. As the eye follows line B of Chart XVIII, it is seen that in general the silver currency was successfully pushed out of the Treasury, especially after 1886, and reached at its height nearly $540,000,000 in December, 1893. How was this accomplished? for certainly there were many vicissitudes in the earlier part of this period.

In the two years immediately after the passage of the Act of 1878 distrust of silver money was great; the denominations of the silver certificates used were at first very large; and silver accumulated in the Treasury almost as fast as it came from the mints: The only way in which the silver could be kept in circulation was, of course, in the form of certificates; and yet the first issues of certificates in denominations of $1,000, used to pay for purchases of bullion in San Francisco, were returned to New York
*58 in ten days, to be used in payment of customs to the Treasury. The large denominations were never in the hands of the people; they were held by large firms or banks, who knew well how to get rid of them through the customs. This illustrates how certainly the rich can take care of themselves in times of currency disorders, for the silver certificates never got into general circulation until such small denominations were used that they met the needs of the masses of the people for change. These people are not so quick in escaping any possibility of loss when the money is distrusted; and, consequently, if disaster should come through this kind of money, they would be the ones in whose hands it would be circulating, and upon whom the losses would fall.

From June, 1878, to the middle of 1880, almost all the silver coined stayed with the Treasury; only a few certificates were out. In September, 1880, however, a successful method was devised for getting out silver by offering drafts on the Sub-Treasuries in the West and South, payable in silver certificates to those who wished to make remittances there, in exchange for deposits of gold coin at the New York Sub-treasury. It amounted to a transfer of funds to distant parts of the country free of charges for exchange.
*59 This fell in with the usual demand in the autumn for remittances to the West for “moving the crops.” The general revival of trade following the resumption of specie payments in 1879 made the years 1880-1884 highly prosperous; gold was imported, and the Treasury gold reserves felt the results in a larger inflow during 1881 (see line B, Chart XIX). The national bank circulation increased; and those small denominations of money, such as ten and twenty dollars, used in retail trade, were called for in larger sums. Yet in these very years the gold reserve (see line B, Chart XIX) proved very sensitive to any increase of silver in the Treasury. In 1880, when silver rose, gold fell; in 1881, when silver fell, gold rose; at the end of 1882, as silver rose, gold fell. Generally, with the growth of Treasury silver, gold fell off.

One effect of the silver legislation of 1878 on the resumption of specie payments has an importance quite out of the ordinary. From 1862 to 1879 we had had neither gold nor silver in circulation; and after a dreary experience of seventeen years we had come out of the bog of depreciated paper money on to the solid ground of the gold standard. Gold had been accumulated in the Treasury; but just as we were sure of the gold standard, the Act of 1878 began the series of enactments whose effect was to destroy confidence in the steadiness of our standard. Indeed, as a matter of monetary study, our silver legislation does not so much raise questions as to the effect of an increased quantity of money on trade and prices, but as to the possibility of a change of standard from one metal to another. The process of an addition of money equal in value to that in use offered nothing very new; but the possible drop from a gold to a silver standard was full of startling uncertainties. This was the cause of the alarm felt by the business community, and it was a very real one. The great incubus hanging over the country since 1878 had been this fear of a change in our standard.

In 1880 and 1881, when large crops and favorable conditions brought to us $175,000,000 of gold imports, we might have absorbed it at a most opportune time into our currency. But we had gone off into a strange kind of an experiment with silver; we had bought silver, and injected it into the circulation instead of the gold—that is, we put poor material into our building, when good and lasting material was lying just at hand. The folly of this beginning was finally expiated by the losses in the crisis of 1893.

§ 4. As early as 1884 the Treasury was involved in difficulty due to its purchases of silver. This mechanical and forced coinage of fixed sums of silver each month, irrespective of the desires of the business community or of the needs of exchange, was flying in the face of the principle of demand and supply. The legislators in 1878 had omitted to repeal the law of demand and supply. Just as silver rose in the Treasury, alarm was felt by the world of trade. If silver were paid by the Sub-Treasury in New York, as we have before explained, it would be a virtual confession that the Government’s stock of gold had become exhausted, and the silver standard had arrived. It boots little that the danger was postponed; the fear was always there.

In a populous town there was once placed a cage of wild beasts, and in the very beginning the frailty of the bars gave timid people considerable alarm; but the mere fact that the creatures did not get out convinced passers-by, in the course of years, that there was really no danger, after all, and men hurried past the animals, hearing the sounds of their baffled ferocity, but gave them no great attention. Therefore, when, on an uncomfortable day in late winter, one of the sub-keepers of the beasts carelessly sauntered in front of the cage, and casually remarked that the bars of the cage were almost gnawed through (he was sorry he could not help it), and asked the bystanders what they thought of it, it is not to be wondered at that a sudden paroxysm of alarm seized even sensible men, and that there ensued a general attempt to put a barrier between them and possible harm. The expression of seriousness under the assumed carelessness of the sub-keeper’s manner seemed to imply that he was acting under directions from his superior, and that it meant something. The alarm spread at once. For many years silver dollars, like the beasts in our fable, were kept confined in the Treasury, and the Government was not forced to make payments in gold; but on the 21st of February, 1884, it was believed that the silver was to be let out. The sub-keeper of the fable was, in fact, the Sub-Treasurer in New York city, who addressed the manager of the Clearing-House Association on the probable effect of his paying Government balances at the Clearing-House
*60 in silver dollars. This alarm, however, passed by, for no attempt to pay in silver was finally made at that time.
*61

The expansion of trade during the good years following the resumption of specie payments was succeeded by the usual reaction. It did not take the form of a violent crisis, but the commercial depression was marked and severe. Failures in May, 1884, led the way to restricted production and lessened activity in all industries. Lessened need of exchange made our currency redundant. Then went into operation our quasi-system of redemption of silver currency, (described in § 6). The very forms of money most used in retail transactions accumulated in idle sums in the banks, and by the banks were always worked off in payment of customs duties to the Treasury, thus enabling the banks to retain gold, while silver collected in the Treasury. The working of the Act of 1878, as shown in Charts XVIII and XIX, will receive further explanation from
Chart XX, which indicates by the dotted line, A, the percentage of gold paid to the Treasurer at New York; by line C, the percentage of silver receipts; and by line B, the percentage of greenbacks received. The chief supply of gold comes to the Treasury from customs, and as New York receives the largest share of these payments, the percentages here given quite accurately indicate the nature of the total receipts of the Treasury. In Chart XX it will be seen that gold payments began to fall off from September, 1883, while larger percentages of silver and greenbacks were received. By the end of 1884 gold receipts had dropped to twenty per cent, as compared with eighty per cent in 1883, while silver receipts had risen from fifteen per cent in 1883 to forty-five per cent in 1884. This was the process by which the redundant currency contracted itself—that is, the least desirable portion was sent in to the Treasury. The folly of a mechanical increase of currency still going on perforce when a redundancy was sending it back to its issuer, then became clearer than ever. The Treasury, however, was obliged by law to go on buying bullion and coining silver just as in times of prosperity. When new silver was being coined at the rate of $30,000,000 a year by the Government, which could not be ejected from its vaults, and, in addition, a distrusting and overburdened public was sending back a stream of silver formerly in circulation, it can be easily understood why the condition of affairs became critical. This explains why, line A, in
Chart XIX, indicating the net silver holdings of the Treasury, rose in the years from 1884 to 1880, and it shows why line B, the net gold reserve, fell below $120,000,000 in 1884 and 1885). And just as the net silver in the Treasury increased, we find that the amount of silver in circulation ceased to rise. (See line B in
Chart XVIII for 1885 and 1886.) The mischievous operation of the new silver circulation upon the maintenance of the existing gold standard stood plainly revealed.

At this time there was genuine fear that the Government, unable to contend against the stream of silver, with a diminishing gold reserve, must soon be unable to give its creditors the option, hitherto always preserved, of payment in gold. It was certainly a very serious situation. The only way out of it was to (1) cease unnecessary payments which required gold; (3) try new devices for working silver into circulation; (3) and encourage gold receipts. The first plan was within the immediate control of the Treasury. Large surpluses had made it possible to pay off many millions of the national debt each year; but in September, 1881, this was stopped, and no calls for the three per cent bonds (then redeemable at the pleasure of the Government) were made for over a year (until December, 1885). Here was another effect of the silver legislation of 1878: it crippled the patriotic payment of our public debt. Instead of being used in reducing this interest-bearing burden, our surplus was used in purchases of silver, which not only could not be got out of the Treasury, but prevented gold from coming in. This cessation of debt-paying, however, saved the Treasury from the necessity of paying out large sums in gold.
*62

The second scheme was the creation of a vacuum in the circulation into which the silver dollars could flow. This was not an easy matter, for heavy dollar pieces move sluggishly. Hitherto the denominations less than five dollars were United States notes; no national bank-notes of less than five dollars have been issued, by Act of 1875, since resumption of specie payments (1879). The issue of United States notes of less denomination than five dollars was stopped in June, 1885, with the purpose of making the circulation of silver dollars for change necessary. At first, this had the tendency to prolong the use of soiled notes of small denominations, to save the carrying of silver dollars; but in time more silver dollars were required for change. The effect of this measure can be seen in the rise of line A in Chart XVIII in the last half of 1885, and in the year 1886.

Lastly, in July, 1885, the associated banks of New York came to the aid of the Treasury by turning over to it $5,915,000 of gold in return for fractional silver.
*63 This had a moral effect, in that it was understood the banks were willing to advance additional supplies of gold if needed by the Secretary. The banks, having worked off their silver, and having with due caution increased their holdings of gold, were in a far better condition than the law-ridden Treasury.
*64 Indeed, when the Treasury is in dubious condition, it is the bounden duty of the banks to be unusually conservative. When the Treasury has gold in abundance, the banks can easily pay out gold, because it goes the rounds in the general circulation without being intercepted and returns to them; when gold runs low in the Treasury and silver heaps up there, the banks can not pay out gold, but must collect it.

The result of these combined efforts was a rise in the gold reserve in the latter part of 1855 (see line B in Chart XIX), even though the dead silver in the Treasury was increasing, and kept on increasing, in 1886 (see line A in Chart XIX). Although a perceptible revival of business late in 1885 increased the receipts from customs, and helped somewhat the demand for “large change,” the tension did not slacken until late in 1886. The dead silver in the Treasury grew until September, 1886; and it was not until that time that such confidence was re-established as to induce any considerable gold payments for customs (see line A in Chart XX).

§ 5. An examination of line C in Chart XVIII will throw much light on the causes which made a large silver circulation possible in the years subsequent to 1886. The striking downward movement of line C has much to do with the great rise of line B; that is, the withdrawal of national bank-notes made a vacuum into which the silver currency flowed. The reason why the national bank-notes were withdrawn has to do mainly with the price of the United States bonds held by the national banks as security for their notes. With a given rate of interest, United States bonds rose in price as the credit of the country improved; and the low-priced three-per-cent extended bonds were rapidly paid off. The effect was as bonds rose in price to make the security deposited for their note issues cost the banks more, as compared with the interest to be obtained from direct lending of their funds; and as business revived, bringing better rates of discount, the profit to the banks on taking out note issues diminished. From 1878 to 1882 the bank circulation increased by perhaps $40,000,000; but the redemption of three-per-cent bonds, held chiefly by the banks, and the prosperous rate of discount, together reduced the profit on bank circulation to a minimum. From that time began a marked decline in the national-bank circulation, which fell from $356,953,345 in November, 1882, to $161,922,040 in June, 1891. This extraordinary diminution of one important component of our currency, just as the Treasury was obliged to find means of pushing silver into circulation, was of great assistance. Indeed, there could be no such amount of silver as is now in circulation except by the withdrawal of other forms of money. The action, however, was not anticipated or designed. The national bank circulation was not allowed to dwindle because the Government had first carefully decided that bank-notes were undesirable, and should be discouraged. Far from it. The bank-notes were the only issues which, if the proper reforms were secured, had in them the possibility of elasticity; but these reforms were disregarded, and the obligatory silver issues were driven into their place. Not only did we go out of our way to buy silver outright, but we allowed the national bank issues to decline while silver took their place. Such was the nature of our monetary wisdom.

The marked rise in line B of Chart XVIII, showing the increase of silver circulation in and after 1886; the consequent decline of the net silver held by the Treasury from the middle of 1886 (see line A of Chart XIX); the large percentage of gold receipts by the Treasury after September, 1886 (see line A of Chart XX); and the consequent replenishment of the gold reserve in the Treasury in and after 1886 (see line B in Chart XIX)—formed a new situation. The decline of the national-bank circulation had created a vacuum; but the success in getting silver out of the Treasury was finally due to a rider to the General Appropriation Act of June 30, 1886, authorizing the use of silver certificates in denominations of one, two, and five dollars. To this time the silver circulation had gone out in the form of certificates, mainly in denominations of ten and twenty dollars, as permitted by the Act of 1878; and the inability to use smaller denominations had been one main cause of the difficulty in keeping silver out of the Treasury. This new measure made more effective the former withdrawal of one- and two-dollar United States notes (in June, 1885). In short, silver certificates were given the right of way formerly held by small denominations of greenbacks, and, more than all that, by the withdrawal of bank issues. After June, 1886, certificates of small denominations could be issued. From this time on, nothing impeded their circulation; and after 1889 practically all the silver bought and coined passed out of the hands of the Government into circulation. Consequently, the silver did not for years accumulate in the Treasury in a manner to excite alarm. And for several years, 1886-1890, gold payments were freely made to the Treasury, and the gold reserve was ample. How clearly this period stands out above all others may be seen by consulting Chart XX, and noting the steady elevation of line B in Chart XIX.

How important the provision for small denominations of certificates in 1886 was may be judged by the fact that the increase of silver certificates was mainly in those of one, two, and five dollars. In Professor Taussig’s tabulation of the results,
*65 it appears that in 1878 there were outstanding 499.1 million dollars of United States notes, bank-notes, silver certificates, and silver dollars; in 1890 this had grown to $773, 000,000, making a gain in twelve years of $273,000,000. Not all, therefore, of the new silver currency to the amount of about $500,000,000 is to be counted as an increase of the circulation. As an offset, the withdrawals of other kinds of money is to be reckoned; hence the net increase to the currency, as a result of the Act of 1878, was about $273,000,000. And this increase has been mainly in small certificates—that is, with a period of normal business growth, accompanied by the usual increase of population, there is an increasing demand not for the larger denominations of money (where checks are largely used), but for the smaller denominations used in retail exchanges and carried about the person. This is all there is of the popular theory of a per capita circulation. As compared with a country’s transactions as a whole, there is not necessarily any need of an increased circulation proportional to an increased population; but since retail transactions, to an amount of about fifty per cent, are performed by actual money, an increase of population and of retail exchanges demands an increasing volume of the smaller denominations. This, however, does not at all imply that in wholesale transactions the circulation should grow in similar proportions.

§ 6. The Act of 1878, as actually passed, differed vastly from the free-coinage Bland bill which came up from the lower house of Congress. The opposition debate, it should be noted, was largely directed against the dangers of free coinage of silver; and many prophecies were made as to the possible effects of a bill in this form, which could not prove true of the act as passed, and which have since been thrown in the teeth of the opponents of the bill. These prophecies, however, might have proved wholly true if the act as passed had been a free-coinage measure. It is unjust, therefore, to recall statements applying to the Bland bill as it passed the House, as if they were made of the final act, which was excised of its free-coinage provisions. In studying the effects of the law we must keep this in mind.
*66

The operation of the Act of 1878 has been complicated to many minds by the absence of the free-coinage provision, which permits only the Government of the United States to purchase bullion and have it coined into dollars of 412½ grains (to the worth of not less than $2,000,000 nor more than $4,000,000 a month). It was not apparent why this dollar, which in 1878 contained but ninety cents’ worth of pure silver, could, when issued, circulate at par with a gold dollar; nor is it understood why the silver dollar is to-day, at par with United States notes redeemable in gold. There are several reasons to account for this.

By the issue of a dollar piece containing an amount of silver less than its face value, such a coin is made similar in its character and qualities to an overvalued subsidiary, currency, and much that is true of one is true of the other; except that, in this case, the silver dollar is an unlimited legal tender, while subsidiary coins are a legal tender only to an amount of ten dollars. This matter was mentioned
*67 in the debates of Congress. It is well known that 100 cents of our subsidiary coin contain only 345.6 grains of pure silver, while the silver dollar contains 371.25 grains; and yet we constantly receive for “change” two half-dollars, or four quarters, in exchange for gold, or for paper redeemable in gold, on equal terms. The reasons, therefore, which give currency to the subsidiary coins will mainly account for the currency of the dollars of 412½ grains. In the first place, they are limited in quantity, as compared with the uses to which they can be put. Silver dollars, moreover, can enter into our common circulation only as they are sent forth from the United States Treasury in payment of its dues. And as they serve as “change” in lieu of one- and two-dollar United States notes (no national-bank notes being issued of denominations less than five dollars), there is an evident use for them, just as there is a use for smaller silver pieces (which are overvalued); and, if the silver dollars had been issued on the principle that they were to supply the place of small bills, a very considerable quantity could have been permanently retained in the circulation at par.

Another fact which maintains the silver dollar at par with gold, and which is of considerable importance, arises from the provision of the act which authorizes the issue of silver certificates. The important consideration, however (and, to my mind, one of the most important provisions of the act), is that these certificates, in the words of the statute, “shall be receivable for customs, taxes, and all public dues.” This is a species of daily redemption of the silver dollar; for as gold has hitherto been required (as it was during and since the war) in payment of customs, now that silver dollars are receivable equally with gold for that purpose, they must remain at par with gold until there is forced upon the circulation more than is necessary for such uses. If silver dollars alone had been made receivable for customs and taxes, their weight and inconvenience in large payments would have restricted their use. So long, therefore, as the silver which gets out of the United States Treasury is in quantity sufficient to satisfy only the needs caused by the absence of small notes, and the sums demanded to pay customs and taxes, there is no reason why it should depreciate in value any more than the silver subsidiary coins should depreciate. In brief, we have unconsciously created a system of quasi-redemption of silver in gold by accepting silver at the customs when otherwise gold would be demanded. In practice this works very effectively. Whenever silver is too abundant, or whenever there comes a period in which the ability of the Government to maintain gold payments is distrusted, an outlet is created for silver to pass out of circulation, and it rapidly flows through the customs back into the Treasury. Consequently, although we then had no formal and legal system of redemption of silver dollars, yet we created one which indirectly produced very nearly the same results. Under the present system silver goes back to the Treasury, and gold remains in the hands of the public. The result would be practically the same if the importers paid customs in gold, then the Government paid out that gold in direct redemption of silver: the outcome would be a holding of silver by the Treasury and of gold by the public. In both cases the result would be essentially the same.

I do not mean to imply that a direct system of redemption in gold would not be highly preferable. Our present methods are makeshifts in lieu of a proper treatment of an overvalued silver dollar. So long as we have overvalued silver coins circulating with gold we should face the question squarely, and order their redemption in gold, in exactly the same way in which subsidiary coin is redeemed and kept at par. The “large change” should be treated on the same principle as the small change of the country.

The situation subsequently created by the Act of July 14, 1890 (discussed in the next chapter), gives this system of quasi-redemption an additional support. The act adds a statutory obligation to what was hitherto implied. After providing for the redemption of Treasury notes (of 1890) in gold or silver at the discretion of the Secretary, the act declares that it is “the established policy of the United States to maintain the two metals on a parity with each other upon the present legal ratio, or such ratio as may be provided by law.” The Act of November 1, 1893, which repealed the purchasing clause of the Act of 1890 and stopped new silver issues, expressly reaffirms this principle by saying, “It is hereby declared to be the policy of the United States to continue the use of both gold and silver as standard money, and to coin both gold and silver into money of equal intrinsic and exchangeable value, such equality to be secured through international agreement, or by such safeguards of legislation as will insure the maintenance of the parity in value of the coins of the two metals, and the equal power of every dollar at all times in the markets and in the payment of debts.” In view of these enactments the Executive, by his oath of office, is bound to keep silver money at par with gold; and the maintenance of a gold reserve large enough to always insure this equality is a part of the legal obligation.
*68 To criticise the Executive for selling ponds to protect the gold reserve is to attack him for carrying out the laws he solemnly swore to execute.

§ 7. It has been a mystery to many people that the silver dollar of 412½ grains should continue in circulation at par, while the trade dollar of 420 grains fell to its intrinsic value, and was not in circulation on equal terms with the Bland dollar, which contains less silver. The coexistence of these two silver dollars added to the complexity connected with the silver question, and it will be my plan to finish the story of the trade dollar, begun in a previous chapter,
*69 in order better to understand this subject.

It will be remembered that the coinage of the trade dollar was authorized by the Act of 1873. As the bill came from the Treasury officials, in 1871, it contained a provision for a dollar of 384 grains—that is, one of the weight of 100 cents of subsidiary coin. This was in the bill when it first passed the Senate, and also when, in 1872, it passed the House. January 7, 1873, however, Mr. Sherman reported the bill in the Senate so amended as to strike out the clause authorizing a dollar of the standard of the subsidiary coin, and inserted in its place the provisions
*70 for the coinage of the trade dollar, which was intended purely for merchants trading with the East. This amendment was promptly accepted by the House.

At the time the act was passed a silver dollar containing 420 grains of standard silver (378 grains of pure silver) was worth 104 cents in gold; but the fall in the value of silver after 1874 seriously affected the uses originally intended for the trade dollar. The fall of silver relatively to gold in 1876 was so great that the pure silver in a trade dollar became worth less than a gold dollar; consequently, money-dealers in California, where gold was the only money in use, found a profit in putting the trade dollars into circulation there. At this time, it will be recalled, this coin was a legal tender for sums of five dollars, owing to an unintentional provision of the Act of 1873. Although this law limited its use to small payments, the mere fact of its circulation in the United States called attention to the inadvertence in the Act of 1873, and all legal-tender power was taken away from the trade dollar by a section
*71 of the Act of July 22, 1876, and the Secretary of the Treasury was empowered to suspend its coinage altogether at his discretion.

As yet, however, the trade dollar had not come into use in States where gold was not in circulation, because the United States notes which occupied the place of gold were worth less than the silver coin. By 1877, however, the United States notes had so increased in value that they were worth 95 cents in gold to the dollar; but the average price of silver in 1877 was only 54¾
d., so that the 420 grains of standard weight in the trade dollar were worth only about 93 cents. As a consequence, under the quick action of money-brokers, trade dollars suddenly appeared in circulation in the United States in large quantities. It was found more profitable to put the coin into circulation at home than to export it. After 1876 the trade dollars had no legal-tender quality whatever, and, inasmuch as dishonest persons were carrying them to remote districts, where the actual nature of the coins was unknown, and were passing them at full value, the Secretary promptly used the discretion granted him by the law, and ordered a discontinuance of further coinage of these commercial dollars. In all, there were coined 35,959,360 of these pieces, and numbers of them still remain in the hands of money-dealers or individuals. They are, however, worth no more than a similar amount of bullion. The Government does not redeem them, because the Government only coined them at the expense, and for the convenience, of owners of bullion, for commercial purposes, and did not create them as legal coins. They are coins only in shape and appearance; in truth, they are only round disks of silver bullion, refined, of course, with the stamp of the United States, certifying to their weight and fineness.

But even after the coinage of trade dollars was suspended, and their limited legal-tender quality had been taken away, a difficulty arose. Speculators had reimported them from China on the strength of the proposals in Congress that the Government should redeem them at their face value in gold, like subsidiary coin. Probably 2,000,000 of them were held on this understanding. Although a demand upon the country to help out a mistaken speculation was wholly illegitimate, Congress, by Act of March 3, 1887, yielded to the pressure, and passed a bill to redeem at par all that should be presented within six months. President Cleveland, not approving the purpose of the act, allowed it to become a law without his signature. Thereafter, the trade dollar passed out of our history, after $7,689,036 had been exchanged for standard dollars and fractional silver coin.