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Ideological Factors in Specie Resumption and Treasury Policy*

Published online by Cambridge University Press:  03 February 2011

Richard H. Timberlake Jr.
Richard H. Timberlake Jr.
Affiliation:
University of Georgia
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Extract

The general sentiment of Congress toward resumption of specie payments had become more and more desultory, not to say negative, during the early part of the 1870's. Nevertheless, the Resumption Act was passed in 1875, and resumption of specie payments at the pre-Civil War parity occurred on schedule in 1879. Observers have slighted this incongruity. Passage of the Resumption Act has come to be regarded as a true reflection of Victorian sentiment; ultimate resumption in 1879 was the proof of the pudding.2 What seems to have been lost in this rationalization of cause and effect is the generally unfavorable light in which resumption was being viewed in the middle 1870's, the alternatives that were available in lieu of resumption, and some of the forces of “immorality” that made these alternatives attractive.

Type
Articles
Information
The Journal of Economic History , Volume 24 , Issue 1 , March 1964 , pp. 29 - 52
Copyright
Copyright © The Economic History Association 1964

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References

1 Richard P. Bland in the House of Representatives, Feb. 21, 1878, as quoted by Blaine, James M., Twenty years of Congress, II (Norwich, Conn., 1886), 607.Google Scholar

2 See, for example, Barrett, Don C., The Greenbacks and Resumption of Specie Payments, 1867–1879, Harvard Economic Studies, Vol. XXVI (Cambridge: Harvard Univ. Press, 1931),CrossRefGoogle Scholar especially chs. iv and vii; and Hepburn, A. Barton, History of Coinage and Currency in the United States (revised edition [New York: Macmillan, 1924]), chs. xii and xiii.Google Scholar

3 Kindahl, James K., “Economic Factors in Specie Resumption: The United States, 1865–79,” Journal of Political Economy, LXIX (Feb. 1961), 30–48.CrossRefGoogle Scholar

4 Ibid., p. 47.

5 Blaine, Twenty Years, p. 320.

6 Private bank notes and deposits increased by $117 million, but government currency declined by $252 million. A large part of government currency was held by banks as reserves; and since the data on government currency are much better than the data on bank deposits, such a large decline in the former indicates a strong presumption that net increases in the latter could not have occurred even if the banks held “excess” reserves in 1865 and then allowed ratios to fall enormously. An excellent treatise on the political-monetary developments of this period appears in a recent book by Sharkey, Robert P., Money, Class, and Party (Baltimore: The Johns Hopkins Univ. Press, 1959).Google Scholar Sharkey, however, commits an error when he assays the decrease in the currency at “only” $45 million and fails to note that the decrease in the total money stock was much greater.

7 Blaine, Twenty Years, p. 328.

8 See Sharkey, Money, Class, and Party, pp. 130–33.

9 Dictionary of American Biography, II, 489–90.

10 The complete history of this bizarre episode is contained in U. S. Congress, House, The Gold Panic Investigation, 41st Cong., 2d Sess., House Report No. 31, by the Committee on Banking and Currency, James A. Garfield, Chairman. See pp. 1–4 and 463.

11 Ibid., p. 19.

12 Ibid., pp. 342, 353.

13 Ibid., pp. 468–69.

14 Ibid., p. 470.

15 Finance Report, 1872, pp. xix-xxii. He discussed bank-induced inflation and depression. He recognized almost explicitly that note elasticity was perverse as “provided” by the commercial banking system.

16 Ibid., p. xxii (my italics).

17 The Act of Feb. 25, 1862, pledged repurchase of at least 1 per cent of the outstanding interest-bearing debt per year to be held as an interest-earning asset by the Treasury Department.

18 These figures are presented in extensive tables in the Finance Reports. See Report, 1874, pp. 26–30.

19 U. S. Congress, Report to the Committee on Banking and Currency on the Increased Issue of Legal Tender Notes, 42d Cong., 3d Sess., Ex. Doc. No. 42 (Dec. 1872), p. 1.

20 U. S. Congress, Senate, Report No. 275, 42d Cong., 3d Sess. (1872), pp. 1–5.

21 Report to Committee, 42d Cong., 3d Sess., Ex. Doc. No. 42 (1872), pp. 1 and 2. (See also: Congressional Record, 43d Cong., 1st Sess. (1873), p. 704.) McCulloch had set the precedent Boutwell referred to by reissuing notes several times between 1866 and 1868. “In answer to remonstrance against this practice,” wrote James G. Blaine, “the Secretary maintained that the authority … [was] within his discretion. This was unquestionably the law of the case.” (Blaine, Twenty Years, p. 329.)

22 Report No. 275, “Views of the Minority,” pp. 8–10, (my italics). The minority consisted of G. W. Wright and T. W. Ferry of Michigan. Ferry, especially, was a Greenbacker who treated cavalierly the idea of a metallic standard. Their opinion would have even more substance if applied to those periods when Congress was not in session, especially the fall.

23 Finance Report, 1873, p. xi.

24 Congressional policy generally had been to allow for bank-induced increases in the money supply and to press for retirement of government obligations. Bankreserve ratios decreased appreciably, although the stock of money stayed almost constant or even increased.

25 Report, 1873, pp. xv-xvi. One can hardly imagine a more pusillanimous and vacuous observation.

26 Ibid., pp. xii-xx, (my italics). Clearly enough, more was at stake than the existence of the money market. Richardson had a good excuse for expansive action if he had wanted one. The Treasury's receipts, being elastic with respect to business activity, had fallen enough by September to warrant currency issues, and Richard son was in fact forced to issue $26 million of the “reserve” before the end of the year in order to meet ordinary expenses.

27 U. S. Congress, Congressional Record, 43d Cong., 1st Sess. (1874), p. 700.

28 Ibid., appendix, pp. 17–19.

29 Ibid., appendix, pp. 20–21.

30 Ibid., appendix, p. 22. David Mellish, a Republican Congressman from New York, had substantially the same opinion on the morality of price-level changes as had Boutwell. His policy ideal, however, waived resumption in favor of a fixed stock of $800 million in U. S. notes. (Ibid., pp. 1097–1103.)

31 See ibid., pp. 974–75 for a statement by Thomas Bayard of Delaware.

32 Ibid., appendix, pp. 13–14.

33 Finance Report, 1866, “Report of the Comptroller of the Currency,” pp. 72–73.

34 Hepburn, Coinage and Currency (cited in n. 2), p. 313.

35 Finance Report, 1872, “Report of the Comptroller of the Currency,” pp. 96–97.

36 For provisions of this act, see U. S. Congress, Congressional Globe, 41st Cong., 2d Sess. (1870), appendix, p. 700. The influence of this act on the stock of money depended on “excess” reserves held by the national banks. If they held a lot of excess reserves, as they did in 1870, the system could expand notes while reserves dropped, but the ratio of bank credit and notes to reserves might then become dangerously low. The Panic of 1873 in fact reflected the final stage of this process. See above, pp. 38–41.

37 The table does not show the distribution of greenbacks. Presumably, these notes would be distributed in approximately the same pattern because of their use as reserves of national as well as nonnational banks. Deposit creation by state banks and trust companies might also have ameliorated the disproportion.

38 Agitation from the South may also have been a result of an ex post facto realization that the share of money apportioned there was disproportionately small; but the distaste for national bank notes would seem to deny this conjecture as an exclusive cause. The South never did catch up. The bulk of the additional $54 million went to border states in the middle West. (See U. S. Congress Finance Reports, “Reports of Comptroller,” 1872 and 1873. Also, Hepburn, Coinage and Currency, p. 321.)

39 Free banking, in this era, meant abolition of the statutory limitations on national bank-note issue. It was not used here in the sense of banking firms free to enter the industry so long as certain rules are followed. (I am indebted to Bray Hammond for this caution.)

40 Sherman, John, Recollections of Forty Years in the House, Senate and Cabinet. An Autobiography (Chicago: 1875), I, 515.Google Scholar The remaining 20 per cent of United States notes would be maintained as reserves for the “increase in national bank notes.

41 ‘Report, 1877, pp. xv-xx.

42 Report of the Comptroller of the Currency, 1877, p. 152.

43 Kindahl, “Economic Factors” (cited in n. 3), pp. 36 and 40. Kindahl's data are for June 30. The Comptroller's data were from Jan. 1, 1874, to Nov. 30, 1877. Changes in bank deposits, included in Kindahl's total money supply, would lag changes in total currency outstanding.

44 The Report and Hearings of the Silver Commission is a two-volume work published as U. S. Congress, Senate Report No. 703, 44th Cong., 2d Sess. (1877).

45 Ibid., p. 1.

46 Ibid., pp. 127 and 133. The verb “replaced” implied “amended so as to include silver.”

47 Ibid., pp. 134–38. Boutwell wanted an international conference that would reestablish silver as a universal legal tender, and so prevent the United States from absorbing the world's silver.

48 Ibid., p. 155, (their italics.)

49 Ibid., p. 156.

50 Ibid., pp. 159–60.

51 Ibid., pp. 129–31. The proposed silver dollar of 412.5 grains was already at a 3 per cent discount in gold. The silver devalution suggested by these three men would have promoted an additional 3 per cent discrepancy, even though their ratio of 15.5 to 1 was more realistic in the rest of the world.

52 Ibid., pp. 131–33.

53 Kindahl, “Economic Factors,” p. 47. Hepburn, while he specifically mentioned the Silver Commission, neither admitted the recommendations for devaluation nor pointed out the pressure for silver remonetization as a “price” for resumption.

54 Report, 1877, p. xxiv.

55 Hepburn, Coinage and Currency, p. 238.