The avenging consequences of the Silver Purchase Act moved so rapidly that when John Griffin Carlisle took office as Secretary of the Treasury in 1893, the gold reserve had fallen to $100,982,410--only $982,410 above the limit indicated by the Act of 1882--and the public credit was shaken by the fact that it was an open question whether the government obligation to pay a dollar was worth so much or only one half so much.The latter interpretation, indeed, seemed impending.The new Secretary's first step was to adopt the makeshift expedient of his predecessors.He appealed to the banks for gold and backed up by patriotic exhortation from the press, he did obtain almost twenty-five millions in gold in exchange for notes.But as even more notes drawing out the gold were presented for redemption, the Secretary's efforts were no more successful than carrying water in a sieve.
Of the notes presented for redemption during March and April, nearly one-half were treasury notes of 1890, which by law the Secretary might redeem "in gold or silver coin at his discretion." The public was now alarmed by a rumor that Secretary Carlisle, who while in Congress had voted for free silver, would resort to silver payments on this class of notes, and regarded his statements as being noncommittal on the point.Popular alarm was, to some extent, dispelled by a statement from President Cleveland, on the 23rd of April, declaring flatly and unmistakably that redemption in gold would be maintained.But the financial situation throughout the country was such that nothing could stave off the impending panic.Failures were increasing in number, some large firms broke under the strain, and the final stroke came on the 5th of May when the National Cordage Company went into bankruptcy.As often happens in the history of panics, the event was trivial in comparison with the consequences.This company was of a type that is the reproach of American jurisprudence--the marauding corporation.In the very month in which it failed, it declared a large cash dividend.Its stock, which had sold at 147 in January, fell in May to below ten dollars a share.Though the Philadelphia and Reading Railway Company, which failed in February, had a capital of $40,000,000and a debt of more than $125,000,000, the market did not break completely under that strain.The National Cordage had a capital of $20,000,000 and liabilities of only $10,000,000, but its collapse brought down with it the whole structure of credit.
A general movement of liquidation set in, which throughout the West was so violent as to threaten general bankruptcy.Nearly all of the national bank failures were in the West and South, and still more extensive was the wreck of state banks and private banks.It had been the practice of country banks, while firmly maintaining local rates, to keep the bulk of their resources on deposit with city banks at two per cent.This practice now proved to be a fatal entanglement to many institutions.There were instances in which country banks were forced to suspend, though cash resources were actually on the way to them from depository centers.** Out of 158 national bank failures during the year, 153 were in the West and South.In addition there went down 172 state banks, 177 private banks, 47 savings banks, 13 loan and trust companies, and 6 mortgage companies.
Even worse than the effect of these numerous failures on the business situation was the derangement which occurred in the currency supply.The circulating medium was almost wholly composed of bank notes, treasury notes, and treasury certificates issued against gold and silver in the Treasury, coin being little in use except as fractional currency.Bank notes were essentially treasury certificates issued upon deposits of government bonds.
In effect, the circulating medium was composed of government securities reduced to handy bits.Usually, a bank panic tends to bring note issues into rapid circulation for what they will fetch, but in this new situation, people preferred to impound the notes, which they knew to be good whatever happened so long as the Government held out.Private hoarding became so general that currency tended to disappear.Between September 30, 1892 and October 31, 1893, the amount of deposits in the national banks shrank over $496,000,000.Trade was reduced to making use of the methods of primitive barter, though the emergency was met to some extent by the use of checks and clearinghouse certificates.In many New England manufacturing towns, for example, checks for use in trade were drawn in denominations from one dollar up to twenty.In some cases, corporations paid off their employees in checks drawn on their own treasurers which served as local currency.In some Southern cities, clearing-house certificates in small denominations were issued for general circulation--in Birmingham, Alabama, for sums as small as twenty-five cents.It is worth noting that a premium was paid as readily for notes as for gold; indeed, the New York "Financial Chronicle" reported that the premium on currency was from two to three per cent, while the premium on gold was only one and one half per cent.
Before the panic had ended, the extraordinary spectacle was presented of gold coins serving as a medium of trade because treasury notes and bank notes were still hoarded.These peculiarities of the situation had a deep effect upon the popular attitude towards the measures recommended by the Administration.
