464 



FINANCES OF THE UNITED STATES. 



to convert notes into 5-20 year bonds. The 

 general idea prevailing that the Government had 

 embarked on a system of paper money, which 

 would lead to its discredit, and be represented 

 by a general rise in every description of prop- 

 erty, naturally produced a disposition to pur- 

 chase and hold property to avail of that inevi- 

 table rise. This speculative feeling at first at- 

 tached to such articles as could most readily be 

 held and disposed of, and such as were not in 

 superabundant supply. Gold, stocks, all me- 

 tals, and many articles of merchandise, became 

 the objects of speculation, which aided the rise 

 in prices caused by the excess of paper. It was 

 charged on one side that the whole rise was 

 caused by the speculation, and on the other 

 that it was all caused by the depreciation of 

 paper. The fact seems to have been between 

 those opinions. The paper caused the rise, 

 and the knowledge that such would be the in- 

 evitable tendency of the Government money, 

 induced speculators to avail of the knowledge 

 and purchase. Their operations caused prices 

 to rise much higher than they otherwise would 

 have done. Gold particularly was a favorite 

 investment. It was very easily purchased, re- 

 quired no handling, was readily loaned upon 

 by the banks, and could be converted at a mo- 

 ment's motice. Moreover, it was known that 

 the foreign demand was equal to 1 millions 

 per week, which was rapidly reducing the quan- 

 tity at command. The existing laws also re- 

 quired the Government to pay interest in coin, 

 and also required merchants to pay customs in 

 gold. If the customs under the new tariff 

 should reach the estimates of the Secretary, 

 100 millions per annum, the importers would, 

 after the outstanding old demand notes were 

 absorbed, be required to buy two millions of 

 gold per week. This joint demand would re- 

 quire to supply it at least three millions per 

 week, and the active continued demand would 

 necessarily raise it to an exorbitant price. It 

 was argued that the Government would pay 

 out the gold received from the customs, and, 

 therefore, resupply the market; but a little 

 reflection showed that those who received it 

 would not give it away, but would reserve it 

 for the higher premium that the continued 

 issue of paper on one hand, and the demand for 

 gold on the other would inevitably bring about. 

 The banks found a safe and profitable invest- 

 ment in lending on the gold, but the holders of 

 gold or of other articles could draw no interest 

 on the funds thus employed. They would de- 

 pend on the rise in price for their profits. At 

 this juncture the Government being in want of 

 gold, which was 20 per cent, premium, to pay 

 the $1, 875,000 interest maturing on the 50 mil- 

 lions of 7,^ notes August 19th, came forward 

 and proposed to take gold on deposit, return- 

 able in kind at 10 days' notice, and allow 4 per 

 cent, interest. This at once drove speculation 

 into gold. It was a premium of 4 per cent, 

 interest to hold gold instead of copper or tin, 

 or pork, or other articles for a rise. The price 



immediately rose, and ran up to 39 premium 

 at the close of October. Inasmuch as gold 

 governs the price of exchange, bills ran up 

 in the same proportion, and sterling bills which 

 are par at 109 touched 152. The effect of this 

 was to add 40 per cent, to all remittances out 

 of the country. It added 40 per cent, to the 

 cost of importations, which caused them to 

 decline, and with them the customs revenue of 

 the Government, which found 40 per cent, added 

 to all that it had to pay abroad. The salaries 

 of ministers, navy expenses, &c., were all in- 

 creased 40 per cent. The Secretary, alarmed, 

 sought to stop the speculation in gold, which he 

 deemed to be the cause of the evil, and to that 

 end sent on an agent to New York to solicit 

 the banks not to lend on gold, and the Board 

 of Brokers not to deal in it. Some of the banks 

 complied, and the result was that their deposi- 

 tors drew the money and lent it individually 

 upon gold. They thus lost the business with- 

 out reaching the end desired. The Board of 

 Brokers had the weakness to do the same thing, 

 and struck gold from the list of articles dealt 

 in. The effect was that gold was dealt in out- 

 side the board, and while the amount of trans- 

 action was no less, the brokers lost their com- 

 missions. They endured this nearly three weeks, 

 and then, Nov. 16th, not only restored gold to 

 the list, but permitted time operations in it. 

 An effort was then made by free sales for fu- 

 ture delivery at lower rates, to brea-k the sup- 

 posed speculation, and reduce the price. The 

 sales so made were freely taken for export at 

 the expense of the operators for the fall, and 

 prices rose. 



Following the rise in gold, the prices of 

 stocks also advanced, and reached very high 

 figures, and these developed some disposition 

 to convert notes into the 6 per cent. 5-20 stock 

 at par. At that juncture, however, October 

 27th, the Secretary thought proper to make 

 inquiries in relation to the terms on which he 

 could negotiate that stock in the market. As 

 by the terms of the law the notes may at all 

 times be converted into the stock at par, it 

 follows that the stock would never sell higher 

 than that. Any terms proposed must, there- 

 fore, necessarily be below par, and the limit 

 of such an operation at once stopped conver- 

 sions. Meantime the Secretary had since June 

 1st paid out about $17,000,000 7 T 3 5 bonds to 

 creditors and others, and there remained on 

 hand $13,420,550. On the 10th of November he 

 issued a notice for proposals to be opened in 6 

 days for these bonds, the bidder to deposit 10 

 per cent, of the amount with the Assistant 

 Treasurer the bonds to date from the day of 

 deposit. This notice appeared Monday, Novem- 

 ber 10th ; on the next day Mr. Chase asked the 

 banks for a temporary loan of 12 millions, at 5 

 per cent., in anticipation of the proceeds of the 

 loan thus advertised. The money was promptly 

 advanced to him, but to do so money was called 

 in, causing stocks to fall about 2 per cent., and 

 the rate of money to rise 1 per cent. This most 



