Chapter IV: Part 4

It was hoped that this measure of restoration and this exhibition of the nation’s ability to protect its financial integrity would allay apprehension and restore confidence to such an extent as to render further bond sales unnecessary. It was soon discovered, however, that the complications of our ill condition were so deep-seated and stubborn that the treatment resorted to was only a palliative instead of a cure.

On the last day of May, 1894, less than three months after its reinforcement, as mentioned, the gold reserve had been again so depleted by withdrawals that it amounted to only $78,693,267. An almost uninterrupted downward tendency followed, notwithstanding constant efforts on the part of the Government to check the fall, until, on the fourteenth day of November, 1894, the fund had fallen to $61,878,374. In the meantime, the inclination of our timid citizens to take gold from the reserve for hoarding “had grown by what it fed on,” while large shipments abroad to meet foreign indebtedness or for profit still continued and increased in amount.

In these circumstances the inexorable alternative presented itself of again selling Government bonds for the replenishment of its redemption gold, or assuming the tremendous risk of neglecting the safety and permanence of every interest dependent upon the soundness of our national finances. An obedient regard for official duty made the right path exceedingly plain.

On the day last mentioned a public proposal was issued inviting bids in gold for the purchase of additional five per cent. bonds to the amount of $50,000,000. Numerous bids were received under this proposal, one of which, for “all or none” of the bonds, tendered on behalf of thirty-three banking institutions and financiers in the city of New York, being considerably more advantageous to the Government than all other bids, was accepted, and the entire amount was awarded to these parties. This resulted in adding to the reserve the sum of $58,538,500.

The president at that time of the United States Trust Company, one of the strongest and largest financial institutions in the country, rendered most useful and patriotic service in making both this and the previous offer of bonds successful; and his company was a prominent purchaser on both occasions. He afterward testified under oath that the accepted bid for “all or none,” in which his company was a large participant, proved unprofitable to the bidders.

The payment of gold into the Treasury on account of this sale of bonds was not entirely completed until after the 1st of December, 1894. Then followed a time of bitter disappointment and miserable depression, greater than any that had before darkened the struggles of the Executive branch of the Government to save our nation’s financial integrity.

The addition made to the gold reserve by this completed transaction seemed to be of no substantial benefit, if, on the contrary, it did not actually stimulate the disquieting factors of the situation. In December, 1894, during which month $58,538,500 in gold, realized from this second sale of bonds, was fully paid in and added to the reserve, the withdrawals from the fund amounted to nearly $32,000,000; and this was followed in the next month, or during January, 1895, by a further depletion in the sum of more than $45,000,000.

In view of the crisis which these suddenly increased withdrawals seemed to portend, the aid of Congress was earnestly invoked in a special presidential message to that body, dated on the 28th of January, 1895, in which the gravity and embarrassment of the situation were set forth in the following terms:

The real trouble which confronts us consists in a lack of
confidence, widespread and constantly increasing, in the
continuing ability or disposition of the Government to pay
its obligations in gold. This lack of confidence grows to
some extent out of the palpable and apparent embarrassment
attending the efforts of the Government under existing laws to
procure gold, and to a greater extent out of the impossibility
of either keeping it in the Treasury or canceling obligations
by its expenditure after it is obtained....

The most dangerous and irritating feature of the situation,
however, remains to be mentioned. It is found in the means
by which the Treasury is despoiled of the gold thus obtained
(by the sale of bonds) without canceling a single Government
obligation, and solely for the benefit of those who find profit
in shipping it abroad, or whose fears induce them to hoard it
at home. We have outstanding about $500,000,000 of currency
notes of the Government for which gold may be demanded, and,
curiously enough, the law requires that when presented, and, in
fact, redeemed and paid in gold, they shall be reissued. Thus
the same notes may do duty many times in drawing gold from the
Treasury; nor can the process be averted so long as private
parties, for profit or otherwise, see an advantage in repeating
the operation. More than $300,000,000 of these notes have been
redeemed in gold, and, notwithstanding such redemption, they
are still outstanding.

After giving a history of the bond issues already made to replenish the reserve, and of their results, it was further stated:

The financial events of the past year suggest facts and
conditions which should certainly arrest attention. More than
$172,000,000 in gold have been drawn out of the Treasury
during the year for the purpose of shipment abroad or hoarding
at home.

While nearly $103,000,000 was drawn out during the first ten
months of the year, a sum aggregating more than two-thirds of
that amount, being about $69,000,000, was drawn out during the
following two months, thus indicating a marked acceleration of
the depleting process with the lapse of time.

Following a reference to existing differences of opinion in regard to the extent to which silver should be coined or used in our currency, and the irrelevancy of such differences to the matter in hand, the message continued:

While I am not unfriendly to silver, and while I desire to see
it recognized to such an extent as is consistent with financial
safety and the preservation of national honor and credit, I am
not willing to see gold entirely banished from our currency
and finances. To avert such a consequence I believe thorough
and radical remedial legislation should be promptly passed.
I therefore beg the Congress to give the subject immediate
attention.

After recommending the passage of a law authorizing the issue of long-term bonds, bearing a low rate of interest, to be used for the maintenance of an adequate gold reserve and in exchange for outstanding United States notes and Treasury notes for the purpose of their cancelation, and after giving details of the proposed scheme, the message concluded as follows:

In conclusion, I desire to frankly confess my reluctance to
issue more bonds in present circumstances and with no better
results than have lately followed that course. I cannot,
however, refrain from adding to an assurance of my anxiety to
co-operate with the present Congress in any reasonable measure
of relief, an expression of my determination to leave nothing
undone which furnishes a hope for improving the situation, or
checking a suspicion of our disinclination or disability to
meet, with the strictest honor, every national obligation.

This appeal to Congress for legislative aid was absolutely fruitless.

On the eighth day of February, 1895, those who, under the mandate of Executive duty, were striving, thus unaided, to avert the perils of the situation, could count in the gold reserve only the frightfully low sum of $41,340,181; and it must be remembered that this was only two months after the proceeds of the second sale of bonds had been added to the fund. In point of fact, the withdrawals of gold during the short period mentioned had exceeded by more than $18,000,000 the amount of such proceeds; and several million dollars more had been demanded, some of which, though actually taken out, was unexpectedly, and on account of the transaction now to be detailed, returned to the Treasury.

This sudden fall in the reserve, and the apparent certainty of the continuance of its rapid depletion, seemed to justify the fear that before another bond sale by means of public notice and popular subscription could be perfected the gold reserve might be entirely exhausted; nor could we keep out of mind the apprehension that in consequence of repeated dispositions of bonds, with worse instead of better financial conditions impending, further sales by popular subscription might fail of success, except upon terms that would give the appearance of impaired national credit.

Notwithstanding all this, no other way seemed to be open to us than another public offer of bonds; and it was determined to move in that direction immediately.

In anticipation of this action it was important to obtain certain information and suggestions touching the feeling and disposition of those actively prominent in financial and business circles.

I think it may here be frankly confessed that it never occurred to any of us to consult, in this emergency, farmers, doctors, lawyers, shoe-makers, or even statesmen. We could not escape the belief that the prospect of obtaining what we needed might be somewhat improved by making application to those whose business and surroundings qualified them to intelligently respond.

Therefore, on the evening of the seventh day of February, 1895, an interview was held at the White House with Mr. J. P. Morgan of New York; and I propose to give the details of that interview as gathered from a recollection which I do not believe can be at fault. Secretary Carlisle was present nearly or quite all the time, Attorney-General Olney was there a portion of the time, and Mr. Morgan and a young man from his office and myself all the time. At the outset Mr. Morgan was inclined to complain of the treatment he had received from Treasury officials in the repudiation of an arrangement which he thought he had been encouraged to perfect in connection with the disposal of another issue of bonds. I said to Mr. Morgan, whatever there might be in all this, another offer of bonds for popular subscription open to all bidders had been determined upon, and that there were two questions I wanted to ask him which he ought to be able to answer: one was whether the bonds to be so offered would probably be taken at a good price on short notice; and the other was whether, in case there should be imminent danger of the disappearance of what remained of the gold reserve, during the time that must elapse between published notice and the opening of bids, a sufficient amount of gold could be temporarily obtained from financial institutions in the city of New York to bridge over the difficulty and save the reserve until the Government could realize upon the sale of its bonds. Mr. Morgan replied that he had no doubt bonds could be again sold on popular subscription at some price, but he could not say what the price would be; and to the second inquiry his answer was that, in his opinion, such an advance of gold as might be required could be accomplished if the gold could be kept in this country, but that there might be reluctance to making such an advance if it was to be immediately withdrawn for shipment abroad, leaving our financial condition substantially unimproved. After a little further discussion of the situation he suddenly asked me why we did not buy $100,000,000 in gold at a fixed price and pay for it in bonds, under Section 3700 of the Revised Statutes. This was a proposition entirely new to me. I turned to the Statutes and read the section he had mentioned. Secretary Carlisle confirmed me in the opinion that this law abundantly authorized such a transaction, and agreed that it might be expedient if favorable terms could be made. The section of the Statutes referred to reads as follows:

_Section 3700._ The Secretary of the Treasury may purchase coin
with any of the bonds or notes of the United States authorized
by law, at such rates and upon such terms as he may deem most
advantageous to the public interest.

Mr. Morgan strongly urged that, if we proceeded under this law, the amount of gold purchased should not be less than $100,000,000; but he was at once informed that in no event would more bonds be then issued than would be sufficient to provide for adding to the reserve, about $60,000,000, the amount necessary to raise the fund to $100,000,000.

Not many months afterward I became convinced that on this point Mr. Morgan made a wise suggestion; and I have always since regretted that it was not adopted.

III

It can hardly be necessary to state that any plan which would protect from immediate withdrawal the gold we might add to our reserve could not fail to be of extreme value. Such of these withdrawals as were made for hoarding gold could be prevented only by a restoration of confidence among those of our people who had grown suspicious of the Government’s financial ability; but the considerable drain from the reserve for the purchase of the very bonds to be sold for its reinforcement, and the much larger drain made by those who profited by the shipment of gold abroad, could be, measurably at least, directly arrested. Thus to the extent that foreign gold might be brought here and used for the purchase of bonds, the use for that purpose of such as was held by our own people or as was already in the reserve subject to their withdrawal would not only be decreased, but the current of the passage of gold would be changed and would flow toward us instead of away from us, making the prospect of profit in gold exportation less alluring. An influx of gold from abroad would also have a tendency to decrease the sentimental estimate of its desirability which its unrelieved scarcity was apt to create in timid minds. It was especially plain that so far as withdrawals from our reserve for speculative shipment abroad were concerned, they could be discouraged by the efforts of those whose financial connections in other countries enabled them to sell gold exchange on foreign money centers at a price which would make the actual transportation of the coin itself unprofitable.

The position of Mr. Morgan and the other parties in interest whom he represented was such in the business world that they were abundantly able, not only to furnish the gold we needed, but to protect us in the manner indicated against its immediate loss. Their willingness to undertake both these services was developed during the discussion of the plan proposed; and after careful consideration of every detail until a late hour of the night, an agreement was made by which J. P. Morgan & Co. of New York, for themselves and for J. S. Morgan & Co. of London; and August Belmont & Co. of New York, for themselves and for N. M. Rothschild & Son of London, were to sell and deliver to the Government 3,500,000 ounces of standard gold coin of the United States, to be paid for in bonds bearing annual interest at the rate of four per cent. per annum, and payable at the pleasure of the Government after thirty years from their date, such bonds to be issued and delivered from time to time as the gold coin to be furnished was deposited by said parties in the subtreasuries or other legal depositories of the United States. At least one half of the coin so delivered was to be obtained in Europe, and shipped from there in amounts not less than 300,000 ounces per month, at the expense and risk of the parties furnishing the same; and so far as it was in their power they were to “exert all financial influence and make all legitimate efforts to protect the Treasury of the United States against the withdrawals of gold pending the complete performance of the contract.”

Four per cent. bonds were selected for use in this transaction instead of ten-year bonds bearing five per cent. interest, because their maturity was extended to thirty years, thus offering a more permanent and inviting investment, and for the further reason that $100,000,000 of shorter five per cent. bonds had already been issued, and it was, therefore, deemed desirable to postpone these further bond obligations of the Government to a later date. The price agreed upon for the gold coin to be delivered was such that the bonds given in payment therefor would yield to the investor an annual income of three and three fourths per cent.

It has already been stated that the only bonds which could be utilized in our efforts to maintain our gold reserve were those described in a law passed as early as 1870, and made available for our uses by an act passed in 1875. The terms of these bonds were ill suited to later ideas of investment, and they were made payable in coin and not specifically in gold. Nothing at any time induced the exchange of gold for these coin bonds, except a reliance upon such a measure of good faith on the part of the Government, and honesty on the part of the people, as would assure their payment in gold coin and not in depreciated silver.

It was exceedingly fortunate that, at the time this agreement was under consideration, certain political movements calculated to undermine this reliance upon the Government’s continued financial integrity were not in sight; but it was, nevertheless, very apparent that the difficulties of the situation would be greatly lessened if, in safeguarding our reserve, bonds could be used payable by their terms in gold, and bearing a rate of interest not exceeding three per cent. Accordingly, at the instance of Secretary Carlisle, a bill had been introduced in the House of Representatives, some time before the Morgan-Belmont agreement was entered upon, which authorized the issue of bonds of that description. A few hours before the agreement was consummated this sane and sensible legislation was brought to a vote in the House and rejected.

When, in our interview with Mr. Morgan, the price for the gold to be furnished was considered, he gave reasons which we could not well answer in support of the terms finally agreed upon; but he said that the parties offering to furnish the gold would be glad to accept at par three per cent. bonds, payable by their terms in gold instead of in coin, in case their issue could be authorized. He expressed not only a willingness but a strong desire that a substitution might be made of such bonds in lieu of those already selected, and readily agreed to allow us time to procure the necessary legislation for that purpose. He explained, however, that only a short time could be stipulated for such a substitution, because in order to carry out successfully the agreement contemplated, the bonds must be offered in advance to investors both here and abroad, and that after numerous subscriptions had been received from outside parties the form and condition of the securities could not be changed; and he added that, but for this, there would be no objection to the concession of all the time desired. It was finally agreed that ten days should be allowed us to secure from Congress the legislation necessary to permit the desired substitution of bonds. A simple calculation demonstrated that by such a substitution the Government would save on account of interest more than $16,000,000 before the maturity of the bonds. It was further stipulated on the part of the Government that if the Secretary of the Treasury should desire to sell any further bonds on or before October 1, 1895, they should first be offered to the parties then represented by Mr. Morgan. This stipulation did not become operative.

When our conference terminated it was understood that Secretary Carlisle and Attorney-General Olney should act for the Government at a meeting between the parties early the following day, at which the agreement we had made was to be reduced to writing; and thereupon I prepared a message which was submitted to the Congress at the opening of its session on the following day, in which the details of our agreement were set forth and the amount which would be saved to the Government by the substitution of three per cent. gold bonds was plainly stated; but having no memorandum of the agreement before me, in my haste I carelessly omitted to mention the efforts agreed on by Mr. Morgan and his associates to prevent gold shipments. The next morning a contract embodying our agreement was drawn and signed, and a copy at once given to the chairman of the Ways and Means Committee of the House, so that the delay of a demand for its inspection might be avoided. A bill was also immediately introduced again giving authority to issue three per cent. bonds, payable by their terms in gold, to be substituted in place of the four per cent. bonds as provided in the contract--to the end that $16,000,000 might be saved to the Government, and the public welfare in every way subserved.

The object of this message was twofold. It was deemed important, considering the critical condition of our gold reserve, that the public should be speedily informed of the steps taken for its protection; and in addition, though previous efforts to obtain helpful legislation had resulted in discouragement, it was hoped that when the saving by the Government of $16,000,000 was seen to depend on the action of Congress there might be a response that would accord with patriotic public duty.

Quite in keeping with the congressional habit prevailing at that time, the needed legislation was refused, and this money was not saved.

The contract was thereupon carried out as originally made. In its execution four per cent. bonds were delivered amounting to $62,315,400, and the sum of $65,116,244.62 in gold received as their price. The last deposit in completion of the contract was made in June, 1895, but additional gold was obtained from the contracting parties in exchange for United States notes and Treasury notes until in September, 1895, when the entire amount of gold received from them under the contract and through such exchanges had amounted to more than $81,000,000. The terms of the agreement were so well carried out, not only in the matter of furnishing gold, but in procuring it from abroad and protecting the reserve from withdrawals, that during its continuance the operation of the “endless chain” which had theretofore drained our gold was interrupted. No gold was, during that period, taken from the Treasury to be used in the purchase of bonds, as had previously been the case, nor was any withdrawn for shipment abroad.

It became manifest, however, soon after this contract was fully performed, that our financial ailments had reached a stage so nearly chronic that their cure by any treatment within Executive reach might well be considered a matter of anxious doubt. In the latter months of the year 1895 a scarcity of foreign exchange and its high rate, the termination of the safeguards of the Morgan-Belmont contract, and, as a result, the renewal of opportunity profitably to withdraw gold for export with a newly stimulated popular apprehension, and perhaps other disturbing incidents, brought about a recurrence of serious depletions of gold from the reserve.

In the annual Executive message sent to Congress on the second day of December, 1895, the situation of our finances and currency was set forth in detail, and another earnest plea was made for remedial legislative action. After mentioning the immediately satisfactory results of the contract for the purchase of gold, the message continued:

Though the contract mentioned stayed for a time the tide of
gold withdrawals, its good results could not be permanent.
Recent withdrawals have reduced the reserve from $107,571,230
on the eighth day of July, 1895, to $79,333,966. How long it
will remain large enough to render its increase unnecessary is
only a matter of conjecture, though quite large withdrawals for
shipment in the immediate future are predicted in well-informed
quarters. About $16,000,000 has been withdrawn during the month
of November.

The prediction of further withdrawals mentioned in this message was so fully verified that eighteen days after its transmission, and on the twentieth day of December, 1895, another Executive communication was sent to Congress, in contemplation of its holiday recess, in which, after referring to the details contained in the former message, it was stated:

The contingency then feared has reached us, and the withdrawals
of gold since the communication referred to, and others
that appear inevitable, threaten such a depletion in our
Government’s gold reserve as brings us face to face with the
necessity of further action for its protection. This condition
is intensified by the prevalence in certain quarters of sudden
and unusual apprehension and timidity in business circles.

The real and sensible cure for our recurring troubles can only
be effected by a complete change in our financial scheme.
Pending that, the Executive branch of the Government will not
relax its efforts nor abandon its determination to use every
means within its reach to maintain before the world American
credit, nor will there be any hesitation in exhibiting its
confidence in the resources of our country and the constant
patriotism of our people.

In view, however, of the peculiar situation now confronting us,
I have ventured to herein express the earnest hope that the
Congress, in default of the inauguration of a better system
of finance, will not take a recess from its labors before it
has, by legislative enactment or declaration, done something,
not only to remind those apprehensive among our own people
that the resources of this Government and a scrupulous regard
for honest dealing afford a sure guarantee of unquestioned
safety and soundness, but to reassure the world that with these
factors, and the patriotism of our citizens, the ability and
determination of our nation to meet in any circumstances every
obligation it incurs do not admit of question.

Perhaps it should not have been expected that members of Congress would permit troublesome thoughts of the Government’s financial difficulties to disturb the pleasant anticipations of their holiday recess; at any rate, these difficulties and the appeal of the President for at least some manifestation of a disposition to aid in their remedy were completely ignored.

On the sixth day of January, 1896, the gold reserve having fallen to $61,251,710, its immediate repair became imperative. Though our resort to the expedient of purchasing gold with bonds under contract had been productive of very satisfactory results, it by no means indicated our abandonment of the policy of inviting offerings of gold by public advertisement. It was rather an exceptional departure from that policy, made necessary by the dangerously low state of the reserve on account of extensive and sudden depletions, and the peril attending any delay in replenishing it. We had not lost faith in the loyalty and patriotism of the people, nor did we doubt their willingness to respond to an appeal from their Government in any emergency. We also confidently believed that if the bonds issued for the purpose of increasing our stock of gold were widely distributed among our people, self-interest as well as patriotism would stimulate the solicitude of the masses of our citizens for the welfare of the nation. No reason for discouragement had been found in public offerings for bonds, so far as obtaining a needed supply of gold and a fair price for our bonds were concerned. The failure of their wide distribution among the people when so disposed of seemed to be largely owing to the fact that the bonds themselves were so antiquated in form, and bore so high a rate of interest, that it was difficult for an ordinary person to make the rather confusing computation of premium and other factors necessary to a safe and intelligent bid. In a transaction of this sort, where the smallest fraction of a cent may determine the success of an offer, those accustomed to the niceties of financial calculations are apt to hold the field to the exclusion of many who, unaided, dare not trust themselves in the haze of such intricacies. If Congress had provided for the issuance of bonds bearing a low rate of interest, which could have been offered to the public at par, I am convinced that the plain people of the land would more generally have become purchasers. Another difficulty that had to some extent prevented a more common participation by the people in prior public sales arose, it was thought, from their lack of notice of the pendency of such sales, and want of information as to the advantages of the investment offered, and the procedure necessary to present their bids in proper form.

In view of the fact that the gold then in the reserve amounted to $20,000,000 more than it contained eleven months earlier, when the Morgan-Belmont contract was made, and because, for that reason, more time could be allowed for its replenishment, there was no hesitation in deciding upon a return to our original plan of offering bonds in exchange for gold by public subscription.

Having determined upon a return to this method, it was deemed wise, upon consideration of all the circumstances, to make some modification of prior action in such cases. Instead of short-term five per cent. bonds, the longer-term bonds bearing four per cent. interest were substituted, as, on the whole, the best we could offer for popular subscription. Since two offerings of $50,000,000 each had proved to be of only very temporary benefit, it was determined to double the amount and offer $100,000,000 for subscription. Nearly a month was to be given instead of a shorter time, as theretofore, between the date of notice of the offer and the opening of the bids; and extraordinary efforts were to be made to give the most thorough publicity to the offerings--to the end that we might stimulate in every possible way the desire of the masses of our people to invest in the bonds. Especial information and aid were to be furnished for the guidance of those inclined to subscribe; and successful bidders were to be allowed to pay for the bonds awarded to them in instalments. The lowest denomination of the bonds was to be fifty dollars, and the larger ones were to be in multiples of that sum. In point of fact, it was resolved that nothing should be left undone which would in any way promote the success of this additional and increased offer of bond subscription to the public.

Accordingly, on the sixth day of January, 1896, a circular bearing that date was issued, giving notice that proposals would be received until the fifth day of February following for gold coin purchases of $100,000,000 of the four per cent. bonds of the United States, upon the terms above mentioned. These circulars were extensively published in the newspapers throughout the country. Copies, together with a letter of instruction to bidders, containing, among other things, a computation showing the income the bonds would yield to the investor upon their purchase at prices therein specified, and accompanied by blanks for subscription, were sent to the postmasters in every State and Territory with directions that they should be conspicuously displayed in their offices. The Comptroller of the Currency prepared and sent to all national banks a circular letter, urging them to call the attention of their patrons to the desirability of obtaining the bonds as an investment, and to aid in stimulating subscriptions; and with this was forwarded a complete set of papers similar to those sent to the postmasters. These papers were also sent to other banks and financial institutions and to bankers in all parts of the country, and, in addition, notice was given that they could be obtained upon application to the Treasury Department or any of the subtreasuries of the United States. Soon afterward, in view of the large amount of the bonds offered, and as a precaution against an undue strain upon the general money market, as well as to permit the greatest possible opportunity for subscription, the terms of the original offer of the Secretary of the Treasury were modified by reducing in amount the instalments of the purchase price and extending the time for their payment.

On an examination of the bids at the expiration of the time limited for their presentation, it was found that 4635 bids had been received, after rejecting six which were palpably not genuine or not made in good faith. The bidders were scattered through forty-seven of our States and Territories, and the aggregate amount represented by their bids was $526,970,000. The number of accepted bids upon which bonds were awarded was only 828, and of these ten were forfeited after acceptance, on account of non-payment of the first instalment of the purchase price. Several of the bids accepted were for a single fifty-dollar bond, and they varied in amount from that to one bid made by J. P. Morgan & Co. and several associates for the entire issue of $100,000,000, for which they offered 110.6877 on the dollar. To all the other 827 accepted bidders who offered even the smallest fraction of a farthing more than this the full number of bonds for which they bid were awarded.

The aggregate of the bonds awarded to these bidders, excluding the Morgan bid, amounted to $62,321,150. The remainder of the entire offering, including more than $4,700,000 of the awards which became forfeited for non-payment as above mentioned, were awarded to Mr. Morgan and his associates, their bid being the highest next to those on which bonds had been awarded in full, as already stated.

The aggregate of the prices received for these bonds represented, by reason of the premiums paid, an income to the investor of a trifle less than three and four tenths per cent.

As a result of this large sale of bonds, the gold reserve, which, on the last day of January, 1896, amounted to less than $50,000,000, was so increased that at the end of February, in spite of withdrawals in the meantime, it stood at nearly $124,000,000.

It will be observed that, notwithstanding all the efforts made to distribute this issue of bonds among the people, but 827 bids out of 4641 were entitled to awards as being above the Morgan bid; and that more than one third of all the bonds sold were awarded on the single bid of Mr. Morgan and his associates.

The price received on this public sale was apparently somewhat better for the Government than that secured by the Morgan-Belmont contract; but their agreement required of them such labor, risk, and expense as perhaps entitled them to a favorable bargain. In any event, the advantages the Government derived from this contract were certainly very valuable and should not be overlooked. On every sale of bonds by public offering, not excluding that just mentioned, large amounts of gold were withdrawn from the Treasury and used in paying for the bonds offered. In the execution of the contract of February, 1895, no gold was withdrawn for the purchase of the bonds, and the reserve received the full benefit of the transaction. Each sale by public advertisement made prior to the time of the contract had been so quickly followed by extensive and wasting withdrawals of gold from the reserve, that scarcely a breathing-time was allowed before we were again overtaken by the necessity for its reinforcement. Even after the notice given for the last sale on the eighth day of January, 1896, and between that date and the 1st of June following, these withdrawals amounted to more than $73,000,000, while during the six months or more of the existence of the Morgan-Belmont contract the withdrawals of gold for export were entirely prevented and a season of financial quiet and peace was secured.

Whatever may be the comparative merits of the two plans for maintaining our gold reserve, both of them when utilized were abundantly and clearly justified.

Whether from fatigue of malign conditions or other causes, ever since the last large sale of bonds was made the gold reserve has been so free from depletion that its condition has caused no alarm.

Two hundred and sixty-two millions of dollars in bonds were issued on its account during the critical time covered by this narrative; but the credit and fair fame of our nation were saved.

I have attempted to give a detailed history of the crime charged against an administration which “issued bonds of the Government in time of peace.” Without shame and without repentance, I confess my share of the guilt; and I refuse to shield my accomplices in this crime who, with me, held high places in that administration. And though Mr. Morgan and Mr. Belmont and scores of other bankers and financiers who were accessories in these transactions may be steeped in destructive propensities, and may be constantly busy in sinful schemes, I shall always recall with satisfaction and self-congratulation my association with them at a time when our country sorely needed their aid.

THE VENEZUELAN BOUNDARY CONTROVERSY

I

There is no better illustration of the truth that nations and individuals are affected in the same manner by like causes than is often furnished by the beginning, progress, and results of a national boundary dispute. We all know that among individuals, when neighbors have entered upon a quarrel concerning their division-line or the location of a line fence, they will litigate until all account of cost and all regard for the merits of the contention give place to a ruthless and all-dominating determination, by fair means or foul, to win; and if fisticuffs and forcible possession are resorted to, the big, strong neighbor rejoices in his strength as he mauls and disfigures his small and weak antagonist.

It will be found that nations behave in like fashion. One or the other of two national neighbors claims that their dividing-line should be defined or rectified in a certain manner. If this is questioned, a season of diplomatic untruthfulness and finesse sometimes intervenes for the sake of appearances. Developments soon follow, however, that expose a grim determination behind fine phrases of diplomacy; and in the end the weaker nation frequently awakens to the fact that it must either accede to an ultimatum dictated by its stronger adversary, or look in the face of war and a spoliation of its territory; and if such a stage is reached, superior strength and fighting ability, instead of suggesting magnanimity, are graspingly used to enforce extreme demands if not to consummate extensive conquest or complete subjugation.

I propose to call attention to one of these unhappy national boundary disputes, between the kingdom of Great Britain and the South American republic of Venezuela, involving the boundary-line separating Venezuela from the English colony of British Guiana, which adjoins Venezuela on the east.

Venezuela, once a Spanish possession, declared her independence in 1810, and a few years afterward united with two other of Spain’s revolted colonies in forming the old Colombian federal union, which was recognized by the United States in 1822. In 1836 this union was dissolved and Venezuela became again a separate and independent republic, being promptly recognized as such by our Government and by other powers. Spain, however, halted in her recognition until 1845, when she quite superfluously ceded to Venezuela by treaty the territory which as an independent republic she had actually owned and possessed since 1810. But neither in this treaty nor in any other mention of the area of the republic were its boundaries described with more definiteness than as being “the same as those which marked the ancient viceroyalty and captaincy-general of New Granada and Venezuela in the year 1810.”

England derived title to the colony of Guiana from Holland in 1814, by a treaty in which the territory was described as “the Cape of Good Hope and the establishments of Demerara, Essequibo, and Berbice.” No boundaries of those settlements or “establishments” were given in the treaty, nor does it appear that any such boundaries had ever been particularly defined.

It is quite apparent that the limits of these adjoining countries thus lacking any mention of definite metes and bounds, were in need of extraneous assistance before they could be exactly fixed, and that their proper location was quite likely to lead to serious disagreement. In such circumstances threatening complications can frequently be avoided if the adjoining neighbors agree upon a divisional line promptly, and before their demands are stimulated and their tenacity increased by a real or fancied advance in the value of the possessions to be divided, or other incidents have intervened to render it more difficult to make concessions.

I shall not attempt to sketch the facts and arguments that bear upon the exact merits of this boundary controversy between Great Britain and Venezuela. They have been thoroughly examined by an arbitral tribunal to which the entire difficulty was referred, and by whose determination the boundary between the two countries has been fixed--perhaps in strict accord with justice, but at all events finally and irrevocably. Inasmuch, however, as our own country became in a sense involved in the controversy, or at least deeply concerned in its settlement, I have thought there might be interest in an explanation of the manner and the processes by which the interposition of the United States Government was brought about. I must not be expected to exclude from mention every circumstance that may relate to the merits of the dispute as between the parties primarily concerned; but so far as I make use of such circumstances I intend to do so only in aid and simplification of the explanation I have undertaken.

This dispute began in 1841. On October 5 of that year the Venezuelan minister to Great Britain, in a note to Lord Aberdeen, Principal Secretary of State for Foreign Affairs, after reminding the secretary that a proposal made by Venezuela on the 28th of January, 1841, for joint action in the matter of fixing a divisional boundary, still awaited the acceptance of Great Britain, wrote as follows:

The Honorable Earl of Aberdeen may now judge of the surprise of
the Government of Venezuela upon learning that in the territory
of the Republic a sentry-box has been erected upon which the
British flag has been raised. The Venezuelan Government is in
ignorance of the origin and purport of these proceedings, and
hopes that they may receive some satisfactory explanation of
this action. In the meantime the undersigned, in compliance
with the instructions communicated to him, urges upon the
Honorable Earl of Aberdeen the necessity of entering into a
treaty of boundaries as a previous step to the fixation of
limits, and begs to ask for an answer to the above-mentioned
communication of January 28.

Lord Aberdeen, in his reply, dated October 21, 1841, makes the following statement:

Her Majesty’s Government has received from the Governor of
British Guiana, Mr. Schomburgk’s report of his proceedings in
execution of the commission with which he has been charged.
That report states that Mr. Schomburgk set out from Demerara in
April last and was on his return to the Essequibo River at the
end of June. It appears that Mr. Schomburgk planted boundary
posts at certain points of the country which he has surveyed,
and that he was fully aware that the demarcation so made was
merely a preliminary measure, open to further discussion
between the Governments of Great Britain and Venezuela. But
it does not appear that Mr. Schomburgk left behind him any
guard-house, sentry-box, or other building having the British
flag.

With respect to the proposal of the Venezuelan Government
that the Governments of Great Britain and Venezuela should
conclude a treaty as a preliminary step to the demarcation
of the boundaries between British Guiana and Venezuela, the
undersigned begs leave to observe that it appears to him that
if it should be necessary to make a treaty upon the subject of
the boundaries in question, such a measure should follow rather
than precede the operation of the survey.

In a communication dated the 18th of November, 1841, the Venezuelan minister, after again complaining of the acts of Schomburgk and alleging that he “has planted at a point on the mouth of the Orinoco several posts bearing Her Majesty’s initials, and raised at the same place, with a show of armed forces, the British flag, and also performed several other acts of dominion and government,” refers to the great dissatisfaction aroused in Venezuela by what he calls “this undeserved offense,” and adds: “The undersigned therefore has no doubts but that he will obtain from Her Majesty’s Government a reparation for the wrong done to the dignity of the Republic, and that those signs which have so unpleasantly shaken public confidence will be ordered removed.”

No early response having been made to this communication, another was addressed to Lord Aberdeen, dated December 8, 1841, in which the representative of Venezuela refers to his previous unanswered note and to a recent order received from his government, which he says directs him “to insist not only upon the conclusion of a treaty fixing the boundaries between Venezuela and British Guiana, but also, and this very particularly, to insist upon the removal of the signs set up, contrary to all rights, by the surveyor R. H. Schomburgk in Barima and in other points of the Venezuelan territory”; and he continues: “In his afore-mentioned communication of the 18th of last month, the undersigned has already informed the Honorable Earl of Aberdeen of the dissatisfaction prevailing among the Venezuelans on this account, and now adds that this dissatisfaction, far from diminishing, grows stronger--as is but natural--as time goes on and no reparation of the wrongs is made.”

These two notes of the Venezuelan minister were answered on the eleventh day of December, 1841. In his reply Lord Aberdeen says:

The undersigned begs leave to refer to his note of the 21st
of October last, in which he explained that the proceeding of
Mr. Schomburgk in planting boundary posts at certain points
of the country which he has surveyed was merely a preliminary
measure open to future discussion between the two Governments,
and that it would be premature to make a boundary treaty before
the survey will be completed. The undersigned has only further
to state that much unnecessary inconvenience would result from
the removal of the posts fixed by Mr. Schomburgk, as they
will afford the only tangible means by which Her Majesty’s
Government can be prepared to discuss the question of the
boundaries with the Government of Venezuela. These posts were
erected for that express purpose, and not, as the Venezuelan
Government appears to apprehend, as indications of dominion and
empire on the part of Great Britain.

In a reply to this note, after referring to the explanation of the purpose of these posts or signs which Lord Aberdeen had given, it was said, in further urging their removal: “The undersigned regrets to be obliged to again insist upon this point; but the damages sustained by Venezuela on account of the permanence of said signs are so serious that he hopes in view of those facts that the trouble resulting from their removal may not appear useless.” The minister followed this insistence with such earnest argument that on the thirty-first day of January, 1842, nearly four months after the matter was first agitated, Lord Aberdeen informed the Venezuelan minister that instructions would be sent to the governor of British Guiana directing him to remove the posts which had been placed by Mr. Schomburgk near the Orinoco. He, however, accompanied this assurance with the distinct declaration “that although, in order to put an end to the misapprehension which appears to prevail in Venezuela with regard to the object of Mr. Schomburgk’s survey, the undersigned has consented to comply with the renewed representation of the Minister upon this affair, Her Majesty’s Government must not be understood to abandon any portion of the rights of Great Britain over the territory which was formerly held by the Dutch in Guiana.”

It should be here stated that the work which Schomburgk performed at the instance of the British Government consisted not only in placing monuments of some sort at the mouth of the Orinoco River, upon territory claimed by Venezuela, but also in locating from such monuments a complete dividing-line running far inland and annexing to British Guiana on the west a large region which Venezuela also claimed. This line, as originally located or as afterward still further extended to the west, came to be called “the Schomburgk line.”

The Orinoco River, flowing eastward to the sea, is a very broad and deep waterway, which, with its affluents, would in any event, and however the bounds of Venezuela might be limited, traverse a very extensive portion of that country’s area; and its control and free navigation are immensely important factors in the progress and prosperity of the republic. Substantially at the mouth of the Orinoco, and on its south side, two quite large rivers, the Barima and the Amacuro, flow into the sea. The region adjacent to the mouth of those rivers has, sometimes at least, been called Barima; and it was here that the posts or signs complained of by Venezuela were placed.

The coast from the mouth of the Orinoco River slopes or drops to the east and south; and some distance from that river’s mouth, in the directions mentioned, the Essequibo, a large river flowing for a long distance from the south, empties into the sea.

After the correspondence I have mentioned, which resulted in the removal of the so-called initial monuments of the Schomburgk line from the Barima region, there seems to have been less activity in the boundary discussion until January 31, 1844, when the Venezuelan minister to England again addressed Lord Aberdeen on the subject. He referred to the erection of the Schomburgk monuments and the complaints of Venezuela on that account, and stated that since the removal of those monuments he had not ceased to urge Lord Aberdeen “to commence without delay negotiations for a treaty fixing definitely the boundary-line that shall divide the two countries.” He adds the following very sensible statement: “Although it was undoubtedly the duty of the one who promoted this question to take the first step toward the negotiation of the treaty, the undersigned being well aware that other important matters claim the attention of Her Majesty’s Government, and as he ought not to wait indefinitely, hastens to propose an agreement which, if left for a later date, may be difficult to conclude.” It is disappointing to observe that the good sense exhibited in this statement did not hold out to the end of the minister’s communication. After a labored presentation of historical incidents, beginning with the discovery of the American continent, he concludes by putting forward the Essequibo River as the proper boundary-line between the two countries. This was a proposition of such extreme pretensions that the Venezuelan representative knew, or ought to have known, it would not be considered for a moment by the Government of Great Britain; and it seems to me that a diplomatic error was made when, failing to apprehend the fact that the exigencies of the situation called for a show of concession, the Venezuelan minister, instead of intimating a disposition to negotiate, gave Great Britain an opportunity to be first in making proposals apparently calculated to meet the needs of conciliation and compromise.

Thus two months after the receipt of this communication,--on the thirtieth day of March, 1844,--Lord Aberdeen sent his reply. After combating the allegations contained in the letter of the Venezuelan representative, he remarked that if he were inclined to act upon the spirit of that letter, it was evident that he ought to claim on behalf of Great Britain, as the rightful successor to Holland, all the coast from the Orinoco to the Essequibo. Then follows this significant declaration:

But the undersigned believes that the negotiations would not
be free from difficulties if claims that cannot be sustained
are presented, and shall not therefore follow Señor Fortique’s
example, but state here the concessions that Great Britain
is disposed to make of her rights, prompted by a friendly
consideration for Venezuela and by her desire to avoid all
cause of serious controversies between the two countries. Being
convinced that the most important object for the interests
of Venezuela is the exclusive possession of the Orinoco, Her
Majesty’s Government is ready to yield to the Republic of
Venezuela a portion of the coast sufficient to insure her the
free control of the mouth of this her principal river, and to
prevent its being under the control of any foreign power.

Lord Aberdeen further declared that, “with this end in view, and being persuaded that a concession of the greatest importance has been made to Venezuela,” he would consent on behalf of Great Britain to a boundary which he particularly defined, and in general terms may be described as beginning in the mouth of the Moroco River, which is on the coast southeast of the mouth of the Orinoco River and about two thirds of the distance between that point and the Essequibo River, said boundary running inland from that point until it included in its course considerably more territory than was embraced within the original Schomburgk line, though it excluded the region embraced within that line adjacent to the Barima and Amacuro rivers and the mouth of the Orinoco.