The Gold-Standard Act (1900)

BY SECRETARY LYMAN JUDSON GAGE

I AM satisfied that the new law establishes the gold standard beyond assault, unless it is deliberately violated. . . .

It is quite true that the legal tender quality has not been taken away from the silver and paper money of the United States. It would have been a remarkable and disquieting thing to do and it would have been quite as likely to weaken as to strengthen our monetary system. It makes no difference to anybody to-day whether he is paid in gold or silver, so long as the two metals circulate at par with each other and are received on deposit by the banks without discrimination. What difference would it make to me if I held some bonds and Mr. Bryan should direct his Secretary of the Treasury to sort out some of his limited stock of silver dollars for the purpose of redeeming the bonds? Would I not immediately deposit the silver in my bank and draw checks against it, just as I would if the Secretary had exercised the more rational policy of paying me with a Sub-Treasury check?

I believe that silver will never drop below par in gold? The crux of the proposition is that adequate measures have been taken by the new law to prevent such a contingency. . . .

The question is largely an academic one whether any provision is made for maintaining the parity of gold and silver beyond the provisions of previous laws, for the simple reason that methods were already in operation which maintained this parity under severe strain from the first coinage of the Bland dollars in 1878 down to the repeal of the silver purchase law in 1893 and have maintained such parity ever since. Prof. Laughlin understands the practical operation of these methods of redemption through the receipt of silver for public dues. This method will unquestionably prove adequate, upon the single condition that our mints are not opened to the free coinage of silver and no further considerable purchase or coinage of silver takes place. The facts of the situation and the experience of other countries with a considerable amount of silver coins plainly show that the suspension of free coinage and the receipt of the silver coins without discrimination for public dues are in themselves sufficient to maintain parity.

But I think Prof. Laughlin is mistaken in his criticism that no means whatever have been provided for maintaining the parity between gold and silver. He admits that the first section of the Act declares that "All forms of money issued or coined by the United States shall be maintained at a parity of value with this standard, and it shall be the duty of the Secretary of the Treasury to maintain such parity." He criticises this provision upon the ground that it gives absolutely nothing with which to maintain parity. . . .

It is to be regretted that the provision on this subject is not put in plainer language. I understand that it was urged upon the Conference Committee that this clause should read, "it shall be the duty of the Secretary of the Treasury to use all appropriate means to maintain such parity." This would have conveyed sweeping and complete authority to buy gold, sell bonds, or take any other steps in execution of a solemn duty imposed by Congress. But there is another provision of the bill which Prof. Laughlin seems to have disregarded. This is in section 2, providing for the gold reserve, where it is prescribed that when bonds are sold for the maintenance of the reserve the Secretary of the Treasury, after exchanging the gold for notes and depositing the latter in the general fund of the Treasury, "may, in his discretion, use said notes in exchange for gold, or to purchase or redeem any bonds of the United States, or for any other lawful purpose the public interest may require, except that they shall not be used to meet deficiencies in the current revenues." The declaration that notes may be used "for any lawful purpose," certainly includes the maintenance of parity between gold and silver, since it is distinctly made a legal obligation of the Secretary by the first section. If the Secretary of the Treasury, therefore, finds a considerable fund of redeemed notes in the general fired of the Treasury, and fears that silver will fall below parity with gold, he is able under this provision to pay for silver in United States notes which are redeemable in gold on demand. It seems to me this affords an important and almost perfect means of maintaining the parity of gold and silver. It amounts in substance to the ability of the holder of silver dollars to obtain gold notes for them, if the Secretary of the

Treasury, under the mandate laid upon him by law, finds it necessary to offer such notes in order to maintain the parity of silver.

But suppose that there were no notes in the general fund of the Treasury which could be used for this purpose? — if, in other words, there was no demand for gold by the presentation of United States notes, which had resulted in an accumulation of the latter — it is pretty plain that there would be no demand for the exchange of silver for gold. The entire body of the law on this subject is calculated for a period of distrust and demand for gold. If such a demand occurs it must fall upon the gold resources of the Government by the presentation of notes. The notes then become available for exchange for silver. If the criticism is made that this puts the notes afloat again in excessive quantities, it may be answered that the quantity of silver in circulation has been diminished, that a gold note has taken its place, and that if this note comes back for redemption in gold the Treasury is fully equipped by law for obtaining additional gold by the sale of bonds and holding the note until financial conditions have changed. . . .

Objection is made to the new law that it does not make the bonds of the United States redeemable in gold. That is true in a narrow sense. The new law, as finally enacted, does not change the contract between the Government and the holder of the bond, which was an agreement to pay coin. . . . I think that upon many grounds the conference committee acted wisely in refusing to make this change. It establishes a dangerous precedent to enact a retroactive law. . . . For those who prefer a gold bond Congress provided the means of obtaining it by offering the new two per cent bonds upon terms of conversion approaching the market value of the old bonds. . . . Nobody doubts that these bonds will be as good as gold, and it is wholly immaterial whether some Secretary of the Treasury pursues the infantile policy of paying silver dollars upon these bonds instead of checks, when as I have shown all money of the United States is convertible into gold. These are the distinct provisions of the new law and they cannot fail to maintain the gold standard except by the deliberate violation of the duty imposed by the law upon the Secretary of the Treasury.

Lyman J. Gage, The Gold Standard Law, in Sound Currency, July, 1900 (New York), VII, 113–115 passim.