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THE MOVEMENT OF GOLD.1

68. One of the most frequent and plausible objections to the retirement of the government legal-tender notes, and their replacement by a national bank currency, arises from the question, how would the banks obtain and hold a metallic reserve? It is admitted that under any system, a substantial cash reserve must be maintained by banks against their deposits. Under the existing system, this reserve, which is merely required to be of "lawful money," may be made up of gold, of silver, or of legal-tender paper of the United States, or of all three combined. In their reports to the Comptroller of the Currency on December 15, 1897, the 3607 national banks of the United States reported aggregate cash reserves of $252,163,553 specie and $158,404,875 legal tenders. Of the specie thus held, $207,093,145 was either gold coin or certificates of ownership of gold coin; the rest was chiefly silver certificates.

These figures show that, although the greater part of the national bank reserves is already in the form of gold, nevertheless about 38 per cent. of that reserve consists of legal tenders. The question has, therefore, very properly been raised, how are the bank reserves to be kept good if the legal tenders are to be gradually extinguished? If the $158,404,875 noted above, or such amount of legal tenders as may at any time exist in the national bank reserves, is to be withdrawn, it must be replaced by other "lawful money," and that lawful money must apparently be gold. Whence then, it is asked, are the banks to procure this gold? Can they be sure of getting it in the first place, and if they get it, can they be sure of retaining it? What would be the situation of the banks in the event of a heavy and continuous gold export movement? Would not their reserve at once disappear because of a withdrawal of gold either through operations

Acknowledgment is due in the preparation of much of this section to Mr. A. D. Noyes, of New York, for a paper on this subject sent in to the Monetary Commission.

of banking depositors or through redemption of notes? These are fair and proper questions, to which satisfactory answers should be given.

69. The first and most obvious answer which will occur is, that if the Treasury were not issuing notes and, therefore, did not have to maintain a gold reserve on its own account, the gold now idly stored in the government vaults, ranging at different periods from $100,000,000 to $288,000,000 and now amounting to about $180,000,000, would presently be available for banking uses. The Treasury's gold holdings are thus larger by fully $25,000,000 than the entire amount of legal tender notes reported as held by the national banks of the United States as part of their cash reserves. If this gold were paid out, therefore, in redemption of the notes held by the banks, the banks would merely have the gold in the place of the notes. By that operation alone, without a dollar of gold from any other source, and without even exhausting the Treasury's stock of gold, the gold reserves of the national banks might be increased from $207,003,145 to $365,498,020.

But quite apart from the very evident fact that the payment by the government of its notes in gold would leave the banks which now hold those notes in possession of the gold with which they were redeemed, the banks would experience no difficulty in getting such amounts of gold as they desired. The national banks by their own showing already hold in their present reserves $207,093,145 gold. If they have obtained and hold as large an amount as this, it is not unreasonable to assume that they could get more if they wished it, from the same sources and in the same way through which they obtained the amount they already hold. Where, then, did the banks obtain this gold which now makes up more than half of their reserve?

The gold was obtained partly by importation from abroad, but chiefly from new production of the American mines. The United States Mint reports show that since 1878, $704,000,000 in gold has been produced in this country, an average of nearly $36,000,000 annually. Just now the output is much larger than this average; it was $53,100,000 in 1896, by the Mint estimate,

and $61,500,000 in 1897. From this yearly average of $36,000,000, $8,000,000 or $9,000,000 annually should be deducted to allow for gold used in manufacture; but making the widest allowance for this industrial consumption, it will be seen that during the past nineteen years, from $500,000,000 to $600,000,000 of gold produced from the American mines has been available for use as money.

70. It is possible, of course, that a gold-producing country may send to other nations, every year, all or most of its own product. This has been the rule with Australia; it is the rule now with the Transvaal. But in these two instances the gold product was exported only because it was not needed at home. In the United States, owing to our vastly larger domestic trade, the gold when needed was retained. Therefore, in the development of the country since 1878, not only has the new annual output of the American gold mines been kept at home, but gold has been imported from foreign nations. Between 1879 and 1889, by the returns of the Bureau of Statistics, the United States imported $219,000,000 more gold than it exported. With an increasing domestic trade if more money was needed for the circulating medium, it came, as it always may come under such circumstances, in the shape of gold imports. After 1890, on the other hand, foreigners sent home our securities, while under the silver-purchase law of 1890, we more than supplied the needs of circulation with the new legal-tender notes. The result was that gold was exported and that the United States lost in the next eight years most or all of what it had gained from foreign nations since 1879.

But, even with the gold exports for the whole period somewhat in excess of the imports, nearly all of the new American gold product was retained for domestic uses, and this new product, as we have seen, amounted to upwards of $500,000,000. There is another way in which it may be seen that this new gold has been kept available since 1878 for banking uses. On the first of every month, the government publishes an estimate of the amount and kinds of money circulating in the United States. The estimate of the Treasury Department on January

I, 1879, reckoned the stock of gold then in the United States. at $231,625,207. On January 1, 1898, the estimate was $699,478,536. It is possible that these totals are inexact, because when the government began its reports of the amount of money in circulation, it had to make a guess at the total. But while the two sums may be inaccurate, the difference between the estimate for 1879 and that for 1898 will approximately measure the addition to the country's stock of gold within the period; for having once settled on the initial estimate, it was possible to report with greater or less accuracy the monthly and yearly increase or decrease. Taking this difference, it will be seen that since the opening of 1879 the total stock of gold in the United States has increased $467,800,000, which tallies with our previous estimate of new American production, less a comparatively slight net loss on export.

The banks, then, will have in the first place a large and constantly increasing supply of domestic gold on which to draw for their reserves. This new gold has always gone freely into the hands of the banks, and it will continue to do so. The reason why it has hitherto gone into the banks is that gold coin is an expensive currency for private owners either to store or to ship. The miner deposits it in the assay-office and takes an assay-office check in payment. This assay-office check he deposits, in nine cases out of ten, with his own bank, where it becomes a part of the institution's regular deposit fund. The owner of the gold, if he thereafter needs currency, will take from his bank the kind most convenient to him; the bank, on the other hand, presents the assay-office check for gold coin, storing this coin with its own reserves. This simple operation, one of the most familiar in American banking, shows how the new gold product of the United States goes automatically into the reserves of the banks.

71. But, aside from supplies of new gold, the financial institutions of the world have the means of directing the flow of existing stocks of gold to those places where it is needed To understand this mechanism, it may be necessary to consider briefly the general question of gold exports and imports. An example may assist to a clearer comprehension :

During the year 1897, it appears that there were net gold imports into the United States of about $45,000,000. This gold was sent here, say from England, in payment of balances resulting from a multitude of exchanges. We had sold to England certain commodities and securities, for which England must make payment to us. Her purchases from us gave us a credit there for an equivalent amount—a credit which we were free to realize in commodities, securities, or gold, as we ourselves might choose. The reason why a certain amount of gold was actually shipped was that, at the prices at which the English commercial interests held their commodities and securities, we cared to purchase no more than we did; and the balance coming to us was paid in money. Had England been willing to sell securities cheaper, that is to say, if she had been willing to pay a higher rate of interest, our investors would have been induced to increase their purchases of securities in England, or, what amounts to the same thing, our financial institutions would have been willing to leave on interest in England balances due to them, instead of asking for remittance. And thus the equilibrium of exports and imports (using the terms, in their broader sense, to include securities, loans, etc., as well as commodities) would not have been disturbed. But at the rate of interest then offered there, and the opportunities for the use of the funds here, we preferred to have the debt paid; and as the situation in England was such that English interests would rather pay the debt than offer us a rate of interest high enough to induce us to leave the funds with them, the gold was shipped. The real reason for our imports of gold was thus the fact that we would rather have the money here than invest it in loans or securities at the prices at which they were offered, and the English would rather spare the money than offer a rate of interest sufficiently high to overcome our preferences. To balance our exports we were entitled to a certain credit, and if we preferred to have it in gold rather than in steel rails, pocketknives, or woolen goods, we might do so; and so, after having purchased what commodities we wished, inasmuch as we preferred to have the balance in gold rather than in securities or interest-bearing

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