Year: 1874




and prudence, and the first thing in order is
correct survey Of the situation. There are
some features of it which no legislation could
have altered or materially mitigated. Public
attention was so engrossed by the panic while
it lasted by the expectation Of Congressional
relief afterwards, and by the heated currency
discussion during the session, that some car
dinal considerations essential to true esti-
mate Of the situation have been neglected and
left in the background. The truth is that the
last year marks a transition in our financial
history so important in its character and far
reaching in its consequences that nothing can
be properly understood unless we fairly exam
inc it. During the last year we reached
limit in our enormous exportation Of govern
ment bonds, and the great panic was symp-
tom that our former easy command of foreign
capital had been arrested. Since 1865 this
country has received and used about one
thousand million dollars of European capital
in exchange for paper obligations payable at
future dates. II this process could have gone
on perpetually we could have maintained
our delusive appearance Of prosperity
until the annual interest on the debt held
abroad came to exceed the annual expectation
of bonds. The veriest prodigal and spend
thrift in the world, so long as he can borrow,
never need be embarrassed until he reaches
stage at which the amount Of loans he can
command falls short of the accruing interest
on his debts Such a prodigal will be sud
denly checked in his career as soon as he has
no further security to offer which the lenders
of money will accept This is precisely the
stage which this country has reached within
the last year. Since the war a steady stream
of European capital has flowed to this country
in exchange for the exported promises OF the
government In the nature of things this
stream could not flow forever. The amount
of the public debt is limited, and consider
able portion OF it must necessarily be retained
at home. The large amount required to be
deposited with the Comptroller OF the Cur
rency to secure the circulation Of the national
banks cannot be exported. The savings
banks and trust companies hold another large
amount The government bonds are pre-
ferred as a safe investment of the property of
widows and orphans, and many citizens
are tempted by the exemption Of the
bonds from local taxation. They
have also become an important element
of the current business Of the country as q
ready means of borrowing money in emer-
gencies. The country cannot dispense with
the amount Of them which it still retains, and
the limit to their expectation having been
reached the business of the country inevitably
passes into new phase.


The change made by this great fact in our
business situation is immense. It does not
merely compel the country to rely on its own
unassisted resources, which would of itself
be q great change, but it turns the tide the
other way, reverses the direction of its flow,
and will constantly drain away large amounts
Of American capital to Europe The export
of bonds having stopped, we must now send
abroad every year large amounts of zeal cap
ital to pay the interest on them. The interest
has indeed been regularly paid heretofore,
but SO long as we were exporting an amount
of bonds largely in excess of the accruing
interest there was still flow of European
capital to this country. But now, when the
stock of bonds for export is about exhausted
we must still pay the interest and main
tain our credit by sending abroad for
this purpose property having a solid
intrinsic value, not paper promises, but real
capital This is the cardinal fact of the stu
alton, and all reasoning on business prospects
is fallacious and misleading which does not
recognize its magnitude and importance. 1t
is not merely one of many facts bearing on the
prosperity of the country; it is the master
key which unlocks the chief mysteries OF the
financial problem.


Let Us illustrate by a simple example. 1t is
well known to all who give attention to this
class of subjects that we have been for several
months and still are making heavy exports Of
grain at very good prices, and yet that these
large exports have given no perceptible inn
pulse to general trade, as they would be ex-
pected to do under ordinary circumstances.


If we were still exporting bonds at the same
rate we were two years ago our long continued
heavy shipments of grain would touch all the
nerves of trade and create great activity and
animation The course Of reasoning would
easily follow the course of trade, and it would
be inferred that the money received by the
farmers tor their grain would give them the
ability and inclination to make large pur-
chases of goods On the strength of this ex-
pectation the spring market should have
been full of buyers if some peculiarly
in the situation had not arrested
ordinary tendencies. The difficulty is that
the large quantities Of grain we are exporting
have ceased to bring back any corresponding
returns of capital. The bills of exchange
drawn against them go to meet the interest on
our foreign indebtedness. The pleasure and
exhiaration of getting gloriously in debt must