business was flourishing, manufactures were thriving. But the prosperity
was not real. Business was inflated, and during the following summer an
industrial and financial panic which had long been brewing swept over
the business world, wrecking banks and destroying industrial and
commercial establishments.

To understand what now happened, two facts must be remembered:

1. Under the Resumption of Specie Payment Act of 1875, the Secretary of
the Treasury was authorized to buy specie by the issue of bonds and keep
it to redeem United States notes.

2. In May, 1878, it was ordered that when a greenback was redeemed in
specie, it should "not be retired, canceled, or destroyed, but shall be
reissued and paid out again and kept in circulation." There were then
$346,681,000 in greenbacks unredeemed.

%556. The Gold Reserve.%--Meantime, under the law of 1875, and before
January 1, 1879, the secretary issued $95,500,000 in bonds, the proceeds
of which, with other gold then in the Treasury, made a fund deemed
sufficient to redeem such notes as were likely to be presented. This has
since been called our gold reserve, and has been fixed by the
secretaries at $100,000,000. January 1, 1879, the reserve was
$114,000,000, and though it often rose and fell, it never went below
that amount till July, 1892. By that time there were other gold
obligations. The silver purchased under the law of 1890 was paid for
with notes exchangeable for "coin"; but as the secretaries always
construed "coin" to mean gold, and as by 1893 these notes amounted to
$150,000,000, our gold obligations--that is, notes exchangeable for
gold--were nearly $500,000,000 (greenbacks, $346,000,000; silver
purchase notes, $150,000,000). This immense and steadily increasing sum
caused a doubt of our ability to pay in gold, and a fear that we might
be forced to pay in silver. Now silver, since 1873, had fallen steadily
in value from $1.30 an ounce to $0.81 an ounce in 1893, so that the
bullion value of a silver dollar was about 67 cents. The fear, then,
that our debts might be paid in silver (1) led foreigners to cease
investing money in this country, and to send our stocks and bonds home
to be sold, and (2) led people in this country to draw gold out of the
banks and the Treasury and hoard it, so that in April, 1893, the gold
reserve, for the first time since it was created, fell below
$100,000,000 (to $97,000,000).

%557. The Panic of 1893.%--Business depression and