waiting to be shipped to Europe.
As the sense of crisis heightened, Morgan held a meeting with August Belmont, Jr., the Rothschild agent, at the New York Subtreasury. Just the fact of the meeting of two such powerful financiers drained some of the tension from the situation. Overnight, the $9 million in bullion was taken from the ships and put back in the governmentâs vault. But the relief was temporary. In Washington, the cabinet rejected a private bond offer put together by the two banking houses, and gold started leaving the Subtreasury again as skittish dollar owners cashed in their paper. Morgan boarded his private railway car and set out for Washington.
On arrival he went to the White House. He was told that the president, Grover Cleveland, would not see him. Morgan replied: âI have come down to see the president, and I am going to stay here until I see him.â He stayed in the White House all day. He returned to the Arlington Hotel, played solitaire all night, and in the morning walked back across Lafayette Square, and was shown into a meeting in the presidentâs office. He sat there silently while Cleveland and members of his cabinet discussed the emergency. Finally a clerk came in and informed the secretary of the Treasury, John G. Carlisle, that the government was down to its last $9 million in gold coin. Morgan spoke up, informing Cleveland that he knew about a $10 million draft soon to be presented. âIf that $10 million draft is presented, you canât meet it,â he said bluntly. âIt will all be over before three oâclock.â Cleveland made the only sensible reply he could: he asked Morgan what to do.
Morganâs solution was his masterpieceâa $65 million bond tobe sold to a European syndicate organized by Morgan and the Rothschilds. Once the important European banking houses joined the syndicate, New York banks came in too. In exchange for a premium interest rate, subscribers agreed to pay for the bond in gold. Not only that, they promised to âexert all financial influence . . . to protect the Treasury of the United States against the withdrawal of goldâ until the bond was paid off. It was a brilliant stroke. Morgan had kept America on the gold standard by suspending it. Without the need to redeem foreign-owned dollars in gold, the American treasury had time to restore itself.
F OR ALL ITS HARSHNESS, THE gold standard reigned over a period of economic expansion. Its gift to the industrializing and trading world was the credibility of one anotherâs currencies.The system solved two main problems.
First, it removed uncertainty about fluctuations in the value of a currency. With a currency defined in terms of gold, the holders of the currency could make rational decisions about the future, because they knew what the currency would be worth at any time. If they owned dollar bonds maturing in twenty years, say, they knew what the bonds would be worth because that value was expressible in terms of gold.
Second, the gold standard told central bankers what to do with monetary levers such as interest rates. Letâs say the central bankâs interest rate was low. Money poured out into the economy as borrowers took advantage of easy credit. The fresh money stimulated the economy, which was the object of the low interest. But when was the stimulus just right, and when too much?
On the gold standard, a central banker could see when prices in the stimulated economy rose too high, because the rise in prices made gold look cheap. Noticing this, dollar owners would start converting their currency into gold, taking advantage of the bargain. Gold left the Treasury, and in came paper money. But according to the gold standard, the amount of gold and the number of dollars had to tally at a certain ratio or there would not be enough gold to back the dollar. To stop the flood of paper money in and gold out, the central banker would have raised interest
As the sense of crisis heightened, Morgan held a meeting with August Belmont, Jr., the Rothschild agent, at the New York Subtreasury. Just the fact of the meeting of two such powerful financiers drained some of the tension from the situation. Overnight, the $9 million in bullion was taken from the ships and put back in the governmentâs vault. But the relief was temporary. In Washington, the cabinet rejected a private bond offer put together by the two banking houses, and gold started leaving the Subtreasury again as skittish dollar owners cashed in their paper. Morgan boarded his private railway car and set out for Washington.
On arrival he went to the White House. He was told that the president, Grover Cleveland, would not see him. Morgan replied: âI have come down to see the president, and I am going to stay here until I see him.â He stayed in the White House all day. He returned to the Arlington Hotel, played solitaire all night, and in the morning walked back across Lafayette Square, and was shown into a meeting in the presidentâs office. He sat there silently while Cleveland and members of his cabinet discussed the emergency. Finally a clerk came in and informed the secretary of the Treasury, John G. Carlisle, that the government was down to its last $9 million in gold coin. Morgan spoke up, informing Cleveland that he knew about a $10 million draft soon to be presented. âIf that $10 million draft is presented, you canât meet it,â he said bluntly. âIt will all be over before three oâclock.â Cleveland made the only sensible reply he could: he asked Morgan what to do.
Morganâs solution was his masterpieceâa $65 million bond tobe sold to a European syndicate organized by Morgan and the Rothschilds. Once the important European banking houses joined the syndicate, New York banks came in too. In exchange for a premium interest rate, subscribers agreed to pay for the bond in gold. Not only that, they promised to âexert all financial influence . . . to protect the Treasury of the United States against the withdrawal of goldâ until the bond was paid off. It was a brilliant stroke. Morgan had kept America on the gold standard by suspending it. Without the need to redeem foreign-owned dollars in gold, the American treasury had time to restore itself.
F OR ALL ITS HARSHNESS, THE gold standard reigned over a period of economic expansion. Its gift to the industrializing and trading world was the credibility of one anotherâs currencies.The system solved two main problems.
First, it removed uncertainty about fluctuations in the value of a currency. With a currency defined in terms of gold, the holders of the currency could make rational decisions about the future, because they knew what the currency would be worth at any time. If they owned dollar bonds maturing in twenty years, say, they knew what the bonds would be worth because that value was expressible in terms of gold.
Second, the gold standard told central bankers what to do with monetary levers such as interest rates. Letâs say the central bankâs interest rate was low. Money poured out into the economy as borrowers took advantage of easy credit. The fresh money stimulated the economy, which was the object of the low interest. But when was the stimulus just right, and when too much?
On the gold standard, a central banker could see when prices in the stimulated economy rose too high, because the rise in prices made gold look cheap. Noticing this, dollar owners would start converting their currency into gold, taking advantage of the bargain. Gold left the Treasury, and in came paper money. But according to the gold standard, the amount of gold and the number of dollars had to tally at a certain ratio or there would not be enough gold to back the dollar. To stop the flood of paper money in and gold out, the central banker would have raised interest
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