Under the McKinley tariff customs duties declined, and this, coupled with commercial dis turbances involving the United States, resulted in the exportation of gold. Large amounts of gold were obtained from the treasury by the presentation of legal tender notes and treasury notes of 1890. The gold reserve which since 1879 had been maintained at $100,000,000, or more, began to slip away until there was fear that the treasury would be forced on to a silver basis. On 30 June 1890 the reserve stood at $190,000,000; three years later it had fallen to $95,000,000. The significance of the underlying forces which were weakening government credit were not, however, clearly seen and appropria tions continued to be made with a liberal hand. In 1890 there was a surplus of $105,000,000; in 1893 it was hut $2,000,000, and in 1894 there was a deficit of $70,000,000.
The Democrats won in the election of 1892 and Cleveland again became President. In June 1893 the mints in India were closed to the coinage of silver; this led to a still further fall in the price of silver bullion and occasioned im mediate apprehension that the treasury would soon be unable to redeem its obligations in gold. Within a few weeks the country was in a state of panic. President Cleveland called a special session of Congress and after most urgent pres sure secured the repeal of the Silver Purchase Act of 1890. The country did not easily re cover from the panic; withdrawals of gold from the treasury continued and the administration was forced to make four issues of bonds in order to keep an adequate supply of gold on hand to meet the requirements of the °endless chain.' The embarrassment of the treasury was also aggravated by an insufficient supply of revenue. The Democrats in 1894 enacted a new tariff measure which included an income tax; as introduced in the House under the leader ship of Wilson, this bill was in the interest of free trade, but protective sentiment within the Democratic party radically modified the measure in the Senate, so that in its final form it made little change in existing policy. The income tax was promptly attacked on the ground of unconstitutionality. In a decision of 8 April 1895, the Supreme Court decided that a tax on income from land was a direct tax and, there fore, unconstitutional unless apportioned; and in a decision 20 May, income derived from other sources was also brought within the same in terpretation.
The Presidential campaign in 1896 was fought out on the basis of free silver. The
Democrats in their platform declared in favor of the free and unlimited coinage of both gold and silver at the ratio of 16 to 1 without wait ing for the aid or consent of any other nation; the Republicans, on the other hand, demanded international agreement. The Republicans won and made good the victory for the gold standard in the Currency Act of 1900. This declared gold as the standard of value and au thority was given the Secretary of the Treasury to maintain it by the temporary lock ing up of treasury notes and the sale of bonds, whenever the reserve fell below $100,000,000. The act also provided for the refunding of the debt at a lower rate of interest, and gave national banks opportunity to take out a larger amount of circulation.
Upon their return to power in 1897, the Re publicans enacted the Dingley tariff ; on some commodities the duties of 1890 were restored, on others compromises between the rates of 1890 and 1894 were accepted, and in a few in stances the lower rates of • the Wilson tariff were allowed to stand. The principle of re ciprocity, dropped in the Wilson tariff, was again incorporated into the tariff system to be brought into operation, however, by treaties ex ecuted by the Senate. In 1898 war with Spain necessitated the issue of $200,000,000 of bonds and the levying of new internal revenue duties. This proved amply sufficient to meet the in creased expenditures for the army and navy.
With the opening of the new century, in dustrial and corporate enterprise developed on an unprecedented scale. The trust movement was in full swing and large amounts of cor porate securities sought investment. Crops were large, and, beginning with 1902, the autumnal money stringency repeatedly became severe. Prosperity at the same time created a series of treasury surpluses. Congress, there fore, in 1901 and 1902 repealed the internal revenue duties imposed in 1898; and Secretary Shaw endeavored through the agency of the Treasury Department to relieve the money market. He used not only the old expedients of depositing government funds in banks and of purchasing bonds, but made new rulings whereby banks could more easily secure govern ment deposits. State, municipal and even rail road bonds were accepted from banks as col lateral for deposits. The number of deposi tary banks increased from 442 in 1900 to 713 in 1903, and government deposits from $93, 000,000 to $413,000,000.