Speeches in the Senate, January 12, 26, February 1, March
2, 10, 11, 1870.
January 12, 1870, Mr. Sumner, in accordance with previous notice,
asked and obtained leave to introduce the following bill:—
A Bill to authorize the refunding and consolidation of the national debt,
to extend banking facilities, and to establish specie payments.
Section 1. Be it enacted by the Senate and House of Representatives
in Congress assembled, That, for the purpose of refunding the debt of the
United States and reducing the interest thereon, the Secretary of the
Treasury be, and he is hereby, authorized to issue, on the credit of the
United States, coupon or registered bonds, of such denominations not less
than fifty dollars as he may think proper, to an amount not exceeding
$500,000,000, redeemable in coin, at the pleasure of the Government, at
any time after ten years, and payable in coin at forty years from date, and
bearing interest at the rate of five per cent. per annum, payable semiannually
in coin; and the bonds thus authorized may be disposed of at the discretion
of the Secretary, under such regulations as he shall prescribe, either
in the United States or elsewhere, at not less than their par value, for coin;
or they may be exchanged for any of the outstanding bonds, of an equal aggregate
par value, heretofore issued under the Act of February 25, 1862, and
known as the Five-Twenty bonds of 1862, and for no other purpose; and
the proceeds of so much thereof as may be disposed of for coin shall be
placed in the Treasury, to be used for the redemption of such six per cent.
bonds at par as may not be offered in exchange, or to replace such amount
of coin as may have been used for that purpose.
Sec. 2. And be it further enacted, That the Secretary of the Treasury
be, and he is hereby, authorized to issue, on the credit of the United States,
coupon or registered bonds to the amount of $500,000,000, of such denominations
not less than fifty dollars as he may think proper, redeemable in
coin, at the pleasure of the Government, at any time after fifteen years,
and payable in coin at fifty years from date, and bearing interest not exceeding
four and one half per cent. per annum, payable semiannually in
coin; and the bonds authorized by this section may be disposed of under
such regulations as the Secretary shall prescribe, in the United States or
elsewhere, at not less than par, for coin; or they may be exchanged at par
for any of the outstanding obligations of the Government bearing a higher
rate of interest; and the proceeds of such bonds as may be sold for coin
shall be deposited in the Treasury, to be used for the redemption of such
obligations as by the terms of issue may be or may become redeemable or
payable, or to replace such coin as may have been used for that purpose.
Sec. 3. And be it further enacted, That the Secretary of the Treasury
be, and he is hereby, authorized to issue, on the credit of the United
States, from time to time, coupon or registered bonds, of such denominations
not less than fifty dollars as he may think proper, to the amount of
$500,000,000, redeemable in coin, at the pleasure of the Government, at
any time after twenty years, and payable in coin at sixty years from date,
and bearing interest at the rate of four per cent. per annum, payable semiannually
in coin; and such bonds may be disposed of at the discretion of
the Secretary, either in the United States or elsewhere, at not less than
their par value, for coin, or for United States notes, national-bank notes, or
fractional currency; or may be exchanged for any of the obligations of the
United States, of whatever character, that may be outstanding at the date
of the issue of such bonds. And if in the opinion of the Secretary of the
Treasury it is thought advisable to issue a larger amount of four per cent.
bonds for any of the purposes herein or hereinafter recited than would be
otherwise authorized by this section of this Act, such further issues are
hereby authorized: Provided, That there shall be no increase in the aggregate
debt of the United States in consequence of any issues authorized by
this Act.
Sec. 4. And be it further enacted, That the bonds authorized by this
Act shall be exempt from all taxation by or under national, State, or municipal
authority. Nor shall there be any tax upon, or abatement from, the
interest or income thereof.
Sec. 5. And be it further enacted, That the present limit of $300,000,000
as the aggregate amount of issues of circulating notes by national banks be,
and the same is hereby, extended, so that the aggregate amount issued and
to be issued may amount to, but shall not exceed, $500,000,000; and the
additional issue hereby authorized shall be so distributed, if demanded, as
to give to each State and Territory its just proportion of the whole amount
of circulating notes according to population, subject to all the provisions
of law authorizing national banks, in so far as such provisions are not modified
by this Act: Provided, That for each dollar of additional currency
issued under the provisions of this Act there shall be withdrawn and cancelled
one dollar of legal-tender issues.
Sec. 6. And be it further enacted, That the Secretary of the Treasury
shall require the national banks, to whom may be awarded any part or portion
of the additional circulating notes authorized by the fifth section of
this Act, to deposit, before the delivery thereto of any such notes, with the
Treasurer of the United States, as security for such circulation, registered
bonds of the description authorized by the third section of this Act, in the
proportion of not less than one hundred dollars of bonds for each and every
eighty dollars of notes to be delivered; and the Secretary of the Treasury
shall require from existing national banks, in substitution of the bonds already
deposited with the Treasurer of the United States as security for
their circulating notes, a deposit of registered bonds authorized by the
third section of this Act to an amount not less than one hundred dollars
of bonds for every eighty dollars of notes that have been or may hereafter
be delivered to such banks, exclusive of such amounts as have been cancelled.
And if any national bank shall not furnish to the Treasurer of the
United States the new bonds, as required by this Act, within three months
after having been notified by the Secretary of the Treasury of his readiness
to deliver such bonds, it shall be the duty of the Treasurer, so long as such
delinquency exists, to retain from the interest, as it may become due and
payable, on the bonds belonging to such delinquent banks on deposit with
him as security for circulating notes, so much of such interest as shall be
in excess of four per cent. per annum on the amount of such bonds, which
excess shall be placed to the credit of the sinking fund of the United States;
and all claims thereto on the part of such delinquent banks shall cease and
determine from that date; and the percentage of currency delivered or to
be delivered to any bank shall in no case exceed eighty per cent. of the face
value of the bonds deposited with the Treasurer as security therefor.
Sec. 7. And be it further enacted, That, whenever the premium on gold
shall fall to or within five per cent., it shall be the duty of the Secretary of
the Treasury to give public notice that the outstanding United States notes,
or other legal-tender issues of the Government, will thereafter be received
at par for customs duties; and the interest on the issues known as three
per cent. legal-tender certificates shall cease from and after the date of such
notice; and all such legal-tender obligations, when so received, shall not
again be uttered, but shall forthwith be cancelled and destroyed. And so
much of the Act of February 25, 1862, and of all subsequent Acts, as creates
or declares any of the issues of the United States, other than coin, a
legal tender, be, and the same is hereby, repealed; such repeal to take effect
on and after the first day of January, 1871.
Sec. 8. And be it further enacted, That all the provisions of existing
laws in relation to forms, inscriptions, devices, dies, and paper, and the
printing, attestation, sealing, signing, and counterfeiting, as may be applicable,
shall apply to the bonds issued under this Act; and a sum not exceeding
one per cent. of the amount of bonds issued under this Act is hereby
appropriated to pay the expense of preparing and issuing the same and
disposing thereof.
Sec. 9. And be it further enacted, That all Acts or parts of Acts inconsistent
with this Act be, and the same are hereby, repealed.
Mr. Sumner said:—
MR. PRESIDENT,—I have already during this session
introduced a bill providing for the extension
of the national banking system and the withdrawal of
greenbacks in proportion to the new bank-notes issued,[202]
thus preparing the way for specie payments. The more
I reflect upon this simple proposition, the more I am
satisfied of its value. It promises to be as efficacious as
it is unquestionably simple. But it does not pretend to
deal with the whole financial problem.
The bill which I now introduce is more comprehensive
in character. While embodying the original proposition
of substituting bank-notes for greenbacks, it provides
for the refunding and consolidation of the national
debt in such a way as to make it easy to bear, while it
brings the existing currency to a par with coin. In
making this attempt I am moved by the desire to do
something for the business interests of the country,
which suffer inconceivably from the derangement of
the currency. Whether at home or abroad, it is the
same. At home values are uncertain; abroad commerce
is disturbed and out of gear. Political Reconstruction
is not enough; there must be Financial Reconstruction
also. The peace which we covet must enter into our
finances; the reconciliation which we long for must embrace
the disordered business of the country.
In any measure having this object there are two
things which must not be forgotten: first, the preservation
of the national credit; and, secondly, the reduction
of existing taxation. Happily, there is a universal
prevailing sentiment for the national credit, showing itself
in a fixed determination that it shall be maintained
at all hazards. Nobody can exaggerate the value of this
determination, which is the corner-stone of Financial
Reconstruction. On the reduction of taxation there is
at present more difference of opinion; but I cannot
doubt that here, too, there will be a speedy harmony.
The country is uneasy under the heavy burden. Willingly,
gladly, patriotically, it submitted to this burden
while the Republic was in peril; but now there is a
yearning for relief. War taxes should not be peace
taxes; and so long as the present system continues,
there is a constant and painful memento of war, while
business halts in chains and life bends under the load.
The national credit being safe, relief from the pressure
of existing taxation is the first practical object in
our finances. But so entirely natural and consistent is
this object, that it harmonizes with all other proper objects,
especially with the refunding of the national debt,
and with specie payments. As the people feel easy in
their affairs, they will be ready for the work of Reconstruction.
Therefore do I say, as an essential stage in
what we all desire, Down with the taxes!
The proper reduction of taxation involves two other
things: first, the reduction of the present annual interest
on the national debt, thus affording immense relief;
and, secondly, the spread or extension of the national
debt over succeeding generations, for whom, as well as
for ourselves, it was incurred. The practical value of
the first is apparent on the simple statement. The
second may be less apparent, as it opens a question of
policy, on both sides of which much has been already
said.
Nobody doubts the brilliancy of the movement to pay
off the national debt,—calling to mind the charge of the
six hundred at Balaclava riding into the jaws of Death,
so that the beholder exclaimed, in memorable words,
“It is magnificent, but it is not war.”[203] In other words,
it was a feat of hardihood and immolation, abnormal,
eccentric, and beyond even the terrible requirements of
battle. In similar spirit might a beholder, witnessing
the present sacrifice of our people in the redemption of
a debt so large a part of which justly belongs to posterity,
exclaim, “It is magnificent, but it is not business.”
Unquestionably business requires that we should meet
existing obligations according to their letter and spirit;
but it does not require payment in advance, nor payment
of obligations resting upon others. To do this is
magnificent, but beyond the line of business.
President Lincoln, in one of his earliest propositions of
Emancipation, before he had determined upon the great
Proclamation, contemplated compensation to slave-masters,
and, in order to commend this large expenditure,
went into an elaborate calculation to show how easy it
would be, if proportioned upon the giant shoulders of
posterity. Dismissing the idea of payment by the existing
generation, he proceeded to exhibit the growing
capacity of the country,—how from the beginning there
had been a decennial increase in population of 34.60
per cent.,—how during a period of seventy years the
ratio had never been two per cent. below or two per
cent. above this average, thus attesting the inflexibility
of this law of increase. Assuming its continuance, he
proceeded to show that in 1870 our population would
be 42,323,341,—in 1880 it would be 56,967,216,—in
1890 it would be 76,677,872,—and in 1900 it would
be 103,208,415,—while in 1930 it would amount to
251,680,914.[204] Nobody has impeached these estimates.
There they stand in that Presidential Message as colossal
mile-stones of the Republic.
The increase in material resources is beyond that of
population. The most recent calculation, founded on
the last census, shows that for the previous decade it
was at the rate of eighty per cent.,[205] although other calculations
have placed it as high as one hundred and
twenty-six per cent.[206] Whether the one or the other,
the rate of increase is enormous, and, unless arrested in
some way not now foreseen, it must carry our national
resources to a fabulous extent. What is a burden
now will be scarcely a feather’s weight in the early decades
of the next century, when a population counted
by hundreds of millions will wield resources counted
by thousands of millions. On this head details are superfluous.
All must see at once the irresistible conclusion.
It is much in this discussion, when we have ascertained
how easy it will be for posterity to bear this responsibility.
But the case is strengthened, when it is
considered that the war was for the life of the Republic,
so that throughout all time, so long as the Republic
endures, all who enjoy its transcendent citizenship
will share the benefits. Should they not contribute to
the unparalleled cost? Recent estimates, deemed to be
moderate and reasonable, show an aggregate destruction
of wealth or diversion of wealth-producing industry in
the United States since 1861 approximating nine thousand
millions of dollars, being the cost of the war, or, in
other words, the cost of the destruction of Slavery.[207] If
from this estimate be dropped the item for expenditures
and loss of property in the Rebel States, amounting to
$2,700,000,000,[208] we shall have $6,300,000,000 as the
sum-total of cost to the loyal people, of which the existing
national debt represents less than half. Thus,
besides precious blood beyond any calculation of arithmetic,
the present generation has already contributed
immensely to that result in which succeeding generations
have a stake even greater than theirs.
Assuming, then, that there is to be no considerable
taxation for the immediate payment of the debt, we
have one economy. If to this be added another economy
from the reduction of the interest, we shall be able
to relieve materially all the business interests of the
country. Two such economies will be of infinite value
to the people, whose riches will be proportionally increased.
In the development of wealth, next to making
money is saving money.
Bearing these things in mind, Financial Reconstruction
is relieved of its difficulties. It only remains to
find the proper machinery or process. And here we encounter
the propositions of the Secretary of the Treasury
in his Annual Report,[209] which are threefold:—
1. To refund twelve hundred millions of six per cent.
Five-Twenty bonds in four and a half per cent. Fifteen-Twenties,
Twenty-Twenty-Fives, and Twenty-Five-Thirties.
2. To make our exports equal in value with our imports,
and to restore our commercial marine.
3. To regard these as essential conditions of reduced
taxation and specie payments.
Considering these propositions with the best attention
I could give to them, I have been impressed by
their inadequacy as a system at the present moment.
I cannot easily consent to the postponement which they
imply. They hand over to the future what I wish to
see accomplished at once, and what I cannot doubt with
a firm will can be accomplished at an early day. But
besides this capital defect, apparent on the face, I find
in the system proposed no assurance of success. Will
it work? I doubt. Here I wish to be understood as
expressing myself with proper caution; and I wish further
to declare my anxiety to obtain the substituted
loans at the smallest rate of interest, and also my conviction
that within a short time, at some slight present
cost, this may be accomplished.
Looking at this question in the light of business, I
am driven to the conclusion that twelve hundred millions
of six per cents. cannot be refunded either now or
hereafter in four or four and a half per cents. without
offering compensation in an additional running period
of the bonds which is not found in the Fifteen-Twenties
nor in the Twenty-Five-Thirties proposed by the
Secretary. With such bonds there would be a practical
difficulty in the way of any such refunding to any considerable
amount, from the inability to command a sufficient
amount of coin under the “option of coin,” which
must accompany the offer; nor is there any fund applicable
to the purchase of coin in open market, were such
a course desirable. Obviously, to induce the voluntary
relinquishment of bonds at a high rate of interest for
other bonds at a less rate, the holders must be offered
something preferable to the coin tendered as an alternative.
The time has passed when holders can be menaced
with payment in greenbacks. Whatever we do must be
in coin, or in some bond which will be taken rather
than coin. The attempt at too low a rate of interest
would cause the coin to be taken rather than the bond,
if we had the article at command,—and would end in
a deluge of coin, sweeping away the premium on gold.
A return to specie payments, thus precipitated, would
be of doubtful value, if not illusive, without other and
sustaining measures.
In the suggestion that our exports must be augmented,
and our commercial marine restored, I sympathize
cordially; but I do not see how this can be accomplished
so long as the present taxation is maintained,
exercising such a depressing influence on all industry,
making the necessaries of life dearer, adding to the cost
of raw material, and generally enhancing the price of
our products so as to prevent them from competing in
foreign markets with the products of other nations.
The proposition to make the interest on the new
bonds payable at various points in Europe, at the option
of the holder, seems unnecessary, while it is open
to objections. Such agencies would be onerous and
cumbersome. At London, Paris, Frankfort, and Berlin,
there must be a machinery, with constant complications,
continuing through the lifetime of the bonds, to
secure the transfers from point to point and the obligatory
remittances in gold; nor am I sure that in this
way foreign powers might not obtain a certain jurisdiction
over our monetary transactions. But I confess
that the ruling objection with me is of a different character.
New York is our commercial centre, designated
by Providence and confirmed by man. Already it has
made a great advance, but it is not yet quoted abroad as
one of the clearing points of the world. At New York
quotations are obtained daily on London and Paris; but
in these places no such recognized quotations can be
now obtained on New York. That the agencies proposed
will tend to postpone this condition is a sufficient
objection.
I have made these remarks with hesitation, but in
order to prepare the way for the bill which I have introduced.
It was my duty to show why the propositions
of the Secretary were not sufficient for the occasion,
and this I have tried to do simply and frankly. It
is long since I avowed my conviction that specie payments
should be resumed; and I should now do less
than my duty, if I did not at least attempt to show
the way which seems to me so natural and easy. While
the present system continues, we are poor. The payment
of the national debt and the accumulation of coin
in the Treasury are the signs of unparalleled national
wealth, but our financial condition is not in harmony
with these signs. The latest figures from the Treasury
are such as no other nation can exhibit. From these it
appears that the amount of bonds purchased since March
1, 1869, for the sinking fund was $22,000,000, and the
amount purchased subject to Congress $64,000,000, being
in all $86,000,000.[210] The same proportion of purchase
for January and February would be $23,000,000,
making a sum-total of $109,000,000 for one year. And
notwithstanding this outlay, we find in the Treasury,
January 1, 1870, in coin no less than $109,159,000,
and in currency $12,773,000, making a sum-total of
$121,932,000. And yet, with these tokens of national
resources manifest to the world, our bonds are below
par, and our currency is inconvertible paper. This
should not be permitted longer. With all these resources
there must be a way, even if we were not taught
that a will always finds a way.
The refunding of an existing loan implies two distinct
and independent transactions: first, the extinction,
by payment in some form, of the existing loan; and,
secondly, the negotiation of a new loan to an amount
equal to that extinguished.
The bill now before the Senate contemplates the
prompt extinguishment of the Five-Twenties of 1862.
But I would not have this important work entered upon
until the Government is fully prepared to say, that, after
a certain period of notice, say six months, in order
that distant holders in Europe may be advised, interest
on the Five-Twenties of 1862 shall cease, and the bonds
be forthwith redeemed in coin. There should be no coercion
of any kind upon any holder, at home or abroad,
to induce the acceptance of a substitute bond. I am
happy to believe, that, with the judicious use of five per
cent. Ten-Forties, all the coin necessary for such independent
action may be assured in advance. Believing
that such five per cent. bonds will be regarded by investors
as preferable to coin, I would give the holders of
the old bonds the first opportunity to subscribe for the
new. Those who elect coin will make room for others
ready to give coin in exchange for such bonds.
If we look at the practical consequences, we shall
be encouraged in this course. The refunding of the
sixes of 1862, being upward of five hundred millions,
in fives, as authorized by the first section of the bill,
contemplates the payment from present funds of little
more than fourteen millions, being the excess of Five-Twenties
above the five hundred millions provided for.
The annual reduction of interest on that loan will be
$5,886,296. The substitution of three hundred millions
of fours for a like amount of sixes, as provided
in the bill, will operate a further saving of $6,000,000,
making a sum-total of $11,886,296, or near twelve millions.
There will then remain but $129,443,800, subject
to redemption, being Five-Twenties of 1864.
During the year 1870 the further sum of $536,326,200,
being Five-Twenties of 1865, will fall within the control
of the Government, when, as it seems to me, and
according to the contemplation of the bill, the credit of
the Government will be at such a pitch that five hundred
millions can be refunded in four and a half per
cents., with the addition of thirty-six millions paid from
the Treasury,—thus insuring a further annual reduction
of $9,679,572, or a total annual saving of $21,565,868,
of which about twelve millions may be saved during the
current year.
Here for the present we stop. Our interest-paying
debt cannot be further ameliorated before 1872, when
three hundred and seventy-nine millions, being Five-Twenties
of 1867, will become redeemable, and then
in 1873, when forty-two millions, being Five-Twenties
of 1868, and constituting the balance of our optional
sixes, will become redeemable,—all of which I gladly
believe may be refunded in the four per cents. provided
by the present bill, to be followed in 1874 by a reduction
of the original Ten-Forties into similar bonds.
I would remark here that the bill undertakes to deal
with the whole disposable national debt. The amounts
which I have given will be found in the Treasury tables
of January 1st, and are irrespective of the sinking fund
and invested surplus.
From these details I pass to consider the bill in its
aims and principles.
The proposition with which I begin is to refund our
six per cent. Five-Twenties of 1862, amounting to upward
of five hundred millions, in five per cent. Ten-Forties.
In taking the term “Ten-Forties,” I adopt the
description of a bond well known and popular at home
and abroad, whose payment “in coin” is expressly stipulated
by the original Act authorizing the issue.[211] The
bond begins with a good name, which will commend it.
The interest which I propose is larger than I would propose
for any late bond. It is important, if not necessary,
in order to counteract the suspicion which has
been allowed to fall upon our national credit. Even
our sixes are now below par in Europe. But they will
unquestionably share the elevation of the new fives substituted.
Our first attempt should be with the latter.
Let these be carried to par, and we shall have par everywhere.
In this process the first stage is the conviction that
all our bonds will be paid in the universal money of the
world. All bonds, whether fives or sixes, will then advance.
I know no way in which this conviction can be
created so promptly and easily as by redeeming in gold
some one of our six per cent. loans; and that most naturally
selected is the first, which is already so noted
from the discussion to which it has been subjected. But
this can be done only by offering to holders the option
of coin or a satisfactory substitute bond. With a new
issue of five per cent. Ten-Forties, limited in amount to
about the aggregate of the six per cent. Five-Twenties
of 1862,—say five hundred millions,—I cannot doubt
that every foreign holder of such sixes will accept the
fives in lieu of coin; and so much of that loan as is held
at home may be paid in coin, if preferred by the holders,
from the proceeds of an equal amount of fives placed
in Europe at par for coin.
Then will follow the advantage of this positive policy.
The national credit will be beyond question. Nobody
will doubt it. The public faith will be vindicated.
The time will have come, which is the condition-precedent
named by the Secretary of the Treasury, when
“the want of faith in the Government” will be removed,
and the door will be open to cheap loans. This will be
of course: it cannot be otherwise, if we only do our
duty. Our fives, being limited in amount, after being
taken at par in preference to coin, will advance in value,
so that the investment will become popular. People
will desire more, but there will be no more; so that,
without difficulty or delay, we may hope to refund five
hundred millions of our subsequent sixes, or so much as
may be desirable, at four and a half per cent. in Fifteen-Fifties,
if not at four per cent. in Twenty-Sixties.
In this operation the initial point is the national
credit. With this starting-point all is easy. Our fives
will at once ascend above par, while a market is opened
for four and a half or four per cents. The stigma of Repudiation,
whether breathed in doubt or hurled in taunt,
will be silenced. There are other fields of glory than in
war, and such a triumph will be among the most important
in the annals of finance. But to this end there
must be no hesitation. The offer must be plain,—“Bonds
or coin,”—giving the world assurance of our
determination. The answer will be as prompt as the
offer,—“Bonds, and not coin.”
In the process of Financial Reconstruction we cannot
forget the National Banks, which have already done
so much. The uniform currency which they supply
throughout the country commends them to our care.
Accustomed to the facilities this currency supplies, it
is difficult to understand how business was conducted
under the old system, when every bank had its separate
currency, taking its color, like the chameleon, from what
was about it, so that there were as many currencies, with
as many colors, as there were banks.
Two things must be done for the national banks:
first, the bonds deposited by them with the Government
must be reduced in interest; and, secondly, the
system must be extended, so as to supply much-needed
facilities, especially at the West and South.
I doubt if the national banks can expect to receive in
the future more than four per cent. from the bonds deposited
by them with the Government; and considering
the profits attributed to their business, it may be that
there would be a reluctant consent even to this allowance.
Here it must be observed, that the whole system
of national banks is founded upon the bonds of the nation;
so that, at the rate of liquidation now adopted for
the national debt, the system will be without support in
the lapse of twelve or fifteen years. The stability of the
banks, which is so vital alike to the national currency
and to the pecuniary interests involved in the business,
can be assured only by an issue of bonds for a longer
term. Of course, the longer the period, the more valuable
the bond. To reduce the interest arbitrarily on the
existing short bonds of the banks, without offering compensation
in some form, would be positively unjust, besides
being an infringement of the guaranties surrounding
such bonds, and therefore a violation of good faith.
A substitute Twenty-Sixty bond will be assurance of
stability for this length of time, while the additional life
of the bond will be a compensation for the reduction of
interest. As it is not proposed to issue such bonds immediately,
except for banking purposes, they will not
fall below par, and this par will be coin, which, I need
not say, the sixes now held by the banks will not command.
If, through the failure or winding-up of any
bank, an amount of the substituted bonds should be
liberated, there will be an instant demand for them at
par by new banks arising to secure the relinquished circulation.
The extension of bank-notes from three to five hundred
millions, which I propose, will extend the banking
system where it is now needed. This alone is much.
How long the Senate debated this question at the last
session, without any practical result, cannot be forgotten.
That debate certifies to the necessity of this extension.
The proposition I offer shows how it may
be accomplished and made especially beneficent. The
requirement from all the banks of new four per cent.
bonds, at the rate of one hundred dollars for eighty
dollars of notes issued and to be issued, would absorb
six hundred and twenty-five millions of the national
debt into four per cents., while the withdrawal
of one dollar of greenbacks for each additional dollar
of notes will go far to extinguish the outstanding greenbacks,
thus quietly, and without any appreciable contraction,
removing an impediment to specie payments.
Naturally, as by a process of gestation, will this birth
be accomplished: it will come, and nobody can prevent
it.
In presenting this series of measures, I am penetrated
by the conviction, that, if adopted, they cannot fail
to bring all the national obligations to a par with coin,
and then specie payments will be resumed without effort.
Our bonds will be among the most popular in the
market. No longer below par, they will continue to
advance, while the national credit lifts its head unimpeached,
unimpeachable. Under this influence the remainder
of our outstanding debt may be refunded in
Fifteen-Fifties at four and a half per cent., if not in
Twenty-Sixties at four per cent. There will then be
sixteen hundred and twenty-five millions refunded at
an average of less than four and a half per cent., and
the whole debt, including the irredeemable sixes of
1881, at an average of less than five per cent., while
all will be within our control five years earlier than in
the maximum period proposed by the Secretary of the
Treasury.
One immediate consequence of these measures would
be the relief of the people from eighty to one hundred
millions of taxation, while there would remain a surplus
revenue of two millions a month applicable to the reduction
of the debt, being more than enough to liquidate
the whole prior to the maturity of the new obligations,
if it were thought advisable to complete the
liquidation at so early a day. The country will breathe
freer, business will be more elastic, life will be easier,
as the assurance goes forth that no heavy taxation shall
be continued in order to pay the debt in eleven years,
as is now proposed, nor in fifteen years, nor in twenty
years. By the present measures, while retaining the
privilege of paying the debt within twenty years, we
shall secure the alternative of sixty years, and at a
largely reduced interest,—leaving the opportunity of
paying it at any intermediate time, according to the
best advantage of the country. With diminished taxation
and resources increasing immeasurably, the national
debt will cease to be a burden,—becoming “fine
by degrees and beautifully less” until it gradually ceases
to exist.
In making this statement, I offer my contribution to
the settlement of a great question. If I am wrong, what
I have said will soon be forgotten. Meanwhile I ask
for it your candid attention, adding one further remark,
with which I shall close. I never have doubted, I cannot
doubt, the ease with which the transition to specie
payments may be accomplished, especially as compared
with the ominous fears which this simple proposition
seems to excite in certain quarters. We are gravely
warned against it as a period of crisis. I do not believe
there will be anything to which this term can be
reasonably applied. Like every measure of essential
justice, it will at once harmonize with the life of the
community, and people will be astonished at the long
postponement of an act so truly beneficent in all its influences,
so important to the national character, and so
congenial with the business interests of the country.
The bill was ordered to be printed, and referred to the Committee on
Finance.
January 25th, a bill from the Committee on Finance, “to provide a
national currency of coin notes and to equalize the distribution of
circulating notes,” being under consideration, Mr. Sumner moved an
amendment embracing the provisions of his bill, with the exception of
the first, second, and seventh sections, as a substitute,—in support of
which he the next day spoke as follows:—
Mr. President,—Some things seem to be admitted
in this debate as starting-points,—at least if I may
judge from the remarks of the Senator from Ohio [Mr.
Sherman]. One of these is the unequal distribution of
the bank-note currency, and another is that to take
from the Northern and Eastern banks circulation already
awarded to them would disturb trade. I venture
to add, that the remedy would be worse than the
disease.
The Senator from Wisconsin [Mr. Howe] and the
Senator from Kentucky [Mr. Davis] justly claim for
the West and South a fair proportion of bank circulation.
The Senator from Indiana [Mr. Morton] demands
more. While neither asks for expansion, neither
is ready for contraction. The last-named Senator
argues, that at this time the currency is not too much
for the area of country and the amount of business,
which, from the new spaces opened to settlement and
the increase of commerce, require facilities beyond those
that are adequate in thickly settled and wealthy communities.
His premises may be in the main sound;
but he might have made a further application of them.
If, in the absence of local banks and banking facilities,
a larger amount of circulation is needed,—and I do not
mean to question this assertion,—would it not follow
that the establishment of such local banks and banking
facilities, with new bank credits, checks of depositors,
and other agencies of exchange, and with the increase of
circulation, would more than counterbalance any slight
contraction from the withdrawal of greenbacks, and that
thus we should be tending toward specie payments?
The Senator from Kentucky said aptly, that, if we
wait until all are ready, we shall never resume. If the
Senator from Indiana is right in saying that prices have
already settled down in the expectation of an early resumption,
then to my mind the battle is half won and
we have only to proceed always in the right direction.
A simple redistribution of the existing currency cannot
be made without serious consequences to the business
of the country, while it will do nothing to correct
the evils of our present financial condition. It will
do nothing for Financial Reconstruction, nor will these
consequences be confined to any geographical section.
They will affect the South and West as well as the
North and East. I need only add that disturbance in
New York means disturbance everywhere in our country.
Nor is it easy to see how any redistribution can be
made, which, however just to-day, may not be unjust
to-morrow. As business develops and population extends
there will be new demand, with new inequalities
and new disturbances.
The original Banking Act[212] authorized a circulation of
$300,000,000, a large part of which went to the Northern
and Eastern States. All this was very natural; for
at that time there was no demand at the South, and
comparatively little at the West. With the supply of
capital at the East banks were promptly formed, even
before the State banks were permitted to come into the
new system. Subsequently the State banks were not
only permitted to come into the new system, but their
circulation was taxed out of existence. Here, then, was
banking capital idle. It was reasonable that the circulation
which was not demanded in other parts of the
country should be allotted to these banks. This I state
in simple justice to these banks. I might remind you
also of the patriotic service rendered by the banks of
New York, Boston, and Philadelphia, which in 1861
furnished the means by which our forces were organized
against the Rebellion. One hundred and fifty millions
in gold were furnished by these banks, of which
less than fifty millions were subsequently subscribed by
the people;[213] and this was at a moment when the national
securities had received a terrible shock. Not
from the South, not from the West, did financial succor
come at that time.
In considering briefly the questions presented by the
pending measure I shall take them in their order. They
are two: first, to enlarge the national bank currency;
and, secondly, to create a system of free banking founded
on coin notes. This leaves out of view the question
of refunding and consolidating the national debt; nor
does it touch the great question of specie payments.
I begin with the proposed enlargement of the currency.
The object is excellent, as is admitted by all;
but the practical question arises on the way it shall be
done.
If you look at the bill now before the Senate, you
will see that it authorizes an enlargement to the extent
of $45,000,000, and the withdrawal to that amount of
what are called three per cent. temporary loan certificates,
of which little more than this amount exists. The
extinction of this debt will accomplish an annual saving
of about $1,366,000. So far, so good. This amount of
$45,000,000 is allotted to banks organized in States and
Territories having less than their proportion under the
general Banking Act. This is right, and it removes to a
certain extent objections successfully urged at the last
session of Congress against a measure for the redistribution
of currency.
But, plainly and obviously, the measure of relief proposed
is not sufficient to meet the just demands of the
South and West; nor is it sufficient to prevent taking
from the North and East a portion of the currency now
enjoyed by them. Therefore in one part of the country
it will be inadequate, while in another it is unjust. Inadequacy
and injustice are bad recommendations.
When a complete remedy is in our power, why propose
a partial remedy? When a just remedy is in our
power, why propose an unjust remedy? There is another
question. I would ask also, Why unnecessarily
disturb existing and well-settled channels of trade?—for
such must be the effect of a new apportionment, as
proposed, under the census of this year. Why not at
once provide another source from which to draw the
new supplies under the new apportionment? I open
this subject with these inquiries, which to my mind
answer themselves.
The proposition of the Committee is further embarrassed
by the provision for the cancellation each month
of the three per cent. certificates to an amount equal to
the aggregate of new notes issued during the previous
month. In order to judge the expediency of this
measure we must understand the origin and character
of these certificates.
The Secretary of the Treasury, desiring to avoid the
further issue of greenbacks, conceived the idea of a note
which could be used in the payment of Government obligations,
but in such form as not to enter into and inflate
the currency. This resulted in an interest-bearing
note payable three years after date, with six per cent.
interest compounded every six months and payable at
the maturity of the note in its redemption. This anomalous
note was made legal-tender for its face value only.[214]
It was not doubted that such notes, on the accumulation
of interest, would be withdrawn as an investment. Being
legal-tender, if they were allowed to be used by the
banks as part of their reserves, they would become, contrary
to the original purpose, part of the national circulation,
while the Government would be paying interest
on bank reserves, which no bank could demand. But
the ipse dixit of the Secretary could not prevent their
use by the banks as part of the reserves. The intervention
of Congress was required, which, by the second
section of the Loan Act of June 30, 1864, provided as
follows:—
“Nor shall any Treasury note bearing interest, issued under
this Act, be a legal tender in payment or redemption of
any notes issued by any bank, banking association, or banker,
calculated or intended to circulate as money.”[215]
From this statement it seems clear that neither the
Secretary originating these compound-interest legal-tender
notes, nor the Act of Congress authorizing them, nor
the banks receiving them, contemplated their employment
as part of the bank reserves. How they reached
this condition remains to be told.
The whole issue of the compound-interest legal-tender
notes amounted to upward of two hundred and seventeen
millions.[216] These were funded at or before maturity,
except some fifty millions, which as they matured
were exchanged for certificates to that amount bearing
three per cent. interest, and constituted part of the bank
reserves.[217] Here was an innovation as improvident as
new, being nothing less than bank reserves on interest.
This improvidence was increased by the manner of distribution,
which, instead of being ratable, seems to have
been according to the rule of “Who speaks first?” Of
course the banks within easy access of Washington had
peculiar opportunities, by which they were enabled to
secure these notes, and thus obtain interest on part of
their reserves, while banks at a distance, and especially
in the country, were not equal in opportunity. Besides
its partiality, this provision operates like a gratuity to
the banks having these notes.
Obviously these three per cent. certificates ought to
be withdrawn; but I do not like to see their withdrawal
conditioned on the extension of banking facilities.
Their case is peculiar, and they should be treated
accordingly. Nor should their accidental amount be
made the measure of banking facilities. They constitute
a part of the national debt, and should be considered
in the refunding and consolidation of this debt,
and not on a bill to provide banking facilities.
I think I do not err, if I conclude that the first part
of the pending measure is inadequate, while the cancellation
of the three per cent. certificates in the manner
proposed is inexpedient. All this is more observable
when it is considered that there is another way, ample
and natural.
From the first part of the pending measure I pass to
the second part, being sections three, four, and five,
which, if I am not mistaken, authorize free banking,
with coin notes as a declared basis of coin. This is
plausible, but to my mind illusory and impracticable.
The machine will not work; but if it does work, its
first and most obvious operation will be to create a new
currency, adding a third to the greenbacks and bank-notes
already existing, besides creating a new class of
banks. Here I put the practical question, Can any
national bank issue and maintain a circulation of coin
notes with a reserve of only twenty-five per cent., so
long as gold commands a premium? How long would
the reserve last? It is easy to see that until specie
payments this idea is impracticable. It will not work.
In proportion to the premium on gold would be the run
on the banks, until their outstanding notes were redeemed
or their vaults emptied.
But the measure is not only impracticable,—it is
inexpedient, as multiplying, instead of simplifying, the
forms of currency. We have now two paper currencies,
distinct in form and with different attributes. Everybody
feels that this is unfortunate; and yet it is now
proposed to add another. Surely it is the dictate of
wisdom, instead of creating a third paper currency, to
disembarrass the country of one of those now existing
and make the other convertible into coin, so that we
may hereafter enjoy one uniform currency. I confess
my constant desire for measures to withdraw our greenbacks
and to make our present bank-notes coin notes.
Coin notes should be universal. Under any circumstances
the conclusion is irresistible, that the proposed plan,
if not utterly impracticable, is a too partial and timid
experiment, calculated to exercise very little influence
over the great question of specie payments.
If I am right in this review, the bill of the Committee
does not deserve our support. But I do not confine
myself to criticism. I offer a substitute. Could I have
my way, I would treat the whole financial question as
a unit, providing at the same time for all the points involved
in what I have called Financial Reconstruction.
This I have attempted in the bill which I have already
introduced. But on the present occasion I content myself
with a substitute for the present measure. The
amendment of which I have given notice has the twofold
object of the pending bill: first, to enlarge the currency;
and, secondly, to change the existing banking
system, so as to provide practically for free banking and
to enlarge banking facilities.
If you will look at my amendment, you will see that
it enlarges the limit of bank-notes from $300,000,000
to $500,000,000. This is practically a provision for free
banking, at least for some years. Practically it leaves
the volume of currency to be regulated by legitimate
demand, with a proviso for the withdrawal of legal-tender
notes to an amount equal to the new issues. The
amendment then proceeds to provide bonds to be deposited
with the Government as the basis of the new banks.
And here is a just and much-needed economy,—just to
the Government, and not unjust to the banks. It is
proposed for the future to allow but four per cent. interest
on the bonds deposited by the banks. Thus far the
banks have enjoyed large benefits, and in part at the
expense of the Government. Under the operation of
my amendment these profits would be slightly reduced,
but not unduly, while the Treasury would receive an
annual benefit of not far from six million dollars in
coin. In this respect the proposition harmonizes with
the idea, which is constantly present to my mind, of diminishing
our taxes.
Sir, in the remarks submitted by me on a former occasion
I ventured to say that the first great duty of Congress
was to mitigate the burdens now pressing upon
the energies of the people and upon the business of the
country, and, as one means of accomplishing this important
result, to extend these burdens, in a diminishing
annual ratio, over a large population entering upon the
enjoyment of the blessings which the present generation
at such enormous cost has assured to the Republic.[218]
Upon the assumption that the national revenues and
the national expenditures would continue relatively the
same as now, a sum extending from eighty to one
hundred millions would be the measure of relief that
might be accorded at once, without arresting the continuous
reduction of the debt at the rate of $2,000,000
a month.
In proposing this large reduction of taxation at this
time, with the hope of larger reductions in the near
future, it was necessary to keep in view the possibility
of increased expenditure or of decreased receipts. To
guard against such contingency we must keep strict
watch over the expenditures, and, if possible, diminish
the positive annual obligations of the nation. And here
the mind is naturally and irresistibly attracted to the
prodigious item of interest. Cannot this be reduced at
an early day by a large amount, and then subsequently,
though contingently, by a much larger amount? And
should not this result be one of our first endeavors? Is
it not the first considerable stage in the reduction of
taxation?
The credit of the country is injured by two causes:
first, the refusal to redeem past-due obligations, being
so much failed paper, which condition must necessarily
continue so long as we deliberately sanction an inconvertible
currency; and, secondly, the menace of Repudiation,
with slurs upon the integrity of the people
uttered in important quarters. These two causes are
impediments to the national credit. How long shall
they continue? Loyally and emphatically has Congress
declared that all the obligations of the nation shall
be paid according to their spirit as well as letter. But
this is not enough. More must be done. And here
Congress must act, not partially, nor timidly, nor in
the interests of the few only, but impartially, comprehensively,
firmly, and in the interests of the many. It
must help the recognized ability of the nation by removing
its disabilities.
Nearly five years have now passed since the Rebellion
sheathed its sword. But the national expenditures
did not cease at once when the sword no longer plied
its bloody work. They still continued, sometimes under
existing contracts which could not be broken, sometimes
in guarding the transition from war to peace.
Meanwhile the national faith was preserved, while the
people carried the unexampled burden willingly, if not
cheerfully. The large unliquidated debt, the débris of
the war, has been paid off or reduced to a form satisfactory
to the creditor, and the world has been assured
that the people are ready for any sacrifices according to
the exigency. Is more necessary? Should these sacrifices
be continued when the exigency has ceased?
These sacrifices are twofold, being direct and indirect.
The direct are measured by the known amount of
taxation. The indirect are also traced to existing taxation,
and their witnesses are crippled trade, unsettled
values, oppressive prices, and an inconvertible currency,
which of itself is a constant sacrifice. Therefore do I
say again, Down with the taxes!
Bills relating to taxation do not originate in the
Senate; but Senators are not shut out from expressing
themselves freely on the proper policy which is demanded
at this time. On the finances and the banks
the Senate has the same powers as the other House.
Here it may take the initiative, as is shown by the
present bill. But what it does should be equal to the
occasion; it should be large, and not petty,—far-reaching,
and not restricted in its sphere. The present bill,
I fear, has none of these qualities which we desire at
this time. It is a patch or plaster only, when we need
a comprehensive cure.
To my mind it is easy to see what must be done.
The country must be relieved from its heavy burdens.
Taxation must be made lighter,—also less complex
and inquisitorial. Simplification will be a form of relief.
Our banking system is ready to adapt itself to the
wants of the country, if you will only say the word.
Speak, Sir, and it will do what you desire. But instead
of this we are asked by the Committee to begin by making
the system more complex, without adding to its efficiency;
we are asked to construct a third currency,
which so long as it continues must be a stumbling-block;
we are asked to establish discord instead of concord.
Now, Sir, in order to bring the Senate to a precise
vote on what I regard as the fundamental proposition
of my amendment, I shall withdraw the amendment as
a whole, and move to strike out the first two sections of
the Committee’s bill, and to insert as a substitute what
I send to the Chair.
The proposed substitute, being Section 5 of Mr. Sumner’s bill, having
been read, he continued:—
On that proposition I have one word to say. It is
brief: that you will admit. It is simple: that you will
admit. It enlarges the existing national bank circulation
by $200,000,000: that is ample, as I believe you
will admit. Practically it is a system of free banking:
that is, it is such until the enlarged circulation is absorbed,—that
is, for some time to come. But free
banking is what, as I understand, Senators desire.
Then, again, it has in it no element of injustice.
There is no injustice to the North or to the East. All
parts of the country are equally accommodated and
equally protected. But this cannot be said of the
pending measure.
Then, again, it is elastic, adapting itself everywhere
to the exigencies of the place. If banking facilities are
needed, and the capital is ready, under that amendment
they can be enjoyed. Unlike the proposition of the
Committee, it is not of cast-iron, but is so as to adapt
itself to all the conditions of business in every part of
the country.
Then, again, in the final provision, that for every
bank-note issued a greenback shall be withdrawn, you
find the great highway to specie payments. All your
greenbacks will speedily be withdrawn. You will have
then only the bank-notes, making one paper currency;
and then speedily, within a brief period, you will have
specie payments. The banks must have their reserves;
there will be no greenbacks for them; they must find
them in specie. The banks, then, and every stockholder,
will find a motive to press for specie payments, and
you will have that great result quietly accomplished,
absolutely without shock, while the business interests of
the country will rejoice.
February 1st, in further advocacy of this amendment, Mr. Sumner
said:—
Mr. President,—As it is understood that the Senate
is to vote to-day on the bill and all pending propositions,
I seize this moment to say a last word for the
proposition which I have had the honor of moving, and
which is now pending. But before I proceed with the
discussion, allow me to say, that, while sitting at my
desk here, I have received expressions of opinion from
different parts of the country, one or two of which I
will read. For instance, here is a telegraphic dispatch
from a leading financial gentleman in Chicago:—
“Your views on Currency Question much approved here.
Authorize new bank circulation to extent named, retiring
greenbacks pari passu.”
This is the very rule which I seek to establish.
At the same time I received a communication from
Circleville, Ohio, dated January 25th, the first sentences
of which I will read:—
“Please pardon me for this intrusion. I desire to ask, if
you are willing to indicate, what will likely be the result of
your financial bill. I think I only utter the sentiment of
three fourths of all the commercial men through our great
and growing West, when I say it should become a law, and
thereby secure to us our equal share of the national banking
capital, which we now need so much.”
This, again, is what I seek to accomplish.
At this stage, I hope I may have the indulgence of
the Senate, if I ask one moment’s attention to the bill
of the Committee. On a former occasion I ventured to
say that it was inadequate.[219] The more I reflect upon
it, the longer this debate is continued, the more I am
impressed with its inadequacy. It does not do what
should be done by the first measure of legislation on
our finances adopted by the present Congress. It is incomplete.
I wish I could stop there; but I am obliged
to go further, and say that it is not only incomplete, but
it is, in certainly one of its features, to which I shall
call attention, mischievous. I take advantage of this
moment to present this point, because it has not been
mentioned before, and because at a later stage I may
not have the opportunity of doing so. It is this provision
at the end of the first section:—
“But a new apportionment shall be made as soon as practicable,
based upon the census of 1870.”
At the proper time I shall move to strike out these
words, and I will now very briefly assign my reasons.
The proposition is objectionable, first, because it is
mischievous,—and, secondly, because it is difficult, if
not impracticable, in its operation; and if I can have
the attention of the Senate, unless figures deceive me,
and unless facts are at fault, I think that the Senate
must agree in my conclusion.
We are told by the Comptroller of the Currency that
$45,000,000 is a large allowance of currency at this
moment for the South and West; indeed, I believe
he puts the limit at $40,000,000. Now suppose only
$40,000,000 are taken up during the coming year,—that
is, till the completion of the census; that would
leave $5,000,000 still outstanding, which might be employed
for the benefit of the South and West. That
circumstance indicates to a certain extent the financial
condition of those parts of the country. Do they need
larger facilities, and, if so, to what extent? Can you
determine in advance? I doubt it. But, Sir, in the
face of this uncertainty, this bill steps in and declares
positively that “a new apportionment shall be made as
soon as practicable, based upon the census of 1870.”
What will be the effect of such a new apportionment?
Even according to the census of 1860, such new apportionment
would transfer some sixty million dollars from
banks that enjoy it to other parts of the country; it
would take away from those banks what they want, and
transfer it where it is not wanted. The language is imperative.
But, Sir, it is not to be under the census of
1860, but under the census of 1870; and unless figures
deceive, by that census the empire of the great West
will be more than ever manifest. And if the transfer is
made accordingly, it will take some ninety or one hundred
million dollars from where it now is, and is needed,
and carry it to other places where certainly it will
not be needed in the same degree. What will be the
effect of such a transfer?
Mark, Sir, the statute is mandatory and unconditional.
There is no chance for discretion; it is to be done;
the transfer is to be made. And now what must be the
consequence? A derangement of business which it is
difficult to imagine, a contraction of currency instantaneous
and spasmodic to the amount of these large sums
that I have indicated.
I do not shrink from contraction. I am ready to
say to the people of Massachusetts, “If the Senate will
adopt any policy of contraction that is healthy, well-considered,
and with proper conditions, I would recommend
its acceptance.” But a contraction like that proposed
by this bill, which arbitrarily takes from North
and East this vast amount, and transfers it to another
part of the country, where it may not be needed, such
a contraction I oppose as mischievous. I see no good
in it. I see a disturbance of all the channels of business;
and I see a contraction which must be itself infinitely
detrimental to the financial interests of the Republic.
But then, Sir, have you considered whether you can
do it? Is it practicable? I have shown that it is mischievous:
is it practicable? Can you take this large
amount of currency from one part of the country and
transfer it to another? Have you ever reflected upon
the history of the bank-note after it has commenced its
travels, when it has once left the maternal bank? It
goes you know not where. I have been informed by
bank-officers, and by those most familiar with such
things, that a bank-note, when once issued, very rarely
returns home. I have been assured that it is hardly
ever seen again. The banks, indeed, may go into liquidation,
but their notes are still current. The maternal
bank may be mouldering in the earth; but these its
children are moving about, performing the work of circulation.
Why? The credit of the nation is behind
them; and everybody knows, when he takes one of
them, that he is safe. Therefore, I ask, how can the
proposed requirement be carried into execution? how
can you bring back these runaways, when once in circulation
on their perpetual travels?
There is but one way, and that is by the return to
specie payments. Hold up before them coin, and they
will all come running back to the original bank; but
until then they will continue abroad. The proposed requirement
seems to go on the idea that bank-notes, like
cows, return from pasture at night; whereas we all
know, that, until specie payments, they are more like
the wild cattle of the prairies and the pampas; you
cannot find them; they are everywhere. Surely I am
not wrong, when I suggest that the proposed requirement
is impracticable as well as mischievous; and at
the proper time I shall move to strike it out.
The amendment which I have moved has been under
discussion for several days. It has had the valuable
support of the Senator from Michigan [Mr. Chandler],
who brings to financial questions practical experience.
It has been opposed by other Senators, and with considerable
ardor by my excellent friend from Indiana
[Mr. Morton].
On Thursday last, the Senator from Indiana, addressing
himself to me, and inviting a reply, which I was
then prevented from making, took issue with me directly
upon the position I have assumed, that the withdrawal
of legal-tender notes would materially assist the
effort for specie payments; and he further declared that
the two currencies of bank-notes and United States
notes were kept together because one was redeemable
with the other. I do not quote his precise words, but I
give the substance.[220]
Under the policy we are now pursuing, it seems to
me, that, with $356,000,000 of legal-tender notes in circulation,
the Government will not for many years, if
ever again, pay specie. With that amount of United
States notes, under the actual policy, the bank currency
will forever remain inconvertible. And the correctness
of these positions I will endeavor briefly to demonstrate.
A convertible currency is nothing more nor less than
the servant of coin. If there is no coin, it can neither
be servant nor representative, though it may attempt to
perform the functions of coin. Presenting itself under
false pretences, it but partially succeeds in this attempt;
and the discredit attaching to it compels it to pay more
for any property than would be the price of such property
in coin, or the acknowledged representative of coin,—just
as doubtful people must submit to ten, fifteen, or
twenty per cent. discount, when what is known as “gilt-edged”
commercial paper is discounted at five, six, or
seven per cent. Thus far we have had no coin in the
Treasury appropriated to the stability of the United
States notes,—and under our present policy, dictated
by the restrictive laws that hedge the Secretary of the
Treasury and confine his liberty of action, we never
shall have, until the whole bonded debt of the country
is extinguished,—while at the same time the banks
are excused under the law from all attempts to fortify
their notes with coin.
And what is it that successfully discourages us from
direct steps toward specie payments?
In the first place, it is the mistrust of the people in
our ability to resume, and to maintain resumption. In
the next place, the monthly publication of the Treasury
discloses precisely our weakness as well as our strength;
and the great element of our weakness is the volume
of our past-due and demand obligations. In ordinary
times,—that is, when the people have confidence in the
ability of the banks to redeem their demand obligations
in coin,—a reserve of twenty to twenty-five per cent.
in coin is more than sufficient to meet any probable demand
that may be made. Let mistrust arise in relation
to the solvency of any bank or of the system of banks,
and the reserve of twenty-five per cent. will vanish as
the dew before the sun, and the individual bank or all
the banks must close their doors to all demands for
specie.
In our present legislation we encounter this mistrust
wide-spread among the people; and so long as we ourselves
exhibit so great timidity in our attempts at legislation
upon this subject, just so long do we minister to
and strengthen this mistrust.
The amount of demand obligations which the Treasury
must be prepared to meet upon a moment’s notice,
including three per cent. certificates and fractional currency,
is more than four hundred and forty million dollars.
With the existing mistrust, measured by the premium
on gold, a reserve of twenty-five per cent. of coin
in the Treasury appropriated to these demands would
be totally insufficient. This reserve must bear a proportion
to the aggregate of liabilities so large as to remove
mistrust, and this can be accomplished only by
presenting as in the vaults of the Treasury an amount
of coin nearly equal to the sum of liabilities.
If during the last three years we had retained the surplus
of coin that has reached the Treasury, we should
now have enough; but, as a consequence of such accumulation,
speculation would have run riot,—and I fear,
if we should now by legislative enactment decree that
course for the future, we should aggravate the situation.
What, then, is left for us to do? What but to lessen
our liabilities?—which, as the laws now stand, must
remain the same to-morrow as to-day, and one, two, or
five years hence immutably as now.
Difficulties beset the contraction of those liabilities,
as there are difficulties that impede the accumulation of
coin in sufficient amount to meet our purpose; but the
former may be neutralized, if not removed, by judicious
compensations that will not in any serious degree retard
the object for which I would legislate.
Sound financial authorities unite in declaring, that, if
the Government resumes specie payments, the banks of
New York can resume; and when the banks of New
York resume, the whole country can resume. Evidently,
then, our care is the Government.
And what is the first step? To my mind we must
lessen the demand obligations of the Government, while
the Secretary of the Treasury at the same time strengthens
the reserves in the national vaults. Neither should
be done suddenly or violently, but gradually, judiciously,
and wisely. As the statutes now stand, the obligations
cannot be reduced. With the present volume of
obligations, the laws of trade prevent the Secretary of
the Treasury from sufficiently strengthening his reserves.
It therefore devolves upon the National Legislature
to take the initiative in the effort to resume
specie payments.
The difficulties that impede the reduction of the national
liabilities lie in the fact that such obligations are
a part, and a large part, of the currency of the country.
To withdraw that currency without giving a substitute
is to create stringency, burden trade, and invite chaos:
at least, so it seems. These obligations, so far as they
relate to the currency, are larger in amount than those
of the national banks combined; and furthermore, they
are the head and front of all. They are so large as to
be beyond the point of manageability, and I would
therefore reduce them within control. It is their volume
that puts them beyond control, and it is our want
of control that causes them to be depreciated. Thus,
Sir, I would offer inducements to fund them, or part
of them, in bonds that would be sought after because of
their valuable uses beyond a mere investment, and to
neutralize the evils of contraction of Treasury liabilities
by authorizing their assumption, with the consent of
the people, by various parties in different sections of the
country, each one of whom would be fully equal to the
task thus voluntarily assumed. I would issue a bank-note
for every dollar of Treasury obligation cancelled;
but I would issue no bank-note that did not absorb an
equal obligation of the Treasury. By this distribution
of a portion of the demand obligations you restore to
the Government the full ability to meet the remainder;
and at the same time the people know, that, so far as
the currency goes,—and it is of this only we are treating,—every
promise of any bank has its ultimate recourse
in the Treasury of the United States.
The absorption of one hundred and fifty or two hundred
millions cannot fail to enhance the remaining legal-tender
nearly, if not quite, to par with gold. The
volume of currency in the channels of trade and in the
hands of the people will be about the same as now.
The aggregate of United States notes and national bank-notes
outstanding will be precisely the same. Therefore
the indirect contraction so much dwelt upon will scarcely
be felt. The volume of greenbacks will be ample for
the reserves of the banks, and their growing scarcity
will cause them to become more and more valuable;
and as they approach the standard of gold, so will they
sustain with golden support the bank-notes into which
they are convertible.
The demand by the people for legal-tender will not be
appreciably increased, as the bank-note is receivable by
the Government for all dues except customs, and those
demands are necessarily localized. While the growing
scarcity of greenbacks, because of their replacement
by bank-notes fulfilling all the requirements of general
trade, will not be noticed by the people, the banks will
take heed lest they fall, and at an early day begin to
strengthen themselves. Legal-tender reserves they must
have, and, with the honest eyes of our Secretary of the
Treasury to detect any deficiency, they will begin their
strengthening policy at once. Instead of putting gold
received as interest forthwith on the market for sale,
they will put it snugly away in their vaults. The gold
which comes to them in the course of banking operations
will be added thereto; and almost imperceptibly
the country banks will arrive at the condition of the
city banks, whose reserves in coin and legal-tender notes
are now far beyond the requirements of law. In the
mean time, and without derangement of business, the
Treasury may strengthen its reserve,—while, on the
other hand, the quiet reduction of its liabilities advances
the percentage of the reserve to the whole amount
of liabilities in almost a compound ratio. With this
strengthening of the condition of the Treasury, made
manifest to all the world by its monthly publications,
the mistrust of the people will be gradually, but surely,
dissipated, and as surely be replaced by confidence
that all demand obligations will be redeemed at an early
day,—a confidence as wide-spread and deep-seated as
is that now prevailing in relation to our bonded debt,
that it will be paid according to the spirit as well as
the letter of the law.
It will thus be seen that just in proportion to the
strengthening of the legal-tender do we strengthen the
bank-note. Strike out of existence in a single day the
legal-tender notes, and I fear that the bank-note would
for a time fall in comparative value: so would everything
else. But I advocate no such violent measure.
The Senator from Indiana in his remarks appeared to
forget that we have in the country two or three hundred
millions of another legal-tender,—being coin, now displaced,
of which no legitimate use is made in connection
with the currency,—that should resume its proper position
in the paper circulation of the country. Here are
two or three hundred millions of money, now by force
of law demonetized, which I would have relieved of its
disabilities. I would change the relation of master it
now occupies to that of servant, where it properly belongs;
and I would inflate the currency with it to the
extent that we possess it. Inflation by coin is simply
specie payment, or very near it.
I have endeavored, Mr. President, thus briefly to respond
to the questions propounded to me. I do not
know that I have entered sufficiently into detail to explain
clearly my convictions as to the necessity for reducing
the volume of legal-tender obligations, and to
prove, as I desire to prove, that their gradual withdrawal
will enhance not only the value of the remainder, but
also the value of the bank-note. Both will ascend in
the scale. This enhancement of the whole paper currency
will tend to draw the coin of the country from its
seclusion. As in the early period of the war, before the
present currency was created, we were astonished at the
positive, but hidden, money resources of the people, so
will the outflow of hidden coin confound the calculations
of those who suppose that its volume is to be
measured by the amount in the Treasury and in the
New York banks.
Mr. President, I am not alone in asking for the reformation
of our currency as the first stage of our financial
efforts. I read from the “Commercial and Financial
Chronicle”[221] of New York, an authoritative paper
on this subject, as follows:—
“In any practical scheme to improve the Government
finances and credit, or to restore prosperous activities, or
both at once, the first thing to be done must be the restoration
of a sound currency. That done or provided for, all the
rest will be easy; the best credit and the lowest rates of interest
will follow.”
To this end our greenbacks must be absorbed or paid,
and my proposition provides a way. As the greenbacks
are withdrawn, coin will reappear to take their place in
the banks and the business of the country. This will
be specie payments.
Here I wish to remark that I fail to see the asserted
dependence of our demand notes on our bonds. The
bonds may be at par without bringing the notes to par,
and so the notes may be at par without bringing the
bonds to par. According to the experience of other
countries, bonds and notes do not materially affect each
other. The two travel on parallel lines without touching.
Each must be provided for; and my present purpose
is to provide for the demand notes.
There is strong reason why this is the very moment
for this effort. According to statistical tables now before
me, our exports are tending to an equality with our
imports. During the five months of July, August, September,
October, and November, 1869, there has been a
nominal balance in our favor of $1,752,416; whereas
during the same months of last year there was an adverse
balance of $32,163,339. The movement of specie
is equally advantageous. During the five months
above mentioned there has been an import in specie of
$10,056,316 against $5,273,116 during the same months
last year, and an export in specie of $19,031,875 against
$21,599,758 during the same months last year.[222] According
to these indubitable figures, the tide of specie as
well as of business is beginning to turn. It remains for
us by wise legislation to take advantage of the propitious
moment. Take the proper steps and you will have
specie payments,—having which, all the rest will follow.
Because I desire to secure this great boon for my
country I now make this effort.
The amendment was rejected.
March 2d, Mr. Sumner’s bill having been reported back from the
Committee on Finance with an amendment in the nature of a substitute,
he spoke in review of their respective provisions as follows:—
Mr. President,—The measure now before the Senate
concerns interests vast in amount and influence. I
doubt if ever before any nation has attempted to deal at
once with so large a mass of financial obligations, being
nothing less than the whole national debt of the United
States. But beyond the proper disposition of this mass
is the question of taxation, and also of the extent to
which the payment of the national debt shall be assumed
by the present generation, and beyond all is the
question of specie payments. On all these heads my
own conclusions are fixed. The mass of financial obligations
should be promptly adjusted in some new form
at smaller interest; taxes must be reduced; the payment
of the national debt must be left in part to posterity;
specie payments must be provided for.
The immediate question before the Senate is on a
substitute reported by the Committee for the bill which
I had the honor of introducing some weeks ago. Considering
my connection with this measure, I hope that I
shall not intrude too much, if I recur to the original bill
and explain its provisions.
There are certain general objects which must not be
forgotten in our present endeavor. I have already said
that the taxes must be reduced. Here I am happy to
observe that the popular branch of Congress, in the exercise
of its constitutional prerogative, has taken the initiative
and is perfecting measures to this end. I trust
that they will proceed prudently, but boldly.
In harmony with this effort the expenditures of the
Government should be revised and cut down to the lowest
point consistent with efficiency. Economy will be
an important ally. Even in small affairs it will be the
witness to our purposes. Through these agencies our
currency will be improved, and we shall be brought to
specie payments, while the national credit will be established.
Not at once can all this be accomplished, but I
am sure that we may now do much.
As often as I return to this subject I am impressed
by the damage the country has already suffered through
menacing propositions affecting the national credit. I
cannot doubt that in this way the national burdens have
been sensibly increased. By counter-propositions in the
name of Congress we have attempted to counteract these
injurious influences. We have met words with words.
But this is not enough.
There is another remark which I wish to make, although
I do little more than repeat what I said on another
occasion.[223] It is that a national debt, when once
funded, does not seem to affect largely the condition of
the currency. The value of the former is maintained or
depressed by circumstances independent of the currency.
But, on the other hand, the condition of the currency
bears directly upon all efforts for increased loans; and
this is of practical importance on the present occasion.
The rules of business are the same for the nation as for
an individual; nor can a nation, when it becomes a borrower,
hope to escape the scrutiny which is applied to
an individual under similar circumstances. Applying
this scrutiny to our case, it appears that on our existing
bonded debt we have thus far performed all existing obligations,—not
without discussion, I regret to add, that
has left in some quarters a lingering doubt with regard
to the future, and not without an opposition still alive,
if not formidable. But the case is worse with regard to
that other branch of the national debt known as legal-tenders,
where we daily fail to perform existing obligations,
so that these notes are nothing more than so
much failed paper. With regard to this branch of the
national debt there is an open confession of insolvency,
and each day renews the confession. Now, by the immutable
laws of credit, which all legislative enactments
are impotent to counteract or expunge, the nation must
suffer when it enters the market as a borrower. Failing
to pay these obligations already due, it must pay more
for what it borrows. Nor can we hope for more than
partial success, until this dishonor is removed.
With these preliminary remarks, which are rather
hints than arguments, I come directly to the measure
before the Senate; and here I begin with the first section.
I wish the Senate would note the difference between
this section in my bill and in the substitute of
the Committee. I proposed to authorize the issue of
$500,000,000 of Ten-Forty five per cents., and prescribe
the use to which the proceeds of such bonds should be
applied. The Committee propose $400,000,000 of Ten-Twenty
five per cents., and leave the application of the
proceeds the subject of discretion. Between the two
propositions there are several differences: first, in the
amount; secondly, in the length of the bond; and, thirdly,
in the application of the proceeds.
Here I beg to observe that the original sum of
$500,000,000 was not inserted by accident, or because
it was a round and euphonious sum. Nothing of the
kind. It was the result of a careful examination of the
national debt in its details, especially in the light of
the national credit. It was adopted because it was the
very sum required by the nature of the case. At least
so it seemed to me. A brief explanation will show if
I was not right.
The year 1862, which marks the date of our legal-tenders,
marks also the date of a new system in regard
to our loans. Senators are hardly aware of this change.
Previously our standard for sixes was an immutable loan
for twenty years. By the new system this immutability
was continued as to the right of demand by the bondholder,
but the right of payment was reserved to the
nation at any time after five years. This change, as
we now see, gave positive advantages to the nation.
Its disadvantages to the bondholder were so apparent
that it encountered resistance, which was overcome only
after undaunted perseverance and final appeal to the
people. Now, by recurring to the schedule of the national
debt, you will find that the first loan within the
sphere of this discretionary system is the Five-Twenties
of 1862, which, on the 1st of February last, after deducting
the purchased bonds, were $500,000,000. This,
therefore, is the first loan falling within our discretion,
the first loan we are privileged to pay before maturity,
and the first loan presenting itself for payment. In
these incidents the loan of 1862 has precedence,—it
stands first.
But there is a reason, which to my mind is of peculiar
force, why this first loan should be paid in coin at
the earliest possible day. It seems to me that I do
not deceive myself, when I consider it conclusive on
this question. The loan of 1862 is the specific loan
which has been made the objective point of all the
movements under the banner of Repudiation. It is
the loan to which this idea first attached itself. It is
the loan first menaced. Therefore, to my mind, it is the
loan which should be first provided for. I know no
way, short of universal specie payments, by which the
national credit can be so effectually advanced.
Why in the amendment of the Committee the amount
of the proposed issue is placed at $400,000,000 I am at
a loss to conceive. Here is no equivalent of any one
loan, nor of two or more loans. It is an accidental sum,
and might have been more or less for the same reason
that it is what it is. The term Ten-Twenties seems
also accidental, as it is unquestionably new. Of course
it is assumed that the amount proposed of Ten-Twenties
at five per cent. will absorb an equal amount of
Five-Twenties at six per cent., irrespective of any particular
loan; but I am at a loss to see on what grounds
the holders of the sixes can be induced to make the
exchange. Will the substitute bonds be considered of
equal value? I affirm not. But assuming that they
are acceptable, how shall they be acceptably distributed?
Shall the first comer be first served? If all were
at the same starting-point, the palm might be justly
bestowed upon the most swift. In the latitude allowed,
stretching over all the Five-Twenties, there would be
opportunity for favoritism; and with this opportunity
there would be temptation and suspicion.
The change from a Ten-Forty bond to a Ten-Twenty
bond, as proposed by the Committee, is a change, so far
as I can perceive, made up of disadvantages. To the
nation there is the same rate of interest, and there is
the same fixed period during which this interest must
be paid; while, on the other hand, the period of optional
payment is reduced from thirty years to ten years.
If there be advantage in this reduction, I do not perceive
it. If at the expiration of ten years we are in a
condition to pay, we may do so as readily under a Ten-Forty
as under the Ten-Twenty proposed. If during
the subsequent ten years of option our advancing credit
enables us to command a lower rate of interest, surely
we may do so just as favorably under one as under the
other. There is no benefit within the bounds of imagination,
so far at least as I can discern, which will not
redound to the nation from Ten-Forties as much as
from Ten-Twenties. On the other hand, it is within
possibilities, from disturbance in the money markets of
the world, or from other unforeseen circumstances, that
it may not be convenient during the short optional period
of the Committee to obtain the necessary coin without
a sacrifice. The greater latitude of payment leaves
the nation master of the situation, to pay or not to pay,
as is most for the national advantage.
Furthermore, the loan proposed by the Committee
has not, to my mind, the elements of success promised
by the other loan. It is assumed in both cases that the
coin for the redemption of the existing obligations shall
be obtained in Europe. Then we must look to the European
market in determining the form of the new loan.
Now I have reason to believe that a coin loan to the
amount of $500,000,000 may be obtained in Europe on
Ten-Forties at par, provided the new bonds are of the
same form and purport as the Ten-Forties which are
already so popular, and provided further that the proceeds
of the loan are applied to the payment in coin at
par of the Five-Twenties of 1862. The reasons are obvious.
The Ten-Forties have a good name, which is
much to start with. It is like the credit or good-will
of an established mercantile house, which stands often
instead of capital; and then the fact that the proceeds
are to be absorbed in the redemption of the first Five-Twenties,
so often assailed, will most signally attest
the determination of the country to maintain its credit.
These advantages cost nothing, and it is difficult to
see why they should be renounced.
We must not make an effort and fail. Our course
must be guided by such prudence that success will be
at least reasonably certain. For the nation to offer a
loan and be refused in the market will not do. Here,
as elsewhere, we must organize victory. Now it is to
my mind doubtful, according to the information within
my reach, if the loan proposed by the Committee
can be negotiated successfully at par. Bankers there
may be who would gladly see themselves announced as
financial agents of the great Republic; but it remains
to be seen if there are any competent to handle a
loan of $500,000,000 who would undertake it on the
terms of the Committee. I am clear that it is not prudent
to make the experiment, when it is easy to offer
another loan with positive advantages sufficient to turn
the scale. Washington, in his Farewell Address, said,
“Why forego the advantages of so peculiar a situation?
Why quit our own to stand upon foreign ground?”
In the same spirit I would say, Why forego the advantages
of a well-known and peculiar security? Why
quit our Ten-Forties to stand upon a security which
is unknown, and practically foreign, whether at home
or abroad?
In the loan proposed by the original bill we find
assurance of success, with the promise of reduced taxation,
Repudiation silenced, and the coin reserves in
the banks strengthened by sales in Europe, it may be,
$150,000,000. Should the amendment of the Committee
prevail, I see small chance of any near accomplishment
of these objects, and meanwhile our financial
question is handed over to prolonged uncertainty.
I pass now to the substitute of the Committee
for the second and third sections of the original bill.
Here again the amount is changed from $500,000,000
to $400,000,000. I am not aware of any reason for
this change; nor is there, indeed, any peculiar reason,
as in the case of the Five-Twenties of 1862, for the
amount of $500,000,000. The question between the
two amounts may properly be determined by considerations
of expediency, among which will be that of uniformity
with outstanding loans. A more important
change is in the time the bonds are to run, which is
Fifteen-Thirty years for the bonds at four and a half
per cent., and Twenty-Forty years for the bonds at four
per cent. Here occurs again the argument with regard
to the inferiority of Ten-Twenties, as compared with
Ten-Forties. By the same reason the Fifteen-Thirties
will be inferior to the Fifteen-Fifties, and the Twenty-Forties
will be inferior to the Twenty-Sixties, of the
original bill.
The prolongation of the bond is in the nature of
compensation for the reduction of interest. Already
we have established the ratio of compensation for such
reduction,—already for a loan at six per cent. we have
offered Five-Twenties, but for a loan at five per cent. we
have offered Ten-Forties,—and I see no reason why
by a tentative process we should so materially change
this standard as is now proposed. The experiment can
do no good, while it may do harm. It is in the nature
of a restriction on our discretion, and a limitation of the
duration of the bond, which, I apprehend, must interfere
essentially with its marketable character. While
the prolongation of time enlarges the option of the nation,
it increases the value of the bond in the market.
That which is most favorable to the nation is most
favorable to the market value of the bond; and that
which is unfavorable to the nation is unfavorable also
to the market value of the bond, rendering its negotiation
and sale more difficult and protracted. Thus at
every turn are we brought back to the original proposition.
Against this conclusion is the argument founded on
the idea of English consols. It is sometimes said, If
the short term of Five-Twenty years is the standard for
a six per cent. bond with a graduation to Twenty-Sixty
for a four per cent. bond, why may we not go further,
and establish consols at three per cent., running, if you
please, to eternity?—The technical term “consols” is an
abbreviation for the consolidated debt of Great Britain,
and in the eyes of a British subject has its own signification.
It means a debt never to be paid, or at least it
is an inscribed debt carrying no promise of payment.
I would not have any debt of the United States assume
either the form or name of consols. I would rigidly adhere
to definite periods of payment. This is the American
system, in contradistinction to the British system.
I would not only avoid the idea that our debt is permanent,
but I would adhere to the form of positive payment
at some fixed period, and keep this idea always
present in the minds of the people. Without the requirement
of law, I doubt if the debt would be paid.
Political parties would court popularity by a reduction
of taxation. The Treasury of the United States, like
the British Treasury, would always be without a surplus,
and the national debt would be recognized as a
burden to be endured forever. Therefore do I say, No
consols.
There is another consideration, having a wide influence,
but especially important at the West and South,
which should induce us to press for a reduction of the
interest on our bonds; and here I present an argument
which, if not advanced before, is none the less applicable.
Do Senators consider to what extent the Government
determines the rates of interest in the money centres of
the country? Not only for itself does it determine, but
for others also. Government bonds enjoy preëminence
as an investment,—and if the interest is high, they attract
the disposable money of the country. Government
sixes are worth more than a six per cent. bond of any
private corporation or individual, no matter how well
secured. Therefore, it is easy to see, so long as we retain
our standard at six per cent., so long as we have
sixes, will the capital of the country seek these bonds
for investment, permanent or temporary, to the detriment
of numerous enterprises important to the national
development, which are driven to be the stipendiaries
of foreign capital. Railroads, especially at the West and
South, are sufferers, being sometimes delayed by the difficulty
of borrowing money, and sometimes becoming
bankrupt from ruinous rates of interest, always in competition
with the Government. But what is true of
railroads is also true of other enterprises, which are
pinched, and even killed, by these exactions in which
the Government plays such a part. All are familiar
with the recurring appeals for money on bonds even
at eight per cent., which is more than can be paid permanently
without loss; and even at such a ruinous rate
there is difficulty in obtaining the required amount.
Doubtless the excessive interest now demanded is
partly due to our fictitious currency, where failed paper
is forced upon the market; but beyond this influence
is that of our sixes, absorbing disposable capital. I
venture to assert, that, if we could at an early day reduce
these sixes to fives, there are millions which would
be released to seek investment in other securities at six
per cent., especially to the relief of the West and South.
The reduction of interest to four and a half per cent.
and four per cent. would release further millions. A
recent incident in the financial history of Massachusetts
illustrates the disturbing influence of our sixes. An attempt
to obtain a loan in Europe at five per cent. was
unsuccessful, chiefly because the National Government
offered six per cent.
Therefore, for the sake of public enterprise in its
manifold forms, for the sake of that prosperity which
depends on human industry, for the sake of manufactures,
for the sake of commerce, and especially for the
sake of railroads, by which all these are quickened, we
must do what we can to reduce the general rate of interest,
which is now such a curb on enterprise; and
here we must begin with our own bonds. Without
any adverse intention, the National Government is a
victorious competitor, and the defeated parties are those
very enterprises whose success is so important to the
country. A competition so destructive should cease.
Keeping this before us in the new loan, we shall adopt
that form of bond by which the interest will most surely
be reduced. Thus, while refunding the national debt,
we shall open the way to improvements of all kinds.
This is what I have to say for the present on the refunding
propositions of the Committee. Their object is
the same as mine. If I differ from them in details, it is
because after careful consideration it seems to me that
in some particulars their system may be improved.
Proceeding from these pivotal propositions, I find
other things where I must again differ. When I first
addressed the Senate on this subject, I took occasion to
declare my objection to the idea of agencies or offices in
the commercial centres of Europe, where interest should
be paid. I am not ready to withdraw that objection,—though,
if I could be tempted, it would be by the Senator
from Ohio [Mr. Sherman], when he held up the
prospect of a common money among nations. This is
one of the desires of my heart, as it is one of the necessities
of civilization; but I fail to see how this aspiration
will be promoted by the system proposed,—which
must be judged on its own merits, without any such
recommendation. It is easy to see that such a system,
besides being the beginning of a new policy on the part
of the Government, may entail serious embarrassments.
Sub-treasuries must be created in foreign capitals, which
must be continued so long as the bonds last. Remittances
of coin must be semiannual; and should such
remittances fail at any time, there must be advances at
no little cost to the Government. I cannot imagine any
advantage from this new system sufficient to induce us
to encounter the possible embarrassments or entanglements
which it may cause.
I would not take too much of the time of the Senate,
and therefore I pass at once to the proposition of the
Committee, being section seven, providing for the very
early payment of the national debt.
Mr. President, the payment of the national debt is an
American idea, and I would say nothing to weaken it
among the people. Whatever we owe must be paid;
but it is the part of prudence to make the payment in
such way as, while consistent with our obligations, shall
promote the national prosperity. In this spirit I approach
the proposition of the Committee, in which there
is so much of good, only to examine and measure it, in
order to ascertain its probable influence, especially on
the question of Taxation.
Here it must be borne in mind, that the present
measure in all its parts, so far as applicable, and especially
with its guaranties and pledges, must be taken as
the basis of our new engagements. The provision that
so much of the debt shall be paid annually will become
in a certain sense a part of the contract, although not
so expressed in the bond. Not less than $150,000,000
are set apart annually to be applied “to the payment
of the interest and to the reduction of the principal of
the public debt.” This is a large sum, and we should
consider carefully if such a guaranty or pledge has in
it the promise of financial stability. Promising too
much is sometimes as bad as promising too little. Our
promise must be according to our means prudently employed.
If we assume obligations so large as to bear heavily
upon the business of the country and to compel unreasonable
taxation, there will be little chance of financial
stability. They will become the object of attack, and
will enter into the conflict of parties,—and if repealed,
the national faith may be called in question. I need
not say that business must suffer. A less ambitious
effort on our part will be less obnoxious to attack,—thus
leaving the bonds to their natural position in the
money market, and strengthening all the movements of
commerce.
In order to determine the operation of this provision
we must look into details. I have the estimates before
me, showing our present and prospective liabilities for
interest; but I content myself with presenting compendiously
the result, in order to determine the question
of taxation. Suffice it to say, that under the operation
of the present measure there will be in 1871, after
the payment of all liabilities for interest, a surplus of
$43,000,000 to be applied to the payment of the national
debt. With each succeeding year the reduction
of interest will rapidly increase this surplus; and when
we bring into operation other provisions of the bill, and
convert $500,000,000 of sixes into a like amount of four
and a half per cents., effecting a further saving of interest,
equal to $7,500,000 annually, the surplus revenue,
as compared with necessary expenditures, will in a brief
period approach $100,000,000 annually.
Here the question arises, Is not this unnecessarily
large? Is it not beyond the bounds of prudence and
wise economy? Shall we declare in this fundamental
measure a determination to redeem the whole national
debt within a period of twenty-five years? Can the industries
of the country sustain such taxation? I put
the question. You shall answer it. The future has its
great claims upon us; so also has the present. I submit
that the pending measure sacrifices the present. I
conclude, therefore, as I began, with another appeal for
reduced taxation. At the proper time I shall move an
amendment, in order to aid this result.
In the course of the proceedings which followed, the bill of the Committee
underwent important amendments, in accordance with the views
expressed by Mr. Sumner,—for the Ten-Twenties and Fifteen-Thirties
therein proposed, a prolongation to Ten-Forties and Fifteen-Forties
being effected,—and the provision for the payment of interest at the
money-centres and in the moneys of Europe stricken out. Some of
its more objectionable features being thus removed, he gave it a qualified
support.
March 10th, the question being on striking out a provision in the
bill of the Committee requiring the national banks to exchange the
bonds of the United States deposited by them as security for their
circulation for those bearing a lower rate of interest, Mr. Sumner
said:—
Mr. President,—There is a word which has been
introduced into this debate with which we were all very
familiar in another relation some years ago. It is the
word Coercion. A President of the United States announced
in most formal phrase that we could not coerce
a State; and now, borrowing a phrase from Mr.
Buchanan, we are told we cannot coerce a national
bank. Well, Sir, is the phrase applicable? If it be
applicable, then I insist that we can coerce a national
bank; but I do not admit its applicability. What I insist
on has already been so ably and clearly stated by
the Chairman of the Committee [Mr. Sherman] that
perhaps I need not add another word. I do not like to
occupy your time; yet I cannot forbear reminding you,
Sir, of the plenary power which Congress has reserved
over the banking system in that very Act by which it
was established.[224]
The Senator from California [Mr. Casserly] has read
to you the clause. We have been reminded to-day by
a Senator on this floor that these are formal words,
words that often appear in statutes. But are they not
significant words? Have they not a meaning? Why
are they there? Because they have a meaning; because
they reserve to Congress what I call plenary power over
the whole system. That system may be readjusted,
modified, shaped anew, and the banks cannot complain.
They began their existence under that law; they knew
the conditions of their being; and they cannot now
murmur, if Congress chooses to exercise the prerogative
which it reserved at the very inception of the whole
system.
Sir, I approach this question, therefore, with the conviction
that the whole matter is open to our discretion.
Nobody can say safely that what is now proposed is not
within the power of Congress. Congress may do it, if
the occasion justifies, if in its discretion it thinks best
to do it. It may do it, if it thinks that the financial
policy of this country will be thereby promoted. The
banks are all parties to that policy. May not the country
turn around and ask the banks to do their part in
this great work of renovation? To a certain extent the
banks are in partnership with the Government. May
not the Government insist that they shall do their part
on this great occasion? Shall this effort of ours to readjust
our finances and to save this large interest to our
country be thwarted by a pretension on the part of the
banks that we have not the power to interfere?
But we are reminded that there is a difference between
power and right. How often, Sir, on other occasions,
have I so insisted in this Chamber! A great,
broad, vital distinction there always is between power
and right. A nation or an individual may have a power
without right. Now is there not here a right as well
as a power? I cannot doubt it. I cannot doubt that
Congress may rightfully exercise what I cannot doubt is
an existing power. Why should it not? It could exercise
it—who can doubt?—with reference to the public
interests, to promote the national credit. It will not
exercise it in any spirit of wantonness, in any spirit of
injustice,—but to promote the national credit. Is not
that a rightful object? No one will say the contrary.
Why, then, shall we hesitate?
We are reminded that these banks have secured certain
privileges, and it is said often that those are
vested, and the old phrase “vested rights” has been
repeated. But how can they have vested rights under
a statute which contains the provision just read to us,
securing to Congress full power to change it in every
respect? What, then, is the simple aspect of this question?
It is that certain securities have been lodged
with the Government by these banks on which they
transact their business, and now in readjusting the national
debt it is deemed advisable and for the public interests
that the securities should be at a lower rate of
interest than when they were originally deposited. Is
it not right for Congress to require that? I cannot see
the wrong in it. I cannot see any doubt on the question.
To my mind it is clear; it is absolutely within
the province of Congress, in the exercise of the discretion
which it originally retained over this whole subject.
I hope, therefore, that in this debate we shall not be
pressed too much with the suggestion that we cannot
coerce these banks. If the occasion requires, and if the
term be applicable, then do I say we may coerce these
banks to the extent of obliging them to take these securities
at a reduced rate of interest. I find no Repudiation
in that. I find nothing wrong in that. I find
nothing in it but a simple measure in harmony with
this great process of Financial Reconstruction in which
we are now engaged. I call it Financial Reconstruction;
and in this work ought not the banks to take
their place and perform their part?
Now, Sir, I have a criticism on this section. It does
not go far enough. The Committee propose that the
banks shall take one third of the three different kinds
of bonds, the five, the four and a half, and the four per
cents. I think they ought to be required to take all in
fours, and I propose to give the Senate an opportunity
of expressing its judgment on that proposition. I may
be voted down; perhaps I shall be; but I shall make
a motion, in the honest endeavor to render this bill a
practical measure, which can best succeed. I wish to
mature it; I wish to put it in the best shape possible;
and for the sake of the banks, and in the interest of the
banks, I wish such a measure as shall have a reasonable
chance of stability in the future. If you allow the
banks gains that are too large, there will necessarily be
a constant opposition, growing and developing as their
gains become more conspicuous. Why expose the system
to any such criticism? Let us now revise it carefully,
place it on sure, but moderate foundations, so that
it will have in itself the elements of future stability.
To my mind that is the more politic course, and I am
sure it is not unjust. You and I, Mr. President, remember
very well what was done on another occasion. The
State banks were taxed out of existence. It was the
cry, “Tax them out of existence! do not let them live!
drive them from competition with these new children of
ours, the national banks!” It was done. Was not that
coercion? If the phrase is to be employed, there was an
occasion for it. But I am not aware that it was argued,
certainly it was with no great confidence argued, that to
do that was unjust. It was a measure of policy wisely
adopted at the time, and which we all now see has answered
well. But if we could tax the State banks out
of existence, can we not, under the very specific terms
of the Act of Congress to which these national banks
owe their existence, apply a rule not unlike to them?
We do not propose to tax them out of existence, but we
propose to require that they shall lodge with the Government
securities at a lower rate of interest.
Something has been said, perhaps much, in this debate,
with regard to the burden that this will impose
upon the banks. The Senator from Ohio [Mr. Sherman]
has already answered that objection, and I do not
know that I can add to his answer; and yet I am not
aware that he reminded the Senate that in this very
bill there is a new and important provision in favor of
the banks, or in favor of all bondholders,—being an
exemption from all taxation, not only State and municipal,
but national.
There is but one other remark I will make, and that
is, we all know, unless I am much deceived, that the
banks have during these last years made great profits.
I am told that the profits of the national banks are two
or three times greater than those of the old State banks,
which we did not hesitate to tax out of existence. Now
is not that a fact in this case? Is it not an essential
element? Should it not be taken into consideration on
this occasion? If these national banks are the recipients
of such large profits, should we not exercise all the
power that belongs to us to compel them to their full
contribution to this great measure of Financial Reconstruction?
I cannot hesitate in my conclusion.
March 11th, Mr. Sumner moved the addition of a section providing
for the resumption of specie payments,—being the seventh section of
the original bill,—remarking:—
Mr. President,—Interested as I am in this bill,
desirous of its passage hardly less than the Senator
from Ohio, I am bound to say, that, in my judgment,
the passage of this single section would be worth more
than the whole bill. It would do more for the credit
of the country; it would do more for its business. It
would help us all to the completion of Financial Reconstruction.
How often have I insisted that all our efforts
to fund and refund are to a certain extent vain and impotent,
unless we begin by specie payments! That, Sir,
is the Alpha of this whole subject; and until Congress
is ready to begin with that, I fear that all the rest will
be of little avail. It is in the light of expedient rather
than of remedy. There is the remedy.
The proposition was negatived,—Congress not being yet ready for
this step.