Part 63 (1/2)
On the 10th of November Mr. Conant wrote me that our bonds had been depressed by the rumors which had been circulated respecting probable legislation which would depreciate their value, and that four and a half per cent. bonds had fallen off three-fourths per cent. He said: ”If, in any legislation which may be enacted regarding silver, provision could be made not only exempting the debt and interest thereon from payment in silver, but declaring that payment of the same shall be made in gold coin, it would aid us immeasurably in placing our bonds.”
Two days later I received a letter from F. O. French, of New York, as follows:
”Our business people are very much alarmed at the rumored strength of the silver people, and, as they apprehend the gravest disasters from the success of the Bland bill, a committee of gentlemen connected with insurance and trust companies, as well as with the banks, go to Was.h.i.+ngton to-morrow to present their views to the finance committee.
”Once dispatch this silver business--and I have faith that it cannot live in the light of full discussion by the Senate--and we shall renew funding, and by attaining resumption put an end to financial discussions as we did to slavery.”
And on the following day I wrote to August Belmont & Co.:
”Your letter of the 9th instant was received, and also a personal letter from Mr. Belmont.
”I am watchful of the course of legislation in Congress and of the current of public sentiment, both in our own and foreign countries, on the silver question. I am not prepared at present to give any a.s.surance as to what will be done in Congress, nor of the action of the executive department. It is better to let the matter stand as it is, awaiting events without any committals whatever. I have faith to believe that all will come our right so far as the public credit is affected, and will write you again when anything definite can be said.”
On the 29th of November Belmont wrote me a long letter containing the following statements:
”I need hardly a.s.sure you, at this late day, of my earnest solicitude for the success of the funding and resumption operations, and of my personal deep regret, apart from all pecuniary considerations, as a member of the syndicate, to see this unfortunate situation of the silver question put a complete stop to all further sales of the four per cent. bonds at present, here and in England. The capitalists and banks on both sides of the Atlantic will not buy a bond at par _in gold_, when it is almost certain, from the overwhelming vote in the House, and the known att.i.tude of the Senate, that a silver bill, making the old silver dollar a legal tender for all private and public obligations, will pa.s.s both Houses this winter. . . .
”The bonds are selling at ninety-nine and one-fourth in gold in open market, and it seems to me very doubtful policy to offer bonds, by us, to the public at this moment, and thus a.s.sist the advocates of the old silver dollar by our apparent indifference to the injustice and dishonesty of the Bland bill.”
This condition of suspense and anxiety continued during the remainder of the year.
My first annual report, as Secretary of the Treasury, was made to Congress on the 3rd of December, 1877. The statement made of our financial condition was a very favorable one, showing a surplus revenue of $30,340,577.69. The receipts from different sources of revenue were largely diminished, but the expenditures for the year were reduced by an equal amount. The surplus revenue was applied to the redemption of United States notes and of fractional currency, and to the payment of six per cent. bonds for the sinking fund.
The report dealt with the usual topics of such reports, embracing a great variety of subjects. What attracted the most attention was, naturally, what was said about refunding the public debt and the resumption of specie payments. The results of refunding during the previous year have already been sufficiently stated. The plans for the resumption of specie payments were fully explained. The mode and manner of bringing this about was not specified in the law, but the time for resumption was fixed and the means provided for acc.u.mulating coin for that purpose were ample.
By the resumption act the Secretary of the Treasury was required to redeem legal tender notes to the amount of eighty per centum of the sum of national bank notes issued, and to continue such redemption, as circulating notes were issued, until there was outstanding the sum of $300,000,000 of such legal tender United States notes, and no more.
By the same act it was provided that, on and after the 1st day of January, 1879, the Secretary of the Treasury should redeem, in coin, the United States legal tender notes then outstanding, on their presentation for redemption at the office of the a.s.sistant treasurer of the United States, in the city of New York, in sums of not less than fifty dollars. ”And,” it continued, ”to enable the Secretary of the Treasury to prepare and provide for the redemption in this act authorized or required, he is authorized to use any surplus revenues, from time to time, in the treasury, not otherwise appropriated, and to issue, sell, and dispose of, at not less than par, in coin, either of the descriptions of bonds, of the United States, described in the act of Congress approved July 14, 1870, ent.i.tled 'An act to authorize the refunding of the national debt,' with like qualities, privileges, and exemptions, to the extent necessary to carry this act into full effect, and to use the proceeds thereof for the purposes aforesaid.”
In obedience to this provision I had sold at par, for coin, $15,000,000 four and a half per cent. bonds, or $5,000,000 during each of the months of May, June and July, and $25,000,000 at par, in coin, of four per cent. bonds, or $5,000,000 for each of the months of August, September, October, November and December. Of the coin thus received $4,000,000 had been sold for the redemption of United States notes, and the residue was in the treasury. The surplus revenue had also, under the same authority, been applied to the redemption of the residue of United States notes, not redeemed by the sale of coin, and the balance was held in the treasury in preparation for resumption.
These operations, aided greatly, no doubt, by the favorable condition of our foreign commerce, had advanced the market value of United States notes to ninety-seven and three-eighths per cent., or within nearly two and a half per cent. of coin. They had also conclusively demonstrated the practicability of restoring United States notes to par, in coin, by the time fixed by law, and that without disturbing either domestic or foreign trade or commerce. Every step had been accompanied with growing business, with the advance of public credit, and the steady appreciation of United States notes. The export of bullion had been arrested, and our domestic supply had acc.u.mulated in the treasury. The exportation of other domestic products had been largely increased, with great advantage to all industries. I said the course adopted under the resumption act, if pursued, would probably be followed with like favorable results, and a sufficient fund for the maintenance of resumption would doubtless acc.u.mulate in the treasury at or before the date fixed by law.
I strongly urged the firm maintenance of a policy that would make good the promise contained in the United States note when issued-- a promise repeated in the act ”To strengthen the public credit,”
approved March 18, 1869, and made definite and effective by the resumption act, and a.s.serted that dishonored notes, less valuable than the coin they promise, though justified by the necessity which led to their issue, should be made good as soon as practicable; that the public credit was injured by failure to redeem them; that every holder who was compelled by law to receive them was deprived of a part of his just due; that our national resources being ample, the process of appreciation being almost complete, and the wisdom of the law having been demonstrated, it was the dictate of good policy and good faith to continue the process of preparation, so that, at or before the time fixed by law, every United States note would have equal purchasing power with coin; that to reverse this policy in the face of a.s.sured success would greatly impair the public credit, arrest the process of reducing the interest on the public debt, and cause anew the financial distress our country had recently suffered.
The first section of the resumption act plainly provided for the permanent subst.i.tution of silver coin for the whole amount of fractional currency outstanding. Section 3 directed the permanent reduction of United States notes to an amount not exceeding $300,000,000. No distinct legislative declaration was made in the resumption act that notes redeemed after that limit was reached should not be reissued; but section 3579 of the Revised Statutes of the United States provided that ”when any United States notes are returned to the treasury they may be reissued, from time to time, as the exigencies of the public interest may require.”
I expressed in my report the opinion that, under this section, notes, when redeemed after the 1st of January, 1879, if the amount outstanding was not in excess of $300,000,000, might be reissued as the exigencies of the public service required. A note redeemed with coin was in the treasury and subject to the same law as if received for taxes, or as a bank note, when redeemed by the corporation issuing it. The authority to reissue it did not depend upon the mode in which it was returned to the treasury. But this construction was controverted, and I thought should be settled by distinct provisions of law. It should not be open to doubt or dispute. The decision of this question by Congress would involve not merely the construction of existing law, but the public policy of maintaining in circulation United States notes, either with or without the legal tender clause. These notes were of great public convenience--they circulated readily; were of universal credit; were a debt of the people without interest; were protected by every possible safeguard against counterfeiting; and, when redeemable in coin at the demand of the holder, formed a paper currency as good as had yet been devised.
It was conceded, I said, that a certain amount could, with the aid of an ample reserve in coin, be always maintained in circulation.
Should not the benefit of this circulation inure to the people, rather than to corporations, either state or national? The government had ample facility for the collection, custody, and care of the coin reserves of the country. It was a safer custodian of such reserves than a mult.i.tude of scattered banks would be. The authority to issue circulating notes by banks was not given to the banks for their benefit, but for the public convenience, and to enable them to meet the ebb and flow of currency caused by varying crops, productions, and seasons. It was indispensable that a power should exist somewhere to issue and loan credit money at certain times, and to redeem it at others. This function could be performed better by corporations than by the government. The government could not loan money, deal in bills of exchange, or make advances on property.
I expressed the opinion, that the best currency for the people of the United States would be a carefully-limited amount of United States notes, promptly redeemable on presentation in coin, supported by ample reserves of coin, and supplemented by a system of national banks, organized under general laws, free and open to all, with power to issue circulating notes secured by United States bonds, deposited with the government and redeemable on demand in United States notes or coin. Such a system would secure to the people a safe currency of equal value in all parts of the country, receivable for all dues, and easily convertible into coin. Interest could thus be saved on so much of the public debt as could be conveniently maintained in permanent circulation, leaving to national banks the proper business of such corporations, of providing currency for the varying changes, the ebb and flow of trade.
I said that the legal tender quality given to United States notes was intended to maintain them in forced circulation at a time when their depreciation was inevitable. When they were redeemable in coin this quality might either be withdrawn or retained, without affecting their use as currency in ordinary times. But all experience had shown that there were periods when, under any system of paper money, however carefully guarded, it was impracticable to maintain actual coin redemption. Usually contracts would be based upon current paper money, and it was just that, during a sudden panic, or an unreasonable demand for coin, the creditor should not be allowed to demand payment in other than the currency upon which the debt was contracted. To meet this contingency, it would seem to be right to maintain the legal tender quality of the United States notes. If they were not at par with coin it was the fault of the government and not of the debtor, or, rather, it was the result of unforseen stringency not contemplated by the contracting parties.
In establis.h.i.+ng a system of paper money, designed to be permanent, I said it should be remembered that theretofore no expedient had been devised, either in this or other countries, that in times of panic or adverse trade had prevented the drain and exhaustion of coin reserves, however large or carefully guarded. Every such system must provide for a suspension of specie payment. Laws might forbid or ignore such a contingency, but it would come; and when it came it could not be resisted, but had to be acknowledged and declared, to prevent unnecessary sacrifice and ruin. In our free government the power to make this declaration would not be willingly intrusted to individuals, but should be determined by events and conditions known to all. It would be far better to fix the maximum of legal tender notes at $300,000,000, supported by a minimum reserve of $100,000,000, of coin, only to be used for the redemption of notes, not to be reissued until the reserve was restored. A demand of coin to exhaust such a reserve might not occur, but, if events should force it, the fact would be known and could be declared, and would justify a temporary suspension of specie payments. Some such expedient could, no doubt, be provided by Congress for an exceptional emergency. In other times the general confidence in these notes would maintain them at par in coin, and justify their use as reserves of banks and for the redemption of bank notes.
As to the fractional currency I said the resumption act provided for the exchange and subst.i.tution of silver coins for such currency.
To facilitate this exchange, the joint resolution, approved July 22, 1876, provided that such coin should be issued to an amount not exceeding $10,000,000, for an equal amount of legal tender notes. It also provided that the aggregate amount of such coin and fractional currency outstanding should not exceed, at any time, $50,000,000. That limit would have been reached if the whole amount of fractional currency issued and not redeemed, had been held to be ”outstanding.” It was well known, however, that a very large amount of fractional currency issued had been destroyed, and could not be presented for redemption, and could hardly be held to be ”outstanding.” The Treasurer of the United States, the Comptroller of the Currency, and the Director of the Mint concurred in estimating the amount, so lost and destroyed, to be not less than $8,083,513.
As it was evident that Congress intended to provide an aggregate issue of $50,000,000 of such coin and currency in circulation, I directed the further issue of silver coin, equal in amount to the currency estimated to have been lost and destroyed.