Part 20

Another help will be found in the simplification of our system of taxation, so that it shall be less complex and shall apply to fewer objects. In Europe taxation has become a science, according to which the largest possible amounts are obtained at the smallest possible inconvenience. Instead of sweeping through all the highways and byways of life, leaving no single thing unvisited, the English system has a narrow range and visits a few select articles only. I see no reason why we should not profit by this example, much to the convenience of the Government and of the citizen. The tax-gatherer will never be a very welcome guest, but he may be less of an intruder than now. A proper tax on two articles, whiskey and tobacco, with proper securities for its collection, would go far to support the Government.

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Still another agency will be found in some proper scheme for a diminution of the interest on our national debt, so far as this can be done without a violation of Public Faith; and this brings me to the very bill now before the Senate.

All are anxious to relieve the country from recurring liabilities, which come round like the seasons. How can this be done best? First, by the strict performance of all existing engagements, so that the Public Faith shall be our inseparable ally; and, secondly, by funding the existing debt in such ways as to provide a reduced rate of interest. A longer term would justify a smaller interest. There may be differences as to the form of the substitute, but it would seem as if something of this kind must be done.

Immediately after the close of the war, as the smoke of battle was disappearing, but before the national ledger was sufficiently examined to justify a comparison between liabilities and resources, there was a generous inclination to proceed at once to the payment of the national debt. Volunteers came forward with their contributions for this purpose, in the hope that the generation which suppressed the Rebellion might have the added glory of removing this great burden. This ardor was momentary. It was soon seen that the task was too extensive, and that it justly belonged to another generation, with aggrandized population and resources, in presence of which the existing debt, large to us, would be small. Here the census has its instructive lesson. According to the rate of increase in past years, our population will advance in the following proportion:--

In 1870, 42,323,341 In 1880, 56,967,216 In 1890, 76,677,872 In 1900, 103,208,415 In 1910, 138,918,526

The resources of the country, already so vast, will swell in still larger proportions. Population increasing beyond example, improved systems of communication expanding in every direction, and the mechanical arts with their infinite activities old and new,--all these must carry the Nation forward beyond any present calculation, so that the imagination tires in the effort to grasp the mighty result. Therefore to the future we may tranquilly leave the final settlement of the national debt, meanwhile discharging our own incidental duty, so that the Public Faith shall be preserved.

Here is a notable difference between the United States and other countries, where population and resources have arrived at such a point that future advance is very gradual. With us each decade is a leap forward; with them it marks a gradation sometimes scarcely appreciable. This difference must not be forgotten in the estimate of our capacity to deal with a debt larger than that of any European power except England. But we must confess our humiliation, as we find that our debt, with its large interest in coin, secured by mortgage on the immeasurable future of the Nation, is less regarded abroad than the English debt, with its smaller interest and its more limited security. Our sixes will command only seventy-four per cent. in the market of London, while the three per cent. consols of England are freely bought at ninety-four per cent. One of our bonds brings twenty per cent. less than an English bond, although the interest on it is one hundred per cent. more. I know no substantial reason for this enormous difference, except in the superior credit established by England. With the national credit above suspicion, our debt must stand as well, and, as our multiplying resources become known, even better still. Thus constantly are we brought to the same lesson of Public Faith.

In spite of the general discredit of our national stocks abroad, Massachusetts fives payable in 1894 sell at the nominal price of 84, with the pound sterling at $4.44, equal to 91½ in our gold, with the pound sterling at $4.83. There can be no other reason for this higher price than the superior credit enjoyed by Massachusetts; and thus again is Public Faith exalted. Why should not the Nation, with its infinite resources, surpass Massachusetts?

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The bill before us proposes a new issue of bonds, redeemable in coin after twenty, thirty, and forty years, with interest at five per cent., four and one half per cent., and four per cent., in coin, exempt from State or municipal taxation, and also from national taxation, except the general tax on income,--these bonds to be used exclusively for the conversion of an equal amount of the interest-bearing debt of the United States, except the existing five per cent. bonds and the three per cent. certificates. These proposed bonds have the advantage of being explicit in their terms. The obligations of the Government are fixed clearly and unchangeably beyond the assaults of politicians.

A glance at the national debt will show the operation of this measure. The sum-total on the 1st of February, 1868, according to the statement from the Treasury, was $2,514,315,373, being, in round numbers, twenty-five hundred millions. Out of this may be deducted legal-tender and fractional notes, as currency, amounting to $388,405,565, and several other smaller items. The following amounts represent the portions of debt provided for by this bill:--

Six per cent., due 1881, $ 283,676,600 Six per cent., five-twenties, 1,398,488,850 Seven and three tenths Treasury notes, convertible into five-twenty bonds at maturity, 214,953,850 -------------- $1,897,119,300

This considerable sum may be funded under the proposed bill.

If this large portion of the national debt, with its six per cent. interest in coin, can be funded at a less interest, there will be a corresponding relief to the country. But there is one way only in which this can be successfully accomplished. It is by making the Public Faith so manifest that the holders will be induced to come into the change for the sake of the longer term. All that is done by them must be voluntary. Every holder must be free to choose. He may prefer his short bond at six per cent., or a long bond at five per cent., or a longer at four and one half per cent., or a still longer at four per cent. This is his affair. There must be no compulsion. Any menace of compulsion will defeat the transaction. It will be nothing less than Repudiation, with a certain loss of credit, which no saving of interest can repay. You must continue to borrow on a large scale; but who will lend to the repudiator, unless at a destructive discount? Any reduction of interest without the consent of the holders will reduce your capacity to borrow. A forced reduction of interest will be like a forced loan. While seeming to save interest, you will lose capital. Do not be deceived. Any compulsory conversion is only another form of Repudiation. It is tantamount to this declared crime. It is the same misdeed, taking still another shape,--as Proteus was the same heathen god in all his various transformations. It is Repudiation under an _alias_.

Happily the bill before us is free from any such damning imputation. The new bonds are authorized; but the holders of existing obligations are left free to exercise their judgment in making the change. I am assured by those who, from practical acquaintance with business, ought to know, that these bonds will be rapidly taken for the five-twenties.

The same bill, in its second section, sets apart $135,000,000 annually to the payment of the interest and the reduction of the principal of the national debt; and this is to be in lieu of a sinking fund. This is an additional security. It is another assurance of our determination to deal honestly.

The third section of the same bill is newer in its provisions, and, perhaps, more open to doubt. But, though uncertain with regard to it in the beginning, I have found that it commended itself on careful examination. On its face it provides for a system of conversion and reconversion. The holder of lawful money to the amount of $1,000, or any multiple of $1,000, may convert the same into the funded debt for an equal amount; and any holder of the funded debt may receive for the same at the Treasury lawful money, unless the notes then outstanding shall be equal to $400,000,000. If bonds in the funded debt shall be worth more than greenbacks, the latter would be converted into bonds according to the ordinary laws of trade. The latest relation of these two is as follows: $100 greenbacks equal seventy-one dollars gold; $100 five per cent. equal seventy-six dollars gold. If the greenbacks are convertible into the five per cent., they will, of course, be converted while the above relation continues. This must be so long as the national credit is maintained abroad and the demand for our securities continues there. By this process our greenbacks will be gradually absorbed, and those that are not absorbed will be lifted in value. It would seem as if bonds and greenbacks must both gain from this business, and with them the country must gain also. Here would be a new step to specie payments.

The bill closes with a provision authorizing contracts in coin, instead of greenbacks, according to the agreement of parties. This authority is in harmony with the other provisions of the bill, and is still another step toward specie payments.

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I am now brought to the last branch of this discussion, in which all the others are absorbed: I mean the necessity of specie payments, or, in other words, the necessity of coin in the place of inconvertible paper. Other things are means to this end: this is the end itself. Until this is accomplished, Financial Reconstruction exists in aspiration only, and not in reality.

The suspension of specie payments was originally a war measure, like the suspension of the _Habeas Corpus_. It was so declared by myself at the time it was authorized. Pardon me, if I quote my own words in the debate on the bill:--

“It is a discretion kindred to that under which the _Habeas Corpus_ is suspended, so that citizens are arrested without the forms of law,--kindred to that under which an extensive territory is declared to be in a condition of insurrection, so that all business with its inhabitants is suspended,--kindred to that, which unquestionably exists, to obtain soldiers, if necessary, by draft or conscription instead of the free offering of volunteers,--kindred to that under which private property is taken for public uses,--and kindred, also, to that undoubted discretion which sanctions the completest exercise of the transcendent right of self-defence.”[238]

As a war measure, it should cease with the war, or so soon thereafter as practicable. It should not be continued a day beyond positive exigency. While the war lasted, it was a necessity, as the war itself. Its continuance now prolongs into peace this belligerent agency, and projects its disturbing influence into the most distant places. Like war, whose greatest engine it was, it is the cause of incalculable evil. Like war, it troubles the entire Nation, deranges business, and demoralizes the people. As I hate war, so do I hate all its incidents, and long to see them disappear. Already in these remarks I have pictured the financial anarchy of our country, the natural reflection of the political; but the strongest illustration is in a disordered currency, which is present to everybody with a dollar in his pocket.

The derangement of business may be seen at home and abroad. It is not merely derangement; it is dislocation. Everything is out of joint. Business has its disease also, showing itself in opposite conditions: shrunk at times, as with paralysis; swollen at times to unhealthy proportions, as with _elephantiasis_. The first condition of business is stability, which is only another form of security; but this is impossible, when nobody can tell from day to day the value of the currency. It may change in a night. The reasonable contract of to-day may become onerous beyond calculation to-morrow. There is no fixed standard. The seller is afraid to sell, the buyer afraid to buy. Nobody can sell or buy a farm, nobody can build or mortgage a house, except at an unnatural hazard. Salaries and all fixed incomes suffer. The pay of every soldier in the army, every sailor in the navy, every office-holder from the President to the humblest postmaster, is brought under this tyrannical influence. Harder still, innocent pensioners, wards of the Nation, must bear the same doom. Maimed soldiers, bereaved widows, helpless orphans, whose cup is already full, are compelled to see their scanty dole shrink before their sight till it seems ready to vanish in smoke.

A greenback is a piece of paper with a promise on its face and green on its back, declared to be money by Act of Congress, but which the Government refuses to pay. It is “failed paper” of the Government. The mischief of such a currency is everywhere, enveloping the whole country and penetrating all its parts. It covers all and enters all. It is a discredit to the national name, from which the Nation suffers in whole and in detail. It weakens the Nation and hampers the citizen. There is no national enterprise which it does not impede. The Pacific Railroad feels it. There is not a manufacture or business which does not feel it also. There is not a town, or village, or distant place, which it does not visit.

A practical instance will show one way in which individuals suffer on an extensive scale, being generally those who are least able. I follow an ingenious merchant, Mr. Atkinson, of Boston, whose figures sustain his conclusion, when I insist that our present currency, from its unstable character, operates as an _extra_ tax of more than one hundred millions annually on the labor and business of the country; and this vast sum is taken from the pockets of the people, not for the support of the Government, but to swell the unreported fund out of which the excesses of the present day are maintained. There are few business men who would not put the annual loss in their affairs, from the fluctuation in the currency, somewhere from one to five per cent. One per cent. is the lowest. Mr. Hazard, of Rhode Island, puts it at two per cent. Now the aggregate sales in the fiscal year ending June, 1867, were over eleven thousand millions ($11,000,000,000) in currency, excluding sales of stocks or bonds. One per cent. on this prodigious amount represents a tax of one hundred and ten millions, paid annually by consumers, according to their consumption, and not in any degree according to their ability. This is one instance only of the damages annually paid on account of our currency. If we estimate the annual tax at more than one per cent., the sum-total will be proportionally larger. Even at the smallest rate, it is many millions more than all the annual expenses of our Government immediately preceding the Rebellion.

Fluctuations in the measure of value are as inconvenient and fatal as fluctuations in the measures of length and bulk. A dollar which has to-day one value and to-morrow another is no better than a yard which has to-day one length and another to-morrow, or a bushel which has to-day one capacity and another to-morrow. It is as uncertain as “Equity” measured by the varying foot of successive chancellors, sometimes long and sometimes short, according to the pleasant illustration of Selden in his “Table-Talk.” Such fluctuations are more than a match for any prudence. Business is turned into a guess, or a game of hazard, where the prevailing anarchy is overruled by accident:--

“Chaos umpire sits, And by decision more embroils the fray By which he reigns; next him high arbiter Chance governs all.”

In such a condition of things the gamblers have the advantage. The stock exchange becomes little better than a faro bank. By such scenes the country is demoralized. The temptation of excessive gains leads from the beaten path of business. Speculation without money takes the place of honest industry, extending from the stock exchange everywhere. The failed paper of the Government teaches the lesson of bankruptcy. The Government refuses to take up its notes, and others do likewise. These things cannot be without a shock to public morals. Honesty ceases to be even a policy. Broken contracts prepare the way for crime, which comes to complete the picture.

Our foreign commerce is not less disturbed; for here we are brought within the sphere of other laws than our own. Gold is the standard of business throughout the civilized world. Until it becomes again the standard among us, we are not, according to the familiar phrase of President Lincoln, in “practical relation” with the civilized world. We are States out of the great Union. Our currency has the stamp of legality at home, but it is worthless abroad. In all foreign transactions we are driven to purchase gold at a premium, or to adopt a system of barter which belongs to the earlier stages of commerce. Corn, wheat, and cotton are exchanged for the products we desire, and this traffic is the coarse substitute for that refined and plastic system of exchanges which adapts itself so easily to all the demands of business. Commerce with foreign powers is prosecuted at an incalculable disadvantage. Our shipping, which in times past has been the pride of the Nation, whitening every sea with its sails, is reduced in number and value. Driven from the ocean by pirate flags during the Rebellion, it cannot struggle back to its ancient supremacy until the accustomed laws of trade once more resume their rule.

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There are few who will deny the transcendent evil which I have set forth. There are few who will advocate inconvertible paper as currency. How shall the remedy be applied? On this question, so interesting to the business and good name of the country, there are theories without number,--some so ingenious as to be artificial rather than natural. What is natural is simple; and I am persuaded that our remedy must be of this character.

The legal-tender note, which we wish to expel from our currency, has two different characters: first, as mere currency, for use in the transactions of business; and, secondly, as real value, from the assurance that ultimately it will be paid in coin, according to its promise. These two different characters may be sententiously expressed as _availability_ and _convertibility_. The notes are now available without being convertible. Our desire is to make them convertible,--in other words, the equivalent of coin in value, dollar for dollar. On the 1st of June last past these notes were $388,675,802 in amount.

Discarding theories, however ingenious, and following Nature, I call attention to a few practical points, before reverting to those cardinal principles applicable to this subject, from which there can be no appeal.

_First._ The present proposition for funding is an excellent measure for this purpose, being at once simple and practical: not that it contains any direct promise for the redemption of our currency, but because it places the national debt on a permanent footing at a smaller interest than is now paid. By this change three things essential to financial reconstruction are promoted: economy, stability, and national credit. With these once established, specie payments cannot be long postponed.

_Secondly._ Another measure of immediate value is _the legalization of contracts in coin_, so that henceforth all agreements made in coin may be legally enforced in coin or its equivalent. This would establish specie payments wherever parties desired, and to this extent begin the much-desired change. Contracts in coin would increase and multiply, until the exception became the rule. There would for a time be _two currencies_; but the better must gradually prevail. The essential equity of the new system would be apparent, while there would be a charm in once more looking upon familiar faces long hidden from sight, as the hoarded coin came forth. Nor can any possible injury ensue. The legalization is applicable only to future contracts, as the parties mutually agree. Every citizen in this respect would be a law to himself. If he chose in his own business to resume specie payments, he could do so. There would be a voluntary resumption by the people, one by one. But this influence could not be confined to the immediate parties. Beyond the contagion of its example, there would be a positive necessity on the part of the banks that they should adapt themselves to the exigency by the substitution of proper commercial equivalents; and thus again we take another step in specie payments.

_Thirdly._ Another measure of practical value is _the contraction of the existing currency_, so as to bring it on a par with coin, dollar for dollar. Before alluding to any of the expedients to accomplish this precious object, it is important to arrive at some idea of the amount of currency of all kinds required for the business of the country. To do this, we may look at the currency before the Rebellion, when business was in its normal condition. I shall not occupy space with tables, although they are now before me, but content myself with results. From the official report of the Treasury it appears that on the 1st of January, 1860, the whole active circulation of the country, including bank circulation, bank deposits available as currency, specie in bank, specie in Treasury, estimated specie in circulation, and deducting reserves, amounted to $542,097,264. It may be assumed that this sum-total was the amount of currency required at the time. From the same official tables it appears that on the 1st of October, 1867, the whole active circulation of the country, beginning with greenbacks and fractional currency, and including all the items in the other account, amounted to $1,245,138,193. Thus from 1860, when the currency was normal, to 1867, some time after the suspension of specie payments, there was an increase of one hundred and thirty per cent. Omitting bank deposits for both years, the increase was one hundred and forty-six per cent. Making due allowance for the increase of population, business, and Government transactions, there remains a considerable portion of this advance which must be attributed to the abnormal condition of the currency. I follow various estimates in putting this at sixty or seventy per cent., representing the difference of prices at the two different periods, and the corresponding excess of currency above the requirements of the country. Therefore, for the reduction of prices, there must be a reduction of the currency; and this must be to the amount of $300,000,000. So it seems, unless these figures err.