Part 18

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.

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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.

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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.”

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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.

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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.

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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.

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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.

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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.