Part 19

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 certificates ought to be withdrawn; but I do not like to see their withdrawal conditioned on the extension of banking facilities.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.

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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.

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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.

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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.

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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.

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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.