Part 20

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.

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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.

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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.

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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.

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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.