CHAPTER XXI.

BEGINNING OF GRANT'S ADMINISTRATION. His Arrival at Washington in 1864 to Take Command of the Armies of the United States--Inaugural Address as President--"An Act to Strengthen the Public Credit"--Becomes a Law on March 19, 1869-- Formation of the President's Cabinet--Fifteenth Amendment to the Constitution--Bill to Fund the Public Debt and Aid in the Resumption of Specie Payments--Bill Finally Agreed to by the House and Senate --A Redemption Stipulation Omitted--Reduction of the Public Debt-- Problem of Advancing United States Notes to Par with Coin.

President Grant entered into his high office without any experience in civil life. In his training he was a soldier. His education at West Point, his services as a subordinate officer in the Mexican War, and as the principal officer in the Civil War of the Rebellion, had demonstrated his capacity as a soldier, but he was yet to be tested in civil life, where his duties required him to deal with problems widely differing from those he had successfully performed in military life. I do not recall when I first met him, but was confident it was before his coming to Washington, in March, 1864, to take command of the armies of the United States. His arrival in Washington then was not generally known until he entered the dining hall at Willard's hotel. He came in alone, and was modestly looking for a vacant seat when I recognized him and went to him and invited him to a seat at my table. He quietly accepted, and then the word soon passed among the many guests to the tables, that General Grant was there, and something like an ovation was given him. His face was unknown, but his name and praise had been sounded for two years throughout the civilized world. His coming to take full command of the Union forces was an augury of success to every loyal citizen of the United States. His personal memoirs, written in the face of death, tell the story of his life in a modest way, without pretension or guile. I am not sure that he added to his fame by his eight years of service as President of the United States, but what he did in subduing the Rebellion will always keep his name among those of the greatest benefactors of his country. He was elected because of his military services, and would have been elected in 1868 by any party that put him in nomination, without respect to platform or creed.

He opened his inaugural address with these words:

"Your suffrages, having elected me to the office of President of the United States, I have, in conformity with the constitution of our country, taken the oath of office prescribed therein. I have taken this oath without mental reservation and with the determination to do to the best of my ability all that it requires of me. The responsibilities of the position I feel but accept them without fear. The office has come to me unsought. I commence its duties untrammeled. I bring to it a conscientious desire and determination to fill it to the best of my ability to the satisfaction of the people.

"On all leading questions agitating the public mind I will always express my views to Congress, and urge them according to my judgment; and when I think it advisable will exercise the constitutional privilege of interposing a veto to defeat measures which I oppose. But all laws will be faithfully executed whether they meet my approval or not.

"I shall on all subjects have a policy to recommend, but none to enforce against the will of the people. Laws are to govern all alike, those opposed as well as those who favor them. I know no method to secure the repeal of bad or obnoxious laws so effective as their stringent execution."

And closed with these words:

"In conclusion I ask patient forbearance one toward another throughout the land, and a determined effort on the part of every citizen to do his share toward cementing a happy Union; and I ask the prayers of the nation to Almighty God in behalf of this consummation."

I believe he strictly performed what he thought was his duty, and if he erred, it was from a want of experience in the complicated problems of our form of government. The executive department of a republic like ours should be subordinate to the legislative department. The President should obey and enforce the laws, leaving to the people the duty of correcting any errors committed by their representatives in Congress.

The first act of the 41st Congress, entitled "An act to strengthen the public credit," was introduced in the House of Representatives by General Schenck, on the 12th of March, 1869, and was passed the same day. It came to the Senate on the 15th of March, and, on my motion, was substituted for a similar bill, reported from the committee on finance, and, after a brief debate, was passed by the decisive vote of 42 yeas and 13 nays, as follows:

"That in order to remove any doubt as to the purpose of the government to discharge all just obligations to the public creditors, and to settle conflicting questions and interpretations of the law by virtue of which said obligations have been contracted, it is hereby provided and declared that the faith of the United States is solemnly pledged to the payment in coin, or its equivalent, of all obligations of the United States not bearing interest, known as United States notes, and of all interest-bearing obligations of the United States, except in cases where the law authorizing the issue of any such obligations has expressly provided that the same may be paid in lawful money or other currency than gold and silver. But none of said interest-bearing obligations not already due shall be redeemed or paid before maturity, unless at such time United States notes shall be convertible into coin at the option of the holder, or unless at such time bonds of the United States bearing a lower rate of interest than the bonds to be redeemed can be sold at par in coin. And the United States also solemnly pledges its faith to make provision, at the earliest practicable period, for the redemption of United States notes in coin."

It was approved by the President and became a law on the 19th of March. Thus the controversy as to the payment of bonds in coin was definitely decided.

But little else of importance was done by Congress during this session. The usual general appropriation bill for the Indian department having failed in the previous Congress, a bill for that purpose was introduced in the House of Representatives and became a law on the 10th of April. The bill to provide for deficiencies was passed on the same day. A change was made in the tax on distilled spirits and tobacco, and provision was made for submitting the constitutions of Virginia, Mississippi and Texas to a vote of the people. A number of measures of local importance were passed, and, on the 10th of April, the Congress adjourned without day.

The Senate convened in pursuance of a proclamation of the President immediately on the adjournment of Congress, and after a few days, confined mainly to executive business, adjourned.

The early movements of Grant as President were very discouraging. His attempt to form a cabinet without consultation with anyone, and with very little knowledge, except social intercourse with the persons appointed, created a doubt that he would not be as successful as a President as he had been as a general, a doubt that increased and became a conviction in the minds of many of his best friends. The appointments of Stewart and Borie were especially objectionable. George S. Boutwell was well fitted for the office of Secretary of the Treasury, to which he was appointed after Stewart was excluded by the law. Washburne was a man of ability and experience, but he was appointed Secretary of State only for a brief time, and was succeeded by Hamilton Fish. Mr. Fish was eminently qualified for the office, and during both of the terms of Grant discharged the duties of it with great ability and success. Jacob D. Cox, of Ohio, was an educated gentleman, a soldier of great merit, and an industrious and competent Secretary of the Interior.

The impression prevailed that the President regarded these heads of departments, invested by law with specific and independent duties, as mere subordinates, whose function he might assume. This is not the true theory of our government. The President is intrusted by the constitution and laws with important powers, and so by law are the heads of departments. The President has no more right to control or exercise the powers conferred by law upon them than they have to control him in the discharge of his duties. It is especially the custom of Congress to intrust to the Secretary of the Treasury specific powers over the currency, the public debt and the collection of the revenue. If he violates or neglects his duty he is subject to removal by the President, or impeachment by the House of Representatives, but the President cannot exercise or control the discretion reposed by law in the Secretary of the Treasury, or in any head or subordinate in any department of the government. This limitation of the power of the President, and the distribution of power among the departments, is an essential requisite of a republican government, and it is one that an army officer, accustomed to give or receive orders, finds it difficult to understand and to observe when elected President.

Congress convened on the 6th of December, 1869. The chief recommendations submitted to Congress by the President related to the gradual reconstruction of the states lately in rebellion, to the resumption of specie payments and the reduction of taxation. The relations of Great Britain and the United States growing out of the war were treated as a grave question, and a hope was expressed that both governments would give immediate attention to a solution of the just claims of the United States growing out of the Civil War. The message was brief, modest, conservative and clear. He closed by saying that on his part he promised a rigid adherence to the laws and their strict enforcement.

The most important measure consummated during this Congress was the adoption of the 15th amendment of the constitution of the United States, declared, in a proclamation of the Secretary of State, dated March 30, 1870, to have been ratified by the legislatures of twenty-nine of the thirty-seven states, as follows:

"The right of citizens of the United States to vote shall not be denied or abridged by the United States, or by any state, on account of race, color, or previous condition of servitude."

It is a question of grave doubt whether this amendment, though right in principle, was wise or expedient. The declared object was to secure impartial suffrage to the negro race. The practical result has been that the wise provisions of the 14th amendment have been modified by the 15th amendment. The latter amendment has been practically nullified by the action of most of the states where the great body of this race live and will probably always remain. This is done, not by an express denial to them of the right of suffrage, but by ingenious provisions, which exclude them on the alleged ground of ignorance, while permitting all of the white race, however ignorant, to vote at all elections. No way is pointed out by which Congress can enforce this amendment. If the principle of the 14th amendment had remained in full force, Congress could have reduced the representation of any state, in the proportion which the number of the male inhabitants of such state, denied the right of suffrage, might bear to the whole number of male citizens twenty-one years of age, in such state. This simple remedy, easily enforced by Congress, would have secured the right of all persons, without distinction of race or color, to vote at all elections. The reduction of representation would have deterred every state from excluding the vote of any portion of the male population above twenty-one years of age. As the result of the 15th amendment, the political power of the states lately in rebellion has been increased, while the population, conferring this increase, is practically denied all political power. I see no remedy for this wrong except the growing intelligence of the negro race, which, in time, I trust, will enable them to demand and to receive the right of suffrage.

The most important financial measure of that Congress was the act to refund the national debt. The bonds known as the 5-20's, bearing interest at six per cent., became redeemable, and the public credit had so advanced that a bond bearing a less rate of interest could be sold at par. The committee on finance of the Senate, on the 3rd day of February, 1870, after more care and deliberation, than, so far as I know, it has ever bestowed on any other bill, finally reported a bill to fund the public debt, to aid in the resumption of specie payments, and to advance the public credit.

The first section authorized the issue of $400,000,000 of bonds, redeemable in coin at the pleasure of the United States, at any time after ten years, bearing interest at five per cent.

The second section authorized the issue of bonds to the amount of $400,000,000, redeemable at the pleasure of the government, at any time after fifteen years, and bearing interest at four and a half per cent.

The third section authorized the issue of $400,000,000 of bonds, redeemable at any time after twenty years, and bearing interest at the rate of four per cent.

The proceeds of all these bonds were to be applied to the redemption of 5-20 and 10-40 bonds, and other obligations of the United States then outstanding.

It will be perceived that this bill provided for the issue of securities, all of which were redeemable within twenty years, and two-thirds of which were redeemable within fifteen years, so that if the bill, as reported by the committee on finance, had become the law, no such difficulty as we labored under eighteen years later, when we had a large surplus revenue, would have existed.

The bill passed the Senate, in substantially the form reported from the committee on finance, by the large vote of 33 to 10, and was, perhaps, the most carefully prepared of any of the financial measures of the government.

In opening the debate, I called the attention of the Senate to the great advantage the government had derived from making its bonds redeemable at brief periods, like the 5-20 bonds, the 10-40 bonds, and the treasury notes. I also called attention to the fact that the same principle of maintaining the right to redeem had been ingrafted in the bill then before the Senate, that the duration of the bonds was divided into three periods of ten, fifteen, and twenty years, during which time, by the gradual application of the surplus revenue, the whole debt might be paid. This was the bill sent by the Senate to the House of Representatives, and if it had been adopted by the House, there would have been no trouble about the application of the surplus revenue, but by common consent it would have been used in the speedy extinction of the public debt.

The bill was sent to the House of Representatives on the 11th of March, and there seems to have slept for nearly three months without any action on the part of the House.

On the 6th of June the committee on ways and means reported House bill 2167, covering the same subject-matters as were contained in the Senate bill. The consideration of this bill was commenced, by sections, on the 30th of June. The material part of the first section of this bill is as follows:

"That the Secretary of the Treasury is hereby authorized to issue, in a sum or sums not exceeding in the aggregate $1,000,000,000, coupon or registered bonds of the United States, in such form as he may prescribe, and of denomination of $50, or some multiple of that sum, redeemable in coin of the present standard value at the pleasure of the United States after thirty years from the date of their issue, and bearing interest payable semi-annually in such coin at the rate of four per cent. per annum."

Thus it will be perceived that instead of the three series of bonds provided by the Senate, the House proposed to authorize the issue of $1,000,000,000, redeemable in coin after thirty years from the date of their issue, with interest at four per cent. This difference in the description of the bonds was the chief difference between the propositions of the House and the Senate. To emphasize this difference I quote what was said by the chairman of the House committee, Mr. Schenck, in reporting the bill:

"It is a proposition to refund a portion of the public debt of the country at a very much lower rate of interest. It is a proposition that $1,000,000,000 of that debt shall take the form of bonds, upon which the United States will agree to pay only four per cent. per annum. But, in order to make those bonds acceptable to capitalists at home and abroad, further provision is made that the bonds themselves shall have a longer time to run, not merely for thirty years, but that they shall only be redeemable after thirty years; thus giving them, without the objections, the advantages which in a great degree attach to a perpetual loan."

This bill, with a very limited debate, passed the House on the 1st of July, and then immediately was offered as a substitute for the Senate bill, and was adopted.

Those two rival propositions, differing mainly upon the question of the character of the bonds to be issued, were sent to a committee of conference, composed on the part of the Senate of Messrs. Sherman, Sumner and Davis. The chief controversy in the conference was as to the description of funding bonds to be provided for. After many meetings it was finally agreed that the bonds authorized should be $200,000,000 five per cent. bonds, $300,000,000 four and a half per cent. bonds, of the character described in the Senate bill, and $1,000,000,000 of four per cent. bonds, as described in the House bill. In other words, it was a compromise which, like many other compromises, was in its results an injury of great magnitude, but it was an honest difference of opinion between the Senate and the House, in which, tested by the march of time, the Senate was right and the House was wrong. But it was perfectly manifest that without this concession by the Senate to the House, the bill could not have passed, and even with this concession, the first report of the committee of conference was disagreed to by the House, because of certain provisions requiring the national banks to substitute the new bonds as the basis of banking circulation.

This disagreement by the House compelled a second committee of conference, in which the contested banking section was stricken out, and the bill agreed to as it now stands on the statute books.

And thus thirty-year securities, subsequently at a premium of more than twenty-five per cent., were forced into the law by the determined action of the House.

This proved to be an error. No bonds should have been authorized that did not contain a stipulation that the government might pay them at pleasure, after a brief period and before they became due. This stipulation during the war was inserted in the 5-20 and the 10-40 bonds. Its wisdom and importance were demonstrated by the early substitution of bonds bearing a lower rate of interest for the 5-20 six per cent. bonds. When this precedent was cited, and its saving to the government shown, it was strongly urged by the House conferees that such a provision would prevent the sale of bonds, and that there was no probability that bonds bearing less than four per cent. could be sold at any time at par. This was proven to be an error within a short period, for securities of the United States bearing three per cent. interest have been sold at par.

Some years later, Senator Beck, of Kentucky, arraigned me for consenting to the issue of bonds running thirty years, but I was able to show by the public records that I resisted this long duration of the four per cent. bonds, that the House insisted upon it, and that Mr. Beck, then a Member of the House, voted for it. The same objection was made by the Senate conferees to the bonds bearing four and a half and five per cent., that no stipulation was made authorizing the government to anticipate the payment of these bonds. Under the Senate bill the bonds would have been redeemable in a brief period, and would, no doubt, have been redeemed by bonds bearing four, three and a half, or three per cent. interest.

The bill, as it passed, authorized the conversion of all forms of securities, then outstanding, into the bonds provided for by the refunding act at par one with the other. The Secretary of the Treasury could sell the bonds provided for by the refunding act at par, and with the proceeds pay off the then existing securities as they became redeemable. In the discussion of this bill in the Senate, on the 28th of February, 1870, I made a carefully prepared speech, giving a detailed history of the various securities outstanding, and expressed the confident opinion that the existing coin bonds bearing six per cent. interest, and other securities bearing interest in lawful money, could be refunded into bonds running for a short period, bearing a reduced rate of interest. I said:

"After a long and memorable debate of over two months in both Houses of Congress, the act of February 25, 1862, was adopted. That was a revolutionary act. It was a departure from every principle of the financial policy of this government from its foundation. It overthrew, not only the mode and manner of borrowing money, but the character of our public securities, and was the beginning of a new financial system, unlike anything that had been ventured upon by any people in the world before. This new policy was adopted under the pressure of the severest necessities, and only because of those necessities, and was intended to meet a state of affairs never foreseen by the framers of the constitution.

"Now, sir, it is important to understand the principles of this act; for this act was the foundation of all the financial measures during the war. It was upon the basis of this act, enlarged and modified from time to time, that we were enabled to borrow $3,000,000,000 in three years and to put down the most formidable rebellion in modern history. This act was based upon certain fundamental conditions.

"Extraordinary power was conferred upon the Secretary of the Treasury to borrow money in almost any form, at home or abroad, practically without limitation as to amount, or with limits repeatedly enlarged. Every form of security which the ingenuity of man could devise was provided for by this act or the acts amending it. Under these acts bonds were issued, payable in twenty years, treasury notes were issued, certificates of indebtedness, compound-interest notes, and other forms of indebtedness, with varying rates of interest. There were, however, distinct limitations upon the nature and character of these loans. It was stipulated first, that more than six per cent. interest in gold should not be paid on the bonds issued, nor more than seven and three-tenths interest in currency should be paid on the notes issued; and _second, all the loans provided by this act were short loans_, redeemable within a short period of time at the pleasure of the United States. Thus the gold bonds were redeemable after five years, the treasury notes were redeemable after three years, and all forms of security were within the power of the United States at the end of five years at furthest. And third, no securities were to be sold at less than par. Their unavoidable depreciation was measured, not by the rate of their discount, but by the depreciation of the currency. We held our bonds at par in paper money, though at times they were worth only forty per cent. of gold. . . .

"Now, Mr. president, it may be proper to state the reasons for this policy. Short loans were adopted that we might not bind the future to the payment of usurious rates of interest. We recognized the existence of a great pressing necessity that would tend to depreciate the public credit; and we took care, therefore, not to make these loans for a long period, so as to bind the future to the payment of the rates which we were then compelled to pay.

"We provided for gold interest and gold revenue, to avoid the extreme inflations of an irredeemable currency. We wished to rest our paper fabric on a coin basis, and to keep constantly in view ultimate specie payments. I believe but for that provision in the loan act of February 25, 1862, that in 1864 our financial system would have been utterly overthrown. There was nothing to anchor it to the earth except the collection of duties in coin and the payment of the interest on our bonds in coin.

"But, sir, the most important and the most revolutionary principle of the act of February 25, 1862, was the legal tender clause. This was a measure of imperious and pressing necessity. I can recall very well the debates in the Senate and in the House of Representatives upon the legal tender clause. We were then standing in the face of a deficit of some $70,000,000 of unpaid requisitions to our soldiers. Creditors in all parts of the country, among them the most powerful corporations of this country, had refused our demand notes, then very slightly depressed. We were under the necessity of raising two or three million dollars per day. We were then organizing armies unheard of before. We stood also in the presence of defeat, constant and imminent, which fell upon our armies in all parts of the country. It was before daylight was shed upon any part of our military operations. We adopted the legal tender clause then as an absolute expedient. Remembering the debate, I know with what slow steps the majority of the Senate came to the necessity of adopting legal tenders."

The debt of the United States on the 31st of August, 1866, when it reached its maximum, amounted to $2,844,649,627. On the 1st of March, 1870, the debt had been reduced to less than $2,500,000,000, of which about $400,000,000 was in United States notes, for the redemption of which no provision was made. It was the confident expectation of Congress, which proved to be correct, that before the refunding operations were complete, the debt would be gradually reduced, so that the sum of $1,500,000,000, provided for in the law, would be sufficient to refund all existing debts, except United States notes, into the new securities.

The process of refunding progressed slowly, was confined to the five per cent. bonds, and was somewhat interrupted by the financial stringency of 1873.

By the act approved January 20, 1871, the amount of five per cent. bonds authorized by the act approved July 14, 1870, was increased to $500,000,000, but the act was not to be construed to authorize any increase of bonds provided for by the refunding act.

Prior to the 24th of August, 1876, there had been sold, for refunding purposes, the whole of the $500,000,000 five per cents. authorized by that act, and on that day Lot M. Morrill, Secretary of the Treasury, entered into a contract for the sale of $40,000,000 of the four and a half per cent. bonds authorized by the refunding act. By this process of refunding an annual saving had been made of $5,400,000 a year, by the reduction of interest in the sale of $540,000,000 bonds. On the 9th day of June, 1877, I, as Secretary of the Treasury, terminated the contract made by Mr. Morrill, my predecessor, and placed on the market the four per cent. bonds provided for by the refunding act. The subsequent proceedings under this act will be more appropriately referred to hereafter.

The more difficult problem remained of advancing United States notes to par in coin. This could be accomplished by reducing the amount of these notes outstanding, and, thus, by their scarcity, add to their value. They were a legal tender in payment for all debts, public and private, except for duties on imported goods and interest on the public debt. As long as these notes were at a discount for coin they could circulate only in the United States, and until they were at par with coin, coin would not circulate as money in the United States, except to pay coin liabilities. The notes were a dishonored, depreciated promise, the purchasing power of which varied day by day, the football of "bulls and bears." In many respects these notes were better than any other form of depreciated paper money, for the people of the United States had full confidence in their ultimate redemption. They were much better and in higher favor with the people than the state bank notes which they replaced and which were not only depreciated like United States notes but had been often proven worthless in the hands of innocent holders. They were as good as national bank notes, however well secured, for these notes were not payable in coin, but could be redeemed by United States notes. Still, with all their defects the United States notes were the favorite money of the people, and any attempt to contract their volume was met by a strong popular opposition.

As already stated, the gradual reduction of the volume of United States notes, urged so strongly by Secretary McCulloch, and provided for by the resumption act, met with popular opposition and was repealed by Congress. Under these conditions it became necessary to approach the specie standard of value without a contraction of the currency. The act to strengthen the public credit, already referred to, was the beginning of this struggle. The government was, by this act, committed to the payment of the United States notes in coin or its equivalent. But when and how was not stated or even considered. The extent to which Congress would then go, and to which popular opinion would then consent, was the declaration that the "United States solemnly pledges its faith to make provision at the earliest practicable period for the redemption of United States notes, in coin." Many events must occur before the fulfillment of this promise could be attempted.