Chapter 114

MY LAST YEAR IN THE TREASURY DEPARTMENT. Opening of the 1880 Campaign in Cincinnati--My First Speech Arraigned as "Bitterly Partisan"--Letter from Garfield Regarding the Maine Election--Ohio Thought to Be in Doubt--Many Requests for Speeches --Republican Ticket Elected in Ohio and Indiana--A Strange Warning from Detroit Threatening Garfield with Assassination--The Latter's Reply--My Doubts About Remaining in the Treasury Department or Making an Effort for the Senate--Letter to Dalzell--Last Annual Report to Congress in December, 1880--Recommendations Regarding Surplus Revenue, Compulsory Coinage of the Silver Dollar, the Tariff, etc.--Bills Acted Upon by Congress.

During July and August I received many invitations to speak on political topics, but declined all until about the 1st of September. In anticipation of the election of Garfield, and his resignation as Senator, I was, as early as July, tendered the support of several members of the legislature who had voted for him for Senator, and who wished to vote for me in case he resigned. I replied that I would prefer the position of Senator to any other, that I resigned my seat in the Senate to accept the office of Secretary of the Treasury, and would be gratified by a return to my old position, but only in case it came to me as the hearty choice of the general assembly. During the month of August the two assistant secretaries, who had been for a year confined to the department and upon whom the duties of secretary had devolved during my recent absence, went on their usual vacation, so that I was fully occupied during office hours with the routine business of the department.

My first speech of the campaign was made on Monday, the 30th of August, in Cincinnati. It was carefully prepared, and delivered in substance as printed. My habit has been for many years, at the beginning of a political canvass, to write or dictate a speech and hand it to the press associations, to be printed in the newspapers only after the speech is made. This is done for the convenience of the press and to secure an accurate report. The speech at Cincinnati, thus prepared, was not read by me, but I spoke from briefs which enabled me to substantially follow it. Subsequent speeches had to vary according to the nature and mood of the audience, or the political subject exciting local interest and attention. At Cincinnati I gave a comparison of the principles, tendency, and achievements of the two great parties, and the reasons why the Democratic party wanted a change in the executive branch of the government. I contrasted the aims and policy of that party, at each presidential election from 1860 to 1880, with those of the Republican party, and expressed my opinion of the effects that would have followed their success at each of those elections. I stated in detail the results secured during the last four years by the election of a Republican President. These included the resumption of specie payments, the refunding and the steady reduction of the public debt, the faithful collection of the revenue, economy of public expenditures, and business prosperity for which I gave the causes, all of which were opposed or denied by the Democratic party. I entered into detail on the measures proposed by the then Democratic Congress, the motive of them, and the ruinous effects they would produce, and alleged that the changes proposed were dictated by the same policy that was adopted by Buchanan and the active leaders of the War of the Rebellion and by the corrupt power that controlled the city of New York. I replied to the charges of fraud made as to the election of President Hayes, that the alleged fraud consisted in the judgment of the electoral commission created by the Democrats that Hayes was duly elected. I narrated the gross crimes of the Ku-Klux Klan and kindred associations to control the elections in the south, and the attempted bribery of an elector in Oregon.

This speech was arraigned as bitterly partisan, but it was justified by facts proven by the strongest evidence. I have recently carefully read it, and, while I confess that its tone was bitter and partisan, yet the allegations were clearly justified. At this time such fraud and violence could not be practiced in the south, for the tendency of events has quieted public sentiment. The lapse of time has had a healing effect upon both sections, and it is to be hoped that hereafter parties will not be divided on sectional lines.

The Cincinnati speech had one merit, in that it furnished speakers and the public the exact statistics of our financial condition in advance of my annual report to Congress in December. I made speeches each week day in Ohio and Indiana until the 11th of September, when I returned to Washington.

The election in Maine, which occurred early in September, was unfavorable to the Republican party, and caused General Garfield some uneasiness. He wrote me the following letter:

"Mentor, Ohio, September 17, 1880. "Hon. John Sherman, Washington, D. C.

"My Dear Sir:--Yours of the 15th inst. is received. I hear in many ways the same account which you give of the cause of our falling off in Maine. The latest news indicates that we have carried the election after all, but our people claimed too much, and the moral effect of it may be bad in some of the doubtful states. Still, so far as I can see, every Republican is more aroused and determined than ever.

"I think we should now throw all our force into Indiana and Ohio until the October election. Indiana is now more thoroughly organized by our people than it has been for many years, and I believe that nothing can defeat us, except importations and purchases by the Democracy. I have not known the Republicans of that state so confident in six years as they now are, and every available help should be given them to win the fight. I have learned certainly that the Democrats intend to make a powerful raid upon Ohio, for the double purpose of beating us if they can, and specially in hopes that they may draw off our forces in Indiana.

"I know you can accomplish a great deal, even while you are in Washington, but I hope you will give as much time as possible to the canvass here and in Indiana--especially give us the last ten days.

"Very truly yours, "J. A. Garfield."

I replied on the 22nd of September that the assured election of Plaisted, the fusion electoral ticket in Maine, and many things in my correspondence, made me feel exceedingly anxious about the result of the election, that my advices from Ohio were not satisfactory, and I felt that we must exert ourselves to the utmost to insure victory at our October election. "I think from my standpoint here," I said, "I can get more certain indications of public opinion than anyone can while canvassing. I therefore have determined to go to Ohio the latter part of this week, and to devote the balance of the time, until the election, to the campaign." I also advised him that I had arranged to have several other speakers go to Ohio.

To this he replied:

"Mentor, Ohio, September 25, 1880. "My Dear Sir:--Yours of the 22nd inst. is received. I am glad that you are coming back to take part in the canvass. Within the last ten days it has become evident that money is being used in large amounts in various parts of this state. Reports of this come to me in so many independent ways that I cannot doubt it. I was in Toledo on the 22nd to attend the reunion of the 'Army of the Cumberland,' and my friends there were thoroughly alarmed. They said the Democrats had an abundance of money, and that those in Toledo were contributing more than they had done for many years.

"I think our friends should push the business aspect of the campaign with greater vigor than they are doing, especially the tariff question which so deeply affects the interests of manufacturers and laborers. The argument of the 'solid south' is well enough in its way, and ought not to be overlooked, but we should also press those questions which lie close to the homes and interests of our own people.

"Very truly yours, "J. A. Garfield. "Hon. John Sherman, Washington, D. C."

About this period I received an invitation to speak in New York, but doubted the policy of accepting, and answered as follows:

"Washington, D. C., September 20, 1880. "My Dear Sir:--Your note of the 17th, inviting me to address the citizens of New York, under the auspices of your club, during the campaign, is received. Please accept my thanks for the courteous manner in which your invitation is expressed.

"I will be compelled to remain here until the 4th of October and then go to Ohio and Indiana to engage in the canvass, which will carry me to the 15th or 16th of October. I have been urged also to go to Chicago and Milwaukee, and have made promises in several cities in the eastern states, especially in Brooklyn; so that I do not see how it is possible for me to accept your kind invitation. I have also some doubt whether it would be politic to do so. It seems to be the determination of a certain class of Republicans in New York to ignore or treat with dislike President Hayes and his administration, and to keep alive the division of opinion as to the removal of Arthur. From my view of the canvass the strength of our position now is in the honesty and success of the administration. While I have no desire to contrast it with General Grant's, yet the contrast would be greatly in favor of President Hayes. The true policy is to rise above these narrow family divisions, and, without disparagement of any Republican, unite in the most active and zealous efforts against the common enemy. Senator Conkling does not seem to have the capacity to do this, and the body of his following seems to sympathize with him. I doubt, therefore, whether my appearance in New York would not tend to make divisions rather than to heal them, to do harm rather than good. I am so earnestly desirous to succeed in the election that I would even forgo a self- defense to advance the cause.

"Very truly yours, "John Sherman. "Hon. B. F. Manierre, Ch. Rep. Central Campaign Club, New York."

On the first of October I left Washington for Mansfield and spoke at a mass meeting there on Saturday evening, the 2nd. The canvass on both sides was very active and meetings were being held in all parts of the state. The meeting at Mansfield held in the open square both in the afternoon and evening, was very large. I spoke each day except Sunday during the following week, at different places in Ohio and Indiana. Confidence in Republican success grew stronger as the October election approached. After the vote was cast it was found that the Republican state ticket was elected by a large majority in both these states. In pursuance of previous engagements, I spoke at Chicago, Racine, and Milwaukee, after the October election. The speeches at Chicago and Milwaukee were reported in full and were circulated as campaign documents. During the latter part of the month of October I spoke at the city of Washington and in Bridgeport, Norwalk and New Haven, Connecticut, and at Cooper Institute in the city of New York, and then returned home to vote at the November election.

The result was the election of a large majority of Republican electors and the certainty of their voting for Garfield and Arthur as President and Vice President of the United States. I had done all that it was possible for me to do to bring about that result and rejoiced as heartily as anyone, for I thoroughly believed in the necessity of maintaining Republican ascendency in the United States, at least until a time when the success of the opposite party would not endanger any of the national results of the war or the financial policy of President Hayes' administration.

On the day after the election General Garfield wrote me the following letter:

"Mentor, Ohio, November 4, 1880. "My Dear Sir:--Yours of the 1st inst. came duly to hand, and was read with much interest. The success of the election is very gratifying. The distrust of the solid south, and of adverse financial legislation, have been the chief factors in the contest. I think also that the country wanted to rebuke the attempt of the Democrats to narrow the issue to the low level of personal abuse. I am sure that all our friends agree with me that you have done very important and efficient work in the campaign.

"I may go to Washington before long to look after my personal affairs. If I do not, I hope to have some other opportunity of seeing you.

"Very truly yours, "J. A. Garfield. "Hon. John Sherman, Washington, D. C."

I received a letter from a Mr. Hudson, of Detroit, which expressed a fear that General Garfield was in serious danger of assassination, giving particulars. I sent it at once to Garfield, and received from him the following answer, very significant in view of the tragedy that occurred the following summer:

"Mentor, O., November 16, 1880. "My Dear Sir:--The letter of Mr. Hudson, of Detroit, with your indorsement, came duly to hand. I do not think there is any serious danger in the direction to which he refers, though I am receiving what I suppose to be the usual number of threatening letters on that subject. Assassination can no more be guarded against than death by lightning; and it is not best to worry about either. I expect to go to Washington before long to close up some household affairs, and I shall hope to see you.

"With kind regard, I am, very truly yours, "J. A. Garfield. "Hon. John Sherman, Washington, D. C."

Immediately after the election of General Garfield, and until the 18th of December, there was a continuous discussion as to who should be the successor to Senator Thurman. This was the senatorship to which Garfield had been elected and now declined to fill. I received many letters from members of the legislature expressing their wish that I should be restored to the Senate, and offering to vote for me. They generally assumed that I would have the choice between remaining in the treasury department under President Garfield and becoming a candidate for the Senate. Among the letters received by me was one from Mr. Thorpe, a member from Ashtabula county, Ohio, and a personal friend. I thought it right to tell him frankly the dilemma in which I was placed by the discussion in the papers. This letter expressed my feelings in regard to the matter and I therefore insert it:

"Washington, D. C., November 15, 1880. "My Dear Sir:--Your letter of the 11th relieves me from some embarrassment. I am very thankful to you for the tender of your services and continued hearty friendship. I will avail myself of it to tell you confidentially the difficulty under which I labor.

"The letter to Dalzell was not intended for publication, but was simply a hurried reply to one of two or three long letters received from him. Still the letter stated in substance my feeling, and he probably intended no wrong but rather thought he would benefit me. Both before and since, I have been overwhelmed with letters remonstrating against my leaving my present position, as if I had any choice.

"As a matter of course, General Garfield must decide this without haste and free from all embarrassment, but in the meantime I am at a loss what to do. I cannot properly say to my correspondents that I would stay in the treasury if invited to do so, nor can I ask gentlemen to commit themselves until they know definitely what I wish. I cannot afford to be a candidate unless I expect to succeed. I believe, from information already received, that I can succeed, but only after a struggle that is distasteful to me, and which I cannot well afford. I can only act upon the assumption that General Garfield will desire to make an entire change in his cabinet, and upon that basis I would gladly return to the Senate as the only position I could hold, or, if there was any doubt about election, I would cheerfully and without discontent retire from public life. I have now at least a dozen unanswered letters on my table from members of the legislature, tendering their services, and stating that I ought to explicitly inform them my wishes, most of them assuming that I have a choice. I intend to answer them generally that, if elected, I would consider it the highest honor and I would then accept and serve. So I say to you: If I enter the canvass I must depend upon my friends without being able to aid them actively, and with every advantage in the possession of Foster. Such a contest, I see, will open up trouble enough in the politics of Ohio, whatever may be the result. With this explicit statement you will understand best how to proceed. I would regard the support of Senator Perkins as of the utmost importance. After awhile I can give you the names of a score at least of others who avow their preference for me.

"Very truly yours, "John Sherman. "Hon. F. Thorpe, Geneva, O."

The letter to Dalzell referred to was hastily and carelessly written, without any expectation of its publication. It was as follows:

"To Hon. J. M. Dalzell, Caldwell, Ohio.

"My Dear Sir:--Your kind note of the 4th is received, for which please accept my thanks. I prefer to do precisely what you recommend, await the judgment of the general assembly of Ohio, unbiased by any expression of my wish in the matter referred to. I do not know what is the desire of General Garfield, but I can see that my election might relieve him from embarrassment and free to do as he thinks best in the formation of his cabinet. Again thanking you for your kind offer, I am very truly yours,

"John Sherman."

The papers, while taking sides between Foster and myself, exaggerated the danger and importance of the contest and thus unduly excited the public mind, for either of us would have cheerfully acquiesced in the decision of the general assembly. Strong appeals were made to Foster to withdraw, especially after it was known that I would not be Secretary of the Treasury in the incoming administration. No such appeals came to me, nor did I take any part in the controversy, but maintained throughout the position taken in my letter to Mr. Thorpe.

In November, 1880, I was engaged in the preparation of my annual report sent to Congress December 6. The ordinary receipts for the fiscal year ending June 30, 1880, were $333,526,610.98. The total ordinary expenditures were $267,642,957.78, leaving a surplus revenue of $65,883,653.20, which, with an amount drawn from cash balance in treasury, of $8,084,434.21, made a surplus of $73,968,087.41, which sum was applied to the reduction of the public debt. The sinking fund for this year was $37,931,643.55, which, deducted from the amount applied to the redemption of bonds, left an excess of $35,972,973.86 over the amount actually required for the year. Compared with the previous fiscal year, the receipts for 1880 increased $62,629,438.23. The increase of expenditures over the previous year was $25,190,360.48. I estimated that the receipts over expenditures for the fiscal year ending June 30, 1881, would be $50,198,115.52.

During the period from 1874 to 1879 the United States had failed to pay on the public debt $87,317,569.21, that being the deficiency of the sum fixed by law to be paid during those years for sinking fund. Deducting from this sum the amount paid in excess for the fiscal year 1880, there was a balance still due on account of the sinking fund of about $50,000,000. This would be met by the estimated surplus of receipts over expenditures during the fiscal year, 1881, thus making good the whole amount of the sinking fund as required by law.

The estimated revenue over expenditures for the fiscal year ending June 30, 1862, including the sinking fund, was $48,000,000.

Upon this favorable statement I recommended to Congress that instead of applying this surplus revenue, accruing after the current fiscal year, to the extinction of the debt, taxes be repealed or modified to the extent of such surplus. A large portion of the surplus of revenue over expenditures was caused by the reduction of the rate of interest and the payment on the principal of the public debt. The reduction of annual interest caused by the refunding since March 1, 1877, was $14,290,453.50, and the saving of annual interest resulting from the payment of the principal of the public debt since that date was $6,144,737.50. The interest was likely to be still further reduced during the following year, to an amount estimated at $12,000,000, by the funding of the bonds. To the extent of this annual saving, amounting to $32,000,000, the public expenditures would be permanently diminished.

In view of this statement, I recommended that all taxes imposed by the internal revenue laws, other than those on bank circulation and on spirits, tobacco and beer, be repealed. I urged that the tax on state banks should be maintained, not for purposes of revenue, but as a check upon the renewal of a system of local state paper money, which, as it would be issued under varying state laws, would necessarily differ as to conditions, terms and security, and could not, from its diversity, be guarded against counterfeiting, and would, at best, have but a limited circulation.

The public debt which became redeemable on and after the 1st of July, 1881, amounted to $687,350,000. I recommended that to redeem these bonds there should be issued treasury notes running from one to ten years, which could be paid off by the application of the sinking fund as they matured. Such treasury notes would have formed a popular security always available to the holder as they could have been readily converted into money when needed for other investment or business. They would have been in such form and denominations as to furnish a convenient investment for the small savings of the people, and fill the place designed by the ten dollar refunding certificates authorized by the act of February 26, 1879. I stated my belief that with the then state of the money market a sufficient amount of treasury notes, bearing an annual interest of three per cent., could be sold to meet a considerable portion of the maturing bonds.

Congress did not pass such a law as I recommended, but the plan adopted and executed by my successor, Mr. Windom, was the best that could have been devised under existing law, resulting in a very large reduction of the amount paid for interest yearly. He allowed the holders of the maturing bonds to retain them at the pleasure of the government, with interest at the rate of three and a half per cent.

I recited the action of the department under the resumption act, but this has already been fully described by me. In respect to the United States notes I said:

"United States notes are now, in form, security, and convenience, the best circulating medium known. The objection is made that they are issued by the government, and that it is not the business of the government to furnish paper money, but only to coin money. The answer is, that the government had to borrow money, and is still in debt. The United States note, to the extent that it is willingly taken by the people, and can, beyond question, be maintained at par in coin, is the least burdensome form of debt. The loss of interest in maintaining the resumption fund, and the cost of printing and engraving the present amount of United States notes, is less than one-half the interest on an equal sum of four per cent. bonds. The public thus saves over seven million dollars of annual interest, and secures a safe and convenient medium of exchange, and has the assurance that a sufficient reserve in coin will be retained in the treasury beyond the temptation of diminution, such as always attends reserves held by banks."

I expressed the opinion that the existing system of currency, the substantial features of which were a limited amount of United States notes (with or without the legal tender quality), promptly redeemable in coin, with ample reserves in coin and power if necessary to purchase coin with bonds, supplemented by the circulating notes of national banks issued upon conditions that would guarantee their absolute security and prompt redemption, all based on coin of equal value, and generally distributed throughout the country, was the best system ever devised, and more free from objection than any other, combining the only safe standard with convenience for circulation and security and equality of value.

After a statement of the amount of standard silver dollars issued under existing law, I described the measures adopted to facilitate the general distribution and circulation of those coins, and the great expense incurred by the United States in transporting them. With all these efforts it was found difficult to maintain in circulation more than thirty-five per cent. of the amount then coined. While, at special seasons of the year and for special purposes, this coin was in demand, mainly in the south, it returned to the treasury, and its reissue involved an expense for transportation at an average rate of one-third of one per cent. each time. Unlike gold coin or United States notes, it did not, to the same extent, form a part of the permanent circulation, everywhere acceptable, and, when flowing into the treasury, easily paid out with little or no cost of transportation. At a later period, when the amount of silver dollars had largely increased, the department was never able to maintain in circulation more then $60,000,000.

For the reasons stated I earnestly recommended that the further compulsory coinage of the silver dollar be suspended, or, as an alternative, that the number of grains of silver in the dollar be increased so as to make it equal in market value to the gold dollar, and that its coinage be left as other coinage to the Secretary of the Treasury, or the Director of the Mint, to depend upon the demand for it by the public for convenient circulation. After a statement of the great cost of the coinage of these dollars, I recommended that Congress confine its action to the suspension of the coinage of the silver dollar, and await negotiations with foreign powers for the adoption of an international ratio. I expressed the conviction that it was for the interest of the United States, as the chief producer of silver, to recognize the great change that had occurred in the relative market value of silver and gold in the chief marts of the world, to adopt a ratio for coinage based upon market value, and to conform all existing coinage to that ratio, while maintaining the gold eagle of our coinage at its present weight and fineness.

I called attention, also, to the tariff as it then existed. It was a compilation of laws passed during many succeeding years, and to meet the necessities of the government from time to time. These laws furnished the greater part of our revenue, and incidentally protected and diversified home manufactures. The general principle upon which they were founded was believed to be salutary. No marked or sudden change, which would tend to destroy or injure domestic industries built up upon faith in the stability of existing laws, should be made in them. I recommended that _ad valorem_ duties should be converted into specific duties as far as practicable, and that articles which did not compete with domestic industries, and yielded but a small amount of revenue, should be added to the free list. I urged the importance of stability in the rates imposed on spirits, tobacco and fermented liquors. These articles were regarded by all governments as proper subjects of taxation. Any reduction in the rates imposed a heavy loss to the owner of the stock on hand, while an increase operated as a bounty to such owner.

During that year, the excess of exports over imports amounted to $167,683,912. The aggregate exports amounted to $835,638,658, an increase over the previous year of $125,199,217.

The usual statement of the operations of the different bureaus of the department was made, and, in closing my last annual report as Secretary of the Treasury, I said:

"The secretary takes pleasure in bearing testimony to the general fidelity and ability of the officers and employees of this department. As a rule they have, by experience and attention to duty, become almost indispensable to the public service. The larger portion of them have been in the department more than ten years, and several have risen by their efficiency from the lowest-grade clerks to high positions. In some cases their duties are technical and difficult, requiring the utmost accuracy; in others, they must be trusted with great sums, where the slightest ground for suspicion would involve their ruin; in others, they must act judicially upon legal questions affecting large private and public interests, as to which their decisions are practically final. It is a just subject of congratulation that, during the last year, there has been among these officers no instance of fraud, defalcation, or gross neglect of duty. The department is a well organized and well conducted business office, depending mainly for its success upon the integrity and fidelity of the heads of bureaus and chiefs of division. The secretary has, therefore, deemed it both wise and just to retain and reward the services of tried and faithful officers and clerks.

"During the last twenty years the business of this department has been greatly increased, and its efficiency and stability greatly improved. This improvement is due to the continuance during that period of the same general policy and the consequent absence of sweeping changes in the public service; to the fostering of merit by the retention and promotion of trained and capable men; and to the growth of the wholesome conviction in all quarters that training, no less than intelligence, is indispensable to good service. Great harm would come to the public interests should the fruits of this experience be lost, by whatever means the loss occurred. To protect not only the public service, but the people, from such a disaster, the secretary renews the recommendation made in a former report, that provision be made for a tenure of office for a fixed period, for removal only for cause, and for some increase of pay for long and faithful service."

The chief measure of importance, aside from the current appropriation bills, acted upon during that session of Congress was a bill to facilitate the refunding of the national debt. It was pending without action during the two preceding sessions, but was taken up in the early part of the third session. As the bill was originally reported, by Mr. Fernando Wood, from the committee of ways and means of the House of Representatives, it provided that in lieu of the bonds authorized by the refunding act of July 14, 1870, bearing five, four and a half, and four per cent. interest, bonds bearing interest at the rate of three and a half per cent. to the amount of $500,000,000, redeemable at the pleasure of the United States, and also notes to the amount of $200,000,000, bearing interest at the rate of three and a half per cent., redeemable at the pleasure of the United States after two years and payable in ten years, be issued.

The Secretary of the Treasury was authorized to issue any of these bonds or notes for any of the bonds of the United States, as they became redeemable, par for par. The bill further provided that the three and a half per cents. should be the only bonds receivable as security for national bank circulation.

Had this bill passed, as introduced, any time before the 4th of March, 1881, it would have saved the United States enormous sums of money and would have greatly strengthened the public credit. It was in harmony with the recommendations made by the President and myself in our annual reports. It was called up in the House of Representatives for definite action on the 14th of December, 1880, when those reports were before them. Instead of this action amendments of the wildest character were offered, and the committee which reported the bill acquiesced in radical changes, which made the execution of the law, if passed, practically impossible. The rate of interest was reduced to three per cent., and a provision made that no bonds should be taken as security for bank circulation except the three per cent. bonds provided for by that bill. Discussion was continued in the House and radical amendments were made until the 19th of January, 1881, when the bill, greatly changed, passed the House of Representatives. It was taken up in the Senate on the 15th of February. Mr. Bayard made a very fair statement of the terms and objects of the bill in an elaborate speech, from which I quote the following paragraphs:

"In little more than sixty days from this date a loan of the United States, bearing five per cent. interest, and amounting to $469,651,050, will, at the option of the government, become payable. On the 30th day of June next, two other loans, each bearing six per cent., the first for $145,786,500, and the other $57,787,250, will also mature at the option of the government. These facts are stated in the last report of the Secretary of the Treasury, and will be found on page ten of his report of last December. He has informed us that the surplus revenue accruing prior to the 1st of July, 1881, will amount to about fifty million dollars, and can and will be applied in part to the extinguishment of that debt. Bonds maturing on the 31st of December last were paid out of the accruing revenues. So that there will remain the sum of $637,350,000, to be provided for and funded at the option of the government, at such rate of interest as may be deemed advisable by Congress and can practicably be obtained.

"The sums that we are dealing with are enormous, affecting the welfare of every branch of our country's industry and of our entire people. The opportunity for reducing the rate of interest upon this enormous sum, and, not only that, but of placing the national debt more under the control of the government in regard to future payments, is now before us. The opportunity for doing this upon favorable terms should not be lost, and the only question before us, as legislators, is how we can best and most practically take advantage of the hour."

The bill as modified by the committee of the Senate would have enabled the treasury department to enter at once on the refunding of the public debt, and, in the then state of the money market, there would have been no doubt of the ready sale of the bonds and notes provided for and the redemption of the five and six per cent. bonds outstanding. The Senate, however, after long debates, disagreed to the amendments of the committee, and in substance passed the bill as it came from the House. The few amendments made were agreed to by the House, and the bill passed and was sent to the President on the 1st of March. On the 3rd of March it was returned by the President with a statement of his objections to its passage. These were based chiefly on the provision which required the banks to deposit in the treasury, as security for their circulating notes, bonds bearing three per cent. interest, which, in his judgment, was an insufficient security. His message was as follows:

"To the House of Representatives:--Having considered the bill entitled 'An act to facilitate the refunding of the national debt,' I am constrained to return it to the House of Representatives, in which it originated, with the following statement of my objections to its passage.

"The imperative necessity for prompt action, and the pressure of public duties in this closing week of my term of office, compel me to refrain from any attempt to make a full and satisfactory presentation of the objections to the bill.

"The importance of the passage, at the present session of Congress, of a suitable measure for the refunding of the national debt, which is about to mature, is generally recognized. It has been urged upon the attention of Congress by the Secretary of the Treasury and in my last annual message. If successfully accomplished, it will secure a large decrease in the annual interest payment of the nation; and I earnestly recommend, if the bill before me shall fail, that another measure for this purpose be adopted before the present Congress adjourns.

"While in my opinion it would be wise to authorize the Secretary of the Treasury, in his discretion, to offer, to the public, bonds bearing three and a half per cent. interest in aid of refunding, I should not deem it my duty to interpose my constitutional objection to the passage of the present bill if it did not contain, in its fifth section, provisions which, in my judgment, seriously impair the value and tend to the destruction of the present national banking system of the country. This system has now been in operation almost twenty years. No safer or more beneficial banking system was ever established. Its advantages as a business are free to all who have the necessary capital. It furnishes a currency to the public which, for convenience and the security of the bill- holder, has probably never been equaled by that of any other banking system. Its notes are secured by the deposit with the government of the interest-bearing bonds of the United States.

"The section of the bill before me which relates to the national banking system, and to which objection is made, is not an essential part of a refunding measure. It is as follows:

'Sec. 5. From and after the 1st day of July, 1881, the three per cent. bonds authorized by the first section of this act shall be the only bonds receivable as security for national bank circulation, or as security for the safekeeping and prompt payment of the public money deposited with such banks; but when any such bonds deposited for the purposes aforesaid shall be designated for purchase or redemption by the Secretary of the Treasury, the banking association depositing the same shall have the right to substitute other issues of the bonds of the United States in lieu thereof: _Provided_, That no bond upon which interest has ceased shall be accepted or shall be continued on deposit as security for circulation or for the safe-keeping of the public money; and in case bonds so deposited should not be withdrawn, as provided by law, within thirty days after interest has ceased thereon, the banking association depositing the same shall be subject to the liabilities and proceedings on the part of the comptroller provided for in section 5234 of the Revised Statutes of the United States: _And provided further_, That section 4 of the act of June 20, 1874, entitled: "An act fixing the amount of United States notes, providing for a redistribution of the national bank currency, and for other purposes," be, and the same is hereby, repealed; and sections 5159 and 5160 of the Revised Statutes of the United States be, and the same are hereby, re-enacted.'

"Under this section it is obvious that no additional banks will hereafter be organized, except possibly in a few cities or localities where the prevailing rates of interest in ordinary business are extremely low. No new banks can be organized, and no increase of the capital of existing banks can be obtained, except by the purchase and deposit of three per cent. bonds. No other bonds of the United States can be used for the purpose. The one thousand millions of other bonds recently issued by the United States, and bearing a higher rate of interest than three per cent., and therefore a better security for the bill-holder, cannot, after the 1st of July next, be received as security for bank circulation. This is a radical change in the banking law. It takes from the banks the right they have heretofore had under the law to purchase and deposit, as security for their circulation, any of the bonds issued by the United States, and deprives the bill-holder of the best security which the banks are able to give, by requiring them to deposit bonds having the least value of any bonds issued by the government.

"The average rate of taxation of capital employed in banking is more than double the rate of taxation upon capital employed in other legitimate business. Under these circumstances, to amend the banking law so as to deprive the banks of the privilege of securing their notes by the most valuable bonds issued by the government will, it is believed, in a large part of the country, be a practical prohibition of the organization of new banks, and prevent the existing banks from enlarging their capital. The national banking system, if continued at all, will be a monopoly in the hands of those already engaged in it, who may purchase government bonds bearing a more favorable rate of interest than the three per cent. bonds prior to next July.

"To prevent the further organization of banks is to put in jeopardy the whole system, by taking from it that feature which makes it, as it now is, a banking system free upon the same terms to all who wish to engage in it. Even the existing banks will be in danger of being driven from business by the additional disadvantages to which they will be subjected by this bill. In short, I cannot but regard the fifth section of the bill as a step in the direction of the destruction of the national banking system.

"Our country, after a long period of business depression, has just entered upon a career of unexampled prosperity.

"The withdrawal of the currency from circulation of the national banks, and then enforced winding up of the banks in consequence, would inevitably bring a serious embarrassment and disaster to the business of the country. Banks of issue are essential instruments of modern commerce. If the present efficient and admirable system of banking is broken down, it will inevitably be followed by a recurrence to other and inferior methods of banking. Any measure looking to such a result will be a disturbing element in our financial system. It will destroy confidence and surely check the growing prosperity of the country.

"Believing that a measure for refunding the national debt is not necessarily connected with the national banking law, and that any refunding act would defeat its own object, if it imperiled the national banking system, or seriously impaired its usefulness; and convinced that section 5 of the bill before me would, if it should become a law, work great harm, I herewith return the bill to the House of Representatives for that further consideration which is provided for in the constitution.

"Rutherford B. Hayes. "Executive mansion, March 3, 1881."

Preceding this message, during the last week in February, there was a serious disturbance in the money market, especially in connection with the national banks, caused by a fear that the bill would become a law. Appeals were made to me to furnish relief. All I could do was to purchase $10,000,000 of bonds to be paid from an overflowing treasury, but the veto of the President settled the fate of the bill.