Chapter 54

THE FORTIETH CONGRESS. Legislation During the Two Years--Further Reduction of the Currency by the Secretary Prohibited--Report of the Committee of Conference --Bill for Refunding the National Debt--Amounted to $2,639,382,572.68 on December 1, 1867--Resumption of Specie Payments Recommended-- Refunding Bill in the Senate--Change in My Views--Debate Participated in by Nearly Every Senator--Why the Bill Failed to Become a Law-- Breach Between Congress and the President Paralyzes Legislation-- Nomination and Election of Grant for President--His Correspondence with General Sherman.

During the 40th Congress, extending from the 4th of March, 1867, to the 4th of March, 1869, the chief subjects of debate were the contraction of the currency, the refunding of the public debt, the payment of United States notes in coin, and a revision of the laws imposing internal taxation and duties on imported goods.

Early in the first session of this Congress, the opposition of the people to the policy of contraction, constantly pressed by Secretary McCulloch, became so imperative that both Houses determined to take from him all power to diminish the volume of currency then in circulation. On the 5th of December, 1867, Robert C. Schenck, chairman of the committee of ways and means, reported a bill in the following words:

"_Be it enacted, etc._, That so much of an act entitled 'An act to amend an act to provide ways and means to support the government,' approved April 12, 1866, as authorizes the Secretary of the Treasury to retire United States notes to an amount not exceeding $4,000,000 in any one month, is hereby repealed.

"Sec. 2. _And be it further enacted_, That from and after the passage of this act the further reduction of the currency by retiring or canceling United States notes shall be, and hereby is, prohibited."

This bill was taken up for consideration on the 7th of December, and, after a brief debate, with little opposition, passed the House by the vote of 127 yeas and 32 nays. It was sent to the Senate, referred to the committee on finance, and was carefully considered. That committee, with but two dissenting voices, directed me to report the bill to the Senate with a single amendment. On the 9th of January, 1868, I called up the bill for consideration, and made a brief explanation, in which I said the committee, after full reflection, had thought proper to recommend the passage of the bill of the House of Representatives, in substance as it was sent to us, only changing the phraseology. I said that the bill contemplated further legislation during that session. It was understood by all that some more comprehensive measures must be adopted during that session, but until further legislation there should be no more contraction of the currency. I thus stated the reasons which, in my opinion, justified the passage of the bill:

"_First_. It will satisfy the public mind that no further contraction will be made when industry is in a measure paralyzed. We hear the complaint from all parts of the country, from all branches of industry, from every state in the Union, that industry for some reason is paralyzed, and that trade and enterprise are not so well rewarded as they were. Many, perhaps erroneous, attribute all this to the contraction of the currency--a contraction that I believe is unexampled in the history of any nation. $140,000,000 has been withdrawn out of $737,000,000 in less than two years. There is no example, that I know of, of such rapid contraction. It may be wise, it may be beneficial, but still it has been so rapid as to excite a stringency that is causing complaint, and I think the people have a right to be relieved from that.

"_Second_. This bill will restore to the legislature their power over the currency, a power too important to be delegated to any single officer of the government. I do not wish to renew the discussion that occurred here two years ago on the passage of the law of April 12, 1866; but it is still my opinion, as it has been always, that the question of the amount of currency ought to be fixed by Congress. We have the power to coin money, and to regulate the value thereof. We have coined money in the form of paper money, and certainly the power of Congress in this respect ought not to be delegated to any single officer. If contraction ought to be established as a policy it should be by Congress, not by the Secretary of the Treasury, and it is not wise to confer upon any officer of the government a power of this kind, which can be and may be properly controlled and limited by Congress.

"_Third_. This will strongly impress upon Congress the imperative duty of acting wisely upon financial measures, for the responsibility will then rest entirely upon Congress, and will not be shared with them by the Secretary of the Treasury.

"_Fourth_. It will encourage business men to continue old, and embark in new, enterprises, when they are assured that no change will be made in the measure of value without the open and deliberate consent of their representatives.

"These considerations are amply sufficient to justify this measure, but it is only preliminary to others of far greater importance that must command our attention. These involve--

"1. The existence of the banking system of the United States.

"2. The time and manner of resuming specie payments.

"3. The mode of redeeming the debt of the United States and the kind of money in which it may be redeemed; and, in this connection, the taxes, if any, that may be levied upon the public creditors.

"4. Such a reduction of our expenditures and taxes as will relieve our constituents, as far as practicable, from the burdens resulting from the recent war."

This led to a long debate, which continued until the 15th of January, when the bill, as amended, passed by a vote of 33 years and 4 nays.

These decisive votes against contraction definitely settled the policy of the government to retain in circulation the then existing volume of United States notes. The disagreement between the two Houses was referred to a committee of conference, and the conferees reported the bill in the following form:

"_Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled_,

"That, from and after the passage of this act, the authority of the Secretary of the Treasury to make any reduction of the currency, by retiring or canceling United States notes, shall be, and is hereby, suspended; but nothing herein contained shall prevent the cancellation and destruction of mutilated United States notes, and the replacing of the same with notes of the same character and amount."

This bill was sent to the President, and, not having been returned by him within ten days, it became a law without his approval, under the constitution of the United States.

On the 17th of December, 1867, I reported from the committee on finance a bill for refunding the national debt and for a conversion of the notes of the United States. This bill was accompanied by an elaborate report. This report was carefully prepared by me, and met, I believe, the general approval of the committee on finance. In that Congress there were but five Democratic Senators, and it so happened that all the members of the committee on finance were Republicans, but these represented widely different opinions on financial subjects. I undertook, in this report, to deal in a general way with these topics. Upon a careful reading of it now I find but little that I do not approve. The general policy set out in this report was subsequently embodied into laws, but the measures relating to refunding the debt and the resumption of specie payments were not adopted until several years after the date of the report.

The ascertained debt on the first day of December, 1867, as stated by the Secretary of the Treasury, was $2,639,382,572.68, divided as follows:

Debt bearing coin interest. 5 per cent. bonds, 10-40's, and old fives $205,532,580.00 6 per cent. bonds of 1867 and 1868 . . . . 14,690,941.80 6 per cent. bonds, 1881 . . . . . . . . . 282,731,550.00 6 per cent. 5-20 bonds . . . . . . . . . . 1,324,412,550.00 Navy pension fund . . . . . . . . . . . . 13,000,000.00 ---------------- $1,840,367,891.80 Debt bearing currency interest. 6 per cent. bonds . . . . . . . . . . . . $18,601,000.00 3-year compound interest notes . . . . . . 62,249,360.00 3-year 7-30 notes . . . . . . . . . . . . 285,587,100.00 3 per cent. certificates . . . . . . . . . 12,855,000.00 ---------------- $379,292,460.00 Matured debt not presented for payment. 3 year 7-30 notes, due August 15, 1867 . . $2,855,400.00 Compound interest notes, matured June 10, July 15, August 15, and October 15, 1867 7,065,750.00 Bonds, Texas indemnity . . . . . . . . . . 260,000.00 Treasury notes, acts July 17, 1861 and prior thereto . . . . . . . . . . . . . 163,011.64 Bonds, April 15, 1842 . . . . . . . . . . 54,061.64 Treasury notes, March 3, 1863 . . . . . . 868,240.00 Temporary loan . . . . . . . . . . . . . . 2,880,900.55 Certificates of indebtedness . . . . . . . 31,000.00 ---------------- $14,178,363.83 Debt bearing no interest. United States notes . . . . . . . . . . . $356,212,473.00 Fractional currency . . . . . . . . . . . 30,929,984.05 Gold certificates of deposit . . . . . . . 18,401,400.00 ---------------- $405,543,857.05 Total debt . . . . . . . . . . . . . . . . . . . . . . . $2,639,382,572.68 Amount in treasury, coin . . . . . . . . . $100,690,645.69 Amount in treasury, currency . . . . . . . 37,486,175.24 Amount of debt less cash in treasury . . . . . . . . . . . $2,501,205,751.75

Besides the amounts thus stated there were large balances due to loyal states, upon accounts not then rendered or ascertained, and to individuals for losses sustained during the war.

The ascertained debt consisted of twenty different forms of liability, some payable in coin and some in lawful money. Much of this debt was due on demand, but the great body of it was payable in from one to twenty years, while the unascertained debt was being stated from time to time and had to be met from accruing revenues. Nearly $300,000,000 of debt had been paid out of current revenue since the close of the war. The first recommendation of the committee was that the debt should be refunded as rapidly as practicable into bonds bearing as low a rate of interest as possible, payable in twenty or thirty years, but redeemable at the pleasure of the United States in five or ten years. This recommendation was based on the fixed policy of the government to limit the duration of a bond within its lifetime, and thus leave it to the option of the government to pay its indebtedness and to reduce the rate of interest after a brief period, if the condition of the public revenues and of the money market should enable it to do so.

Here the question arose whether the bonds known as the 5-20 bonds could be paid in lawful money after the period of five years, when, by their terms, they were redeemable. These bonds promised to pay so many dollars. Other bonds were specifically payable in coin, and still other bonds were payable in lawful money; that is, in United States notes. These notes were then at a discount, being worth in the market about 88 cents in coin. But the notes were obligations of the United States, and it was the duty, and then within the power of the United States, to advance these notes to par in coin.

The majority of the committee, I among them, believed that the United States should not take advantage of its own wrong, in not redeeming its notes in coin, but should either advance these notes to par in coin, or pay its bonds in coin. The committee, therefore, recommended that both the notes and bonds should be received in exchange for the funding bonds, and that the notes should be reissued and maintained at par with coin, and be supported by a reserve of coin ample to maintain the notes at par with coin. In other words, the United States would resume specie payments. The committee expressed the opinion that, with the system of taxation then in existence, this policy of refunding and resumption could be maintained, and that the rate of interest then paid could be reduced to four or five per cent., and the money then in circulation would be kept at par with coin at the cost only of the interest on the bullion and coin held to meet any notes presented for redemption. The committee also recommended that the internal and tariff taxes be revised to correct irregularities or defects, and to repeal such as were oppressive.

While the committee opposed any contraction of the currency it also opposed any increase of it. The general theory of the report was to advance both bonds and notes to par in coin, and to issue bonds in such form and terms that the government could redeem them, or renew them at lower rates of interest.

The report states:

"Your committee are therefore of opinion that no legal tender notes, beyond the amount now limited by law, should be issued under any pressure of financial or political necessity until they are convertible into gold and silver. Our duty is to elevate the 'greenback,' the standard of national credit, to the standard of gold, the money of the world. Until then we are not on a substantial foundation. Let us make the dollar of our promise in the pocket of a laboring man equal to the dollar of our mint. The rapidity of the process is a question of public policy. It may be by gradually diminishing the volume of currency, or be left at its present amount until increased business or improved credit bring it up to the specie standard."

The refunding bill was taken up by the Senate on the 27th of February, 1868, and was fully discussed by me. After stating its general objects I said:

"It is with this view, and actuated by this principle, that the committee on finance have endeavored to make this a bill of relief, reducing, if possible, consistent with the public faith, the interest of the public debt, and giving increased value to United States notes. We have endeavored in this bill to accomplish three results: First, to reduce the rate of interest with the voluntary consent of the holders of our securities; second, to make a distinct provision for the payment of the public debt; and third, to give increased value to United States notes, and to provide for a gradual resumption of specie payments. All these are objects admitted to be of the highest importance. The only question is, whether the measure proposed tends to accomplish them."

I then quoted the example of the United States and Great Britain in reducing the rate of interest on public securities. I do not approve all I said in that speech. It has been frequently quoted as being inconsistent with my opinions and action at a later period. It is more important to be right than to be consistent. I then proposed to use the doubt expressed by many people as to the right of the government to redeem the 5-20 bonds in the legal tender money in circulation when the bonds were sold, as an inducement to the holders of bonds to convert them into securities bearing a less rate of interest but specifically payable in coin. Upon this policy I changed my opinion. I became convinced that it was neither right nor expedient to pay these bonds in money less valuable than coin, that the government ought not to take advantage of its neglect to resume specie payments after the war was over, by refusing the payment of the bonds with coin. I acted on this conviction when years afterwards the resumption act was adopted, and the beneficial results from this action fully justified my change of opinion.

The debate on this bill was participated in by nearly every Senator, and was conceded to be the most comprehensive and instructive debate on financial questions for many years.

The bill, as it then stood, authorized the Secretary of the Treasury to issue registered or coupon bonds of the United States, in such form and of such denominations as he might prescribe, payable, principal and interest, in coin, and bearing interest at the rate of five per cent. per annum, payable semi-annually, such bonds to be payable forty years from date and to be redeemable in coin after ten years.

It authorized the exchange of the bonds commonly known as the 5-20 bonds for the bonds authorized by that bill. It also authorized the holders of United States notes to the amount of $1,000, or any multiple of that sum, to convert them into the five per cent. bonds provided for by the bill. This bill passed the Senate on the 14th of July, 1868. It passed the House of Representatives soon after, with amendments that were disagreed to by the Senate. The bill and amendments were referred to a conference committee which reported a modified bill which passed both Houses and was sent to President Johnson, but at so late a period of the session that it was not approved by him and thus failed to become a law.

The committee on finance at the next and closing session of that Congress deemed it useless to report another funding bill, and on the 16th of December, 1868, I reported, by direction of that committee, the following resolution:

"_Resolved by the Senate_, That neither public policy nor the good faith of the nation will allow the redemption of the 5-20 bonds until the United States shall perform its primary duty of paying its notes in coin or making them equivalent thereto; and measures shall be adopted by Congress to secure the resumption of specie payments at as early a period as practicable."

This resolution was the foundation of the act "to strengthen the public credit," the first act subsequently adopted in General Grant's administration. Neither this nor any other financial measure was pressed to a conclusion, as we knew that any measure that would be sanctioned by Congress would probably be vetoed by the President. This, however, did not stop the almost continuous financial debate which extended to the currency, banking, funding and taxation. The drift of opinion was in favor of resumption without contraction, and funding at low rates of interest on a coin basis. The wide breach between Congress and the President paralyzed legislation. But one vital question had been settled, that no further contraction of the currency should occur; and it was well settled, though not embodied in law, that no question would be made as to the payment of bonds in coin.

While Congress was drifting to a sound financial policy, the President and his Secretary of the Treasury were widely divergent, the former in favor of repudiation, and the latter in favor of paying and canceling all United States notes.

President Johnson, in his last annual message to Congress, on the 9th of December, 1868, substantially recommended a repudiation of the bonds of the United States, as follows:

"Upon this statement of facts it would seem but just and equitable that the six per cent. interest now paid by the government should be applied to the reduction of the principal in semi-annual installments, which in sixteen years and eight months would liquidate the entire national debt. Six per cent. in gold would, at present rates, be equal to nine per cent. in currency, and equivalent to the payment of the debt one and half times in a fraction less than seventeen years. This, in connection with the other advantages derived from their investment, would afford to the public creditors a fair and liberal compensation for the use of their capital, and with this they should be satisfied. The lessons of the past admonish the lender that it is not well to be over anxious in exacting from the borrower rigid compliance with the letter of the bond."

While the President wished to apply the interest on the United States bonds to the redemption of the principal, the Secretary of the Treasury was pressing for the restoration of the specie standard. I quote from his report to Congress, made on the same day the message of the President was sent us:

"The first and most important of these measures are those which shall bring about, without unnecessary delay, the restoration of the specie standard. The financial difficulties under which the country is laboring may be traced directly to the issue, and continuance in circulation, of irredeemable promises as lawful money. The country will not be really and reliably prosperous until there is a return to specie payments. The question of a solvent, convertible currency, underlies all the other financial and economical questions. It is, in fact, a fundamental question; and until it is settled, and settled in accordance with the teachings of experience, all attempts in other financial and economical reforms will either fail absolutely, or be but partially successful. A sound economy is the lifeblood of a commercial nation. If this is debased the whole current of its commercial life must be disordered and irregular. The starting point in reformatory legislation must be here. Our debased currency must be retired or raised to the par of specie, or cease to be lawful money, before substantial progress can be made with other reforms."

Under these circumstances, it was manifest that no wise financial legislation could be secured until General Grant should become President of the United States.

The Republican national convention met at the city of Chicago, on the 20th of May, 1868. It declared its approval of the reconstruction policy of Congress, denounced all forms of repudiation as a national crime, and pledged the national good faith to all creditors at home and abroad, to pay all public indebtedness, not only according to the letter, but the spirit, of the law. It favored the extension of the national debt over a fair period for redemption, and the reduction of the rate of interest whenever it could be honestly made. It arraigned, with severity, the treachery of Andrew Johnson, and deplored the tragic death of Abraham Lincoln. The entire resolutions were temperate in tone; they embodied the recognized policy of the Republican party, and made no issue on which Republicans were divided.

The real issue was not one of measures, but of men. The nomination of General Grant for President, and Schuyler Colfax for Vice President, upon the basis of reconstruction by loyal men, was antagonized by the nomination, by the Democratic convention, of Horatio Seymour for President, and Francis P. Blair for Vice President, upon the basis of universal amnesty, and immediate restoration to power, in the states lately in rebellion, of the men who had waged war against the government.

In this contest, Grant was the representative Union soldier of the war, and Seymour was the special representative of the opponents in the north to the war. Grant received 197 electoral votes, and Seymour 72.

A few hours in advance of the meeting of the national convention, there was a great mass meeting of soldiers and sailors of the war, a delegation from whom, headed by General Lucius Fairchild, of Wisconsin, entered the convention after its organization and presented this resolution:

"_Resolved_, That as the soldiers and sailors, steadfast now as ever to the Union and the flag, fully recognize the claims of Gen. Ulysses S. Grant to the confidence of the American people, and believing that the victories won under his guidance in war will be illustrated by him in peace by such measures as will secure the fruits of our exertions and restore the Union upon a loyal basis, we declare our deliberate conviction that he is the choice of the soldiers and sailors of the Union for the office of President of the United States."

This resolution was received with great applause. Henry S. Lane, of Indiana, leaped upon a chair, and moved to nominate Grant by acclamation. This was done without rules and amid great excitement.

I need not say that I gave to General Grant my cordial and active support. From the beginning of the canvass to the end, there was no doubt about the result. I spoke on his behalf in several states and had frequent letters from him. Assuming that his election was already foreordained, I invited him to stop with me in Mansfield, on his way to Washington, and received from him the following autograph letter, which, though dated at Headquarters Army of the United States, was written at Galena, Illinois:

"Headquarters Army of the United States,} "Washington, D. C., October 26, 1868. } "Dear Senator:--Your invitation to Mrs. Grant and myself to break our journey east and spend a day or two with you was duly received, and should have been sooner acknowledged. I thank you for the invitation and would gladly accept it, but my party will be large and having a special car it will inconvenience so many people to stop over. Mrs. Grant too and her father are anxious, when they start, to get through to Washington before they unpack.

"Yours truly, "U. S. Grant. "Hon. J. Sherman, U. S. S."

On the same day he wrote a letter to General Sherman, which was referred to me by the latter. I regard this letter, which exhibits closely the cordial relations existing, at the time, between the two men, as of sufficient interest to justify its publication:

"Headquarters Army of the United States,} "Washington, D. C., October 26, 1868. } "Dear General:--Your letter inclosing one from your brother was duly received. As I did not want to change your determination in regard to the publication of the correspondence between us, and am getting to be a little lazy, I have been slow in answering. I had forgotten what my letter to you said but did remember that you spoke of the probable course the Ewings would take, or something about them which you would not probably want published with the letters. The fact is, general, I never wanted the letters published half so much on my own account as yours. There are a great many people who do not understand as I do your friendship for me. I do not believe it will make any difference to you in the end, but I do fear that, in case I am elected, there will be men to advocate the 'abolition of the general' bill who will charge, in support of their motion, lack of evidence that you supported the Union cause in the canvass. I would do all I could to prevent any such legislation, and believe that without my doing anything the confidence in you is too genuine with the great majority of Congress for any such legislation to succeed. If anything more should be necessary to prove the falsity of such an assumption the correspondence between us heretofore could then be produced.

"I agree with you that Sheridan should be left alone to prosecute the Indian War to its end. If no treaty is made with the Indians until they can hold out no longer we can dictate terms, and they will then keep them. This is the course that was pursued in the northwest, where Crook has prosecuted war in his own way, and now a white man can travel through all that country with as much security as if there was not an Indian in it.

"I have concluded not to return to Washington until after the election. I shall go very soon after that event, however. My family are all well and join me in respects to Mrs. Sherman and the children.

"Yours truly, "U. S. Grant. "Lt. Gen. W. T. Sherman, U. S. Army."

In the spring of 1871 there was a good deal of feeling against Grant, and some opposition indicated to his renomination for the presidency. Several influential papers had recommended the nomination of General Sherman, who then, as always afterwards, had resolutely announced his purpose not to allow his name to be used in connection with the office of President. This suggestion arose out of the feeling that injustice had been done to General Sherman by the Secretary of War, Mr. Belknap, who practically ignored him, and issued orders in the name of the President, greatly interfering with the personnel of the army. This led to the transfer of General Sherman from Washington to St. Louis. General Sherman made no complaint of Grant, who had the power to control the action of the Secretary of War, but the general impression prevailed that the friendly relations that had always subsisted between the President and General Sherman had been disturbed, but this was not true. I have no doubt that Grant, in the following letter, stated truthfully his perfect willingness that General Sherman should, if he wished, be made his successor as President:

"Long Branch, N. J., June 14, 1871. "Dear Senator:--Being absent at West Point until last evening, for the last week, your letter of the 5th inst., inclosing one to you from General Sherman, is only just received. Under no circumstances would I publish it; and now that the 'New York Herald' has published like statements from him it is particularly unnecessary. I think his determination never to give up his present position a wise one, for his own comfort, and the public, knowing it, will relieve him from the suspicion of acting and speaking with reference to the effect his acts and sayings may have had upon his claims for political preferment. If he should ever change his mind, however, no one has a better right than he has to aspire to anything within the gift of the American people.

"Very truly yours, "U. S. Grant. "Hon. J. Sherman, U. S. S."